This post will heavily reference the August 20th release of David Stockman’s Contra Corner newsletter, which is listed as a recommended education source in this blog.
Transfer payments, while viewed by many as a good thing, is, contrary to popular belief, not free money at all. The government must either pay for the transfer payments with taxes, which is stolen money from the productive citizens, or by borrowing it, which it does from the Federal Reserve, the central bank of the United States. The loans it makes crowds out private investment as private enterprises and entrepreneurs have to compete with the U.S. treasury, which isn’t fair competition because unlike entrepreneurs and others in the private sector, entrepreneurs and others in the private sector don’t get the privilege of having a central bank that is always willing to lend gargantuan amounts of money, despite the lack of ability or responsibility to even pay the interest. Of course, the loans by the U.S. government must be paid back at some point, either through higher taxes on the future, including on future taxpayers that are exploited by not having the age or ability to resist the debt expansion today. The U.S. government could also pay for it with even more inflation, but that just adds even more debt and further diminishes the purchasing power of people’s incomes.
Plus, if people need transfer payments, that means they either don’t have jobs or jobs that produce sufficient income to cover the major living expenses, such as rent, mortgage, gasoline, utilities, health care, health insurance etc.
Therefore, an increase in transfer payments, especially as a percentage of GDP as Stockman points out, is an indication of a deteriorating, not an improving economy, even if the stock market indices like the S&P 500, DJIA, and Nasdaq continue to rise, which they’re doing predominantly because of the Federal Reserve’s injections of liquidity, commonly known as Quantitative Easing. As Stockman expains:
To wit, when the Gipper, former U.S. President Ronald Reagan, came to town in 1981, Federal transfer payments—-as good as proxy for the Welfare State as there is—weighed in at $322 billion, which amounted to 10.3% of GDP. By the time he left office in Q4 1988, a small dent had been made: Transfer payments at $493 billion amounted to 9.2% of GDP.
After that it was off to the races. By Q4 2000 as Bill Clinton was packing his bags to shuffle out of the Oval Office all of the Reagan era gains had been lost, and when Bush the Younger finished his term in Q4 2008, transfer payments had soared to $1.86 trillion per annum and 12.7% of GDP.
Some folks in the Obama White House and Capitol Hill kept the figure rising. By Q4 2016, Federal transfer payments had risen to $2.64 trillion per annum and 13.9% of GDP.
Needless to say, the Bannonized Trump agenda did not even recognize transfer payments as a problem. By the eve of the pandemic in Q4 2019, Federal transfer payments had soared to $3.04 trillion at annualized rates; and then, of course, all hell broke loose with the serial Everything Bailouts.
By the end of Q2, Federal transfer payment spending totaled $6.27 trillion and amounted to a staggering 32.2% of GDP.
As we said, the Donald may have come to town to drain-the-swamp, but once Bannonized the Trump White House did not even recognize that the Welfare State is part and parcel of the Swamp; or that using its capital to pump up the already bloated Warfare State by another $250 billion per annum only made the Swamp on both sides of the Potomac impossibly deeper.
What therefore needs to happen for the economy to improve is to restore liberty, abolish the federal income tax, and remove all coercive regulations against business and enterprise activity.
The biggest regulations that need to immediately go are the shutdowns of commercial enterprises and lock-downs arising from COVID-19. Shutting down business does not improve the health of the people, and indisputably damages them economically, while violating fundamental individual rights, which are sacrosanct. It is only because of these shutdowns that people need the transfer payments to stay afloat financially.
End the shutdowns, cease the transfer payments, abolish the federal income tax and IRS, and let people earn their way back to prosperity, which they can only do if the government does its job in protecting liberty at all costs – something it has failed miserably to do.