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August 21, 2011

Government transfer programs provide safety net

The wheels of our economic wagon began to wobble in 2007. In 2008 they came off. Then they were partially restored in 2009 and, in some areas, fully functional again in 2010. What restored the wheels to the wagon?

The most widely available measures of local economic activity are the annual county estimates of personal income provided by the U.S. Bureau of Economic Analysis. Last week, the BEA issued its advance report on PI for metropolitan statistical areas. Here is what we learned:

At first glance, the nation’s 366 MSAs combined enjoyed nearly 5 percent more income in 2010 than in 2007. When inflation is taken out of those data, however, the gain turns to a loss of 0.5 percent. Thus, we could say that our metro areas have nearly recovered from the great recession.

This bounty was not spread evenly across the nation. Jacksonville, N.C., led the nation in income growth at 22 percent with three-quarters of that growth coming from the Marine base at Camp Lejeune. Indiana’s top gainer was the Bloomington MSA, growing by 4.3 percent (79th in the nation).

In sum, 239 of the 366 MSAs had inflation-adjusted PI greater in 2010 than in 2007. In that group of recovered metro areas we find Terre Haute and Evansville joining Bloomington.

Also recovered in terms of income, if not employment, are Lafayette, Columbus and Anderson.

Below, but still within 1 percent of their 2007 income levels are Michigan City-La Porte and Indianapolis-Carmel.

Muncie, Fort Wayne and South Bend-Mishawaka are within 3 percent, but Elkhart-Goshen and Kokomo are still more than 8 percent from their 2007 levels.

Only the three Nevada metro areas of Reno, Las Vegas, and Carson City were below Kokomo in the national ranking of PI change 2007 to 2010.

All of these figures hide the massively important role played by government transfer programs in providing the safety net on which so many Americans depend. Nationally, the 366 MSAs had a decline of $352 billion in earnings received by workers and business proprietors between 2007 and 2010. That was a drop of nearly 5 percent in the take home pay of Americans at work.

Offsetting that decline was a 28 percent surge ($403 billion) in transfer payments from the government to individuals. These are dollars for social security, unemployment compensation, Medicare, Medicaid, income assistance, Veterans’ and several other programs that keep millions from poverty, illness and despair.

In 2007, transfer payments accounted for 21 percent of personal income, but by 2010, when help was necessary, they rose to 25 percent. Without this increase, not 239, but only 76 MSAs would have cleared their 2007 income levels. Bloomington would have been Indiana’s only MSA in remission from the recession.

Remember, these transfer payments are among the government spending programs that some politicians contend need to be trimmed back, cut down, or eliminated entirely. Unemployment compensation has been under attack during most of the recession. Social security and Medicare are described as threats to our fiscal future.

The hardships of the recession have been bad enough. Why would anyone want to cut back the programs that assist the neediest in the worst of times?            

 

Morton Marcus is an independent economist, speaker, and writer formerly with IU’s Kelley School of Business.

 

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