One In Six Americans Now Receives Government Aid

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The number of Americans receiving financial aid from the government has soared since the financial crisis, and this fact is frequently used as evidence of American failure.

The Drudge Report highlights today that ‘one in six’ Americans are now receiving government aid, which is truly a shocking statistic. Programs such as Medicaid are already overwhelmed, and new health laws haven’t even taken effect yet:

USA Today:

“Virtually every Medicaid director in the country would say that their current enrollment is the highest on record,” says Vernon Smith of Health Management Associates, which surveys states for Kaiser Family Foundation.

The program has grown even before the new health care law adds about 16 million people, beginning in 2014. That has strained doctors. “Private physicians are already indicating that they’re at their limit,” says Dan Hawkins of the National Association of Community Health centres.

Yet when reading headlines about benefits, one needs to make the distinction between ‘Americans in need’ and ‘Americans receiving benefits’ when passing judgement. This is because the surge in benefits recipients is a combination of both economic weakness and the expansion of benefits eligibility in order to support Americans during the crisis.

More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years.

Caseloads have risen as more people become eligible. The economic stimulus law signed by President Obama last year also boosted benefits.

“This program has proven to be incredibly responsive and effective,” says Ellin Vollinger of the Food Research and Action centre.

Close to 10 million receive unemployment insurance, nearly four times the number from 2007. Benefits have been extended by Congress eight times beyond the basic 26-week program, enabling the long-term unemployed to get up to 99 weeks of benefits. Caseloads peaked at nearly 12 million in January — “the highest numbers on record,” says Christine Riordan of the National Employment Law Project, which advocates for low-wage workers.

Thus had many programs not been expanded, far fewer Americans would be ‘on benefits’. However, this wouldn’t mean that less Americans would be in need. This is a key distinction to be made in understanding these figures.

Politics aside, from an investors’ view, if you believe that the extension of benefits was a necessary source of economic support during the crisis, then you shouldn’t be shocked by the number of Americans receiving benefits… while you should be shocked by the number of Americans in need.

This is because the growing number of recipients is a factor of economic support packages at work in the economy. The questions going forward are how many of these recipients are truly in need, to what degree are benefits helping Americans re-allocate their skills into the evolving economy, and how can we keep emergency programs from living longer than they should. But in the near-term, don’t mistake the treatment for the illness.

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