Wednesday, July 20, 2011

The Government-Benefits Bubble

Originally posted at the Mises Economics Blog

by Ryan McMaken

The New York times recently noted that “Economy Faces a Jolt as Benefit Checks Run Out.”

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics…

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession.

When this happens, it will be just the latest bubble to pop.

As far back as 2008, Peter Schiff and other Austrian-minded observers contended that with the various stimulus packages, the feds were just blowing up a government benefits bubble to replace the real estate bubble, which had in turn replaced the dot-com bubble.

The government benefits bubble can’t be maintained forever, so once the stimulus runs out, and as unemployment insurance runs out for millions of unemployed workers, that bubble will burst too, and spending, consumer confidence, and demand for purchasing real estate will fall again.

The NYT piece has some interesting statistics on this, and below, I add some more.

Click for more.