Cross-posted at Reports from the Economic Front.
One of the subthemes of current discussions about how best to reduce our national debt is that we must rein in out-of-control spending on federal safety net programs. The reality is quite different.
The chart below shows spending trends in terms of GDP for the ten major needs-tested benefit programs that make-up our federal social safety net. The programs, in the order listed on the chart, are:
- The refundable portion of the health insurance tax credit enacted in the 2010 health care reform law
- Medicaid and the Children’s Health Insurance Program (CHIP)
- The Supplemental Nutrition Assistance Program (SNAP)
- Financial assistance for post-secondary students (Pell Grants)
- Compensatory Education Grants to school districts
- Assisted Housing
- The Earned Income Tax Credit (EITC)
- The Additional Child Tax Credit (ACTC)
- Supplemental Security Income (SSI)
- Family Support Payments
As Jared Bernstein explains:
…for all the popular wisdom that programs to help low-income people are swallowing the economy, the truth is that like so much else that plagues our fiscal future, it’s all about health care spending. The figure shows that as a share of GDP, prior to the Great Recession, non-health care spending was cruising along at around 1.5% for decades. It was Medicaid/CHIP (Medicaid expansion for kids) that did most of the growing.
The takeaway from this: we need a new health care system (think single payer).
Regardless, the recent explosion in the ratio of Medicare/CHIP spending to GDP is largely due to the severity of the Great Recession, not the generosity of the programs. The recession increased poverty and thus eligibility for the programs, thereby pushing up the numerator, while simultaneously lowering GDP, the denominator. Moreover, spending on all non-health care safety net programs is on course to dramatically decline as a share of GDP. Even Medicare/Chip spending is projected to stabilize as a share of GDP.
These programs are essential given the poor performance of the economy, and in most cases poorly-funded. Cutting their budgets will not only deny people access to health care, housing, education, and food, it will also further weaken the economy, in both the short and long run.
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Martin Hart-Landsberg is a professor of Economics and Director of the Political Economy Program at Lewis and Clark College. You can follow him at Reports from the Economic Front.
Comments 8
Dianna Fielding — January 3, 2013
Bernstein says, "for all the popular wisdom that programs to help low-income people are
swallowing the economy, the truth is that like so much else that plagues
our fiscal future, it’s all about health care spending."
You go on to say, "Regardless, the recent explosion in the ratio of Medicare/CHIP spending
to GDP is largely due to the severity of the Great Recession, not the
generosity of the programs. The recession increased poverty and thus
eligibility for the programs, thereby pushing up the numerator, while
simultaneously lowering GDP, the denominator."
So, in essence the reason health care is rising is because low-income people need more help. Not that I disagree that we need a new system of health-care, but this argument has too many fallacies to be appropriate. It is impossible to say that the disparity isn't rising because low-income people need help, and then turn around and say health care costs are rising because of the recession. You can't have it both ways.
Mr. S — January 3, 2013
You have to wonder what assumptions go into numbers like these.
Firstly, these figures do not represent nominal totals, but percentages of GDP, which grows over time. Graphing the nominal dollar amounts (or even real dollars, adjusted for inflation) would result in a much steeper curve.
Secondly, what sort of GDP growth is presumed for 2013-2012? And how are these programs expected to grow/shrink? If GDP is forecast to rebound, wouldn't that result in fewer people needing these programs? I would love if spending on assisted housing fell, it it resulted from everyone owning his own home.
And finally, do you really think that anyone can accurately predict 10 years into the future? Do you think George Bush's budget from 2004 held any predictive power for the coming year? Do you really think Congress will hold to any course, or will the continue to adjust as political winds blow?
FA Hayek's comment on the Fatal Conceit rings true here.
TW — January 4, 2013
The Financial Crisis and accompanying recessions clearly aren't a sufficient explanation for the growth of Medicare spending. It's a little tricky to read, because there is lots of other data on there, but it looks from the graph like medicare spending rose significantly as a % of GDP in the 1990s and early 2000s - at a time when GDP was growing too. At least during this period, there must have been a cost control issue as well.
Patrick — January 5, 2013
The chart discusses Medicaid, whereas the author keeps talking about Medicare. I assume this is just a typo, but it's confusing.