Does this economy make sense?

According to a CNBC article:

“Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement… [Social] welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.”

Even worse, according to a CNN article:

“James Sherk, a policy analyst with the Heritage Foundation, said that federal workers’ hourly wages average 22% above those of private sector workers… Andrew Biggs, a scholar at the American Enterprise Institute, cited his own report saying federal employees’ wages, job security and fringe benefits — such as paid sick time and retirement benefits — are 39% above that of the private sector.”

However, latter in the CNN article, some argue that public workers are better educated than the private workers, which is why they are paid more. I would disagree with this, because there are a lot of public jobs that do not require education, such as the Post Office, Public works, etc, which just like a lot of private jobs. In addition, there are public jobs that require education, such as analysts, etc, but then again the private sector has those jobs as well.

According to the CIA (2010), the service sector makes up close to 77% of the economy, followed by industry at 22%, and agriculture at 1%. The nation’s external debt was close $14 trillion while its GDP was $14.72 trillion in 2010.

The problem with this is that the country does not produce enough goods and only builds up debt, which will eventually lead the nation to a financial collapse. Public employees do not produce any goods, thus do not create wealth, whereas the private sector can by producing manufactured goods. In addition, paying excessive benefits when there is not enough people to be taxed to cover those cost of benefits requires borrowing. If a nation borrows too much money, it can eventually default on its interest payment if the interest payment becomes to costly. The United States is obviously not solvent anymore, and its to change its before if it plans not to default on its loans. It can do this if it reduces benefits and increases productivity and the labor force in manufacturing and agriculture jobs that actually create wealth. But then again, U.S. seems to be reluctant to do such a thing, especially when taking away entitlements is unpopular for reelection campaigns.



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Filed under Financial Crises

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