The State of America’s Private Sector IX

The flip side of looking at the private sector share of personal income is, of course, the public sector share of personal income.  The public sector consists of two components: Personal Current Transfer Receipts (PCTR) and Government Compensation.

Today, let’s look more close at PCTR which is made up of programs such as Social Security, Medicaid, Medicare, etc.  In the first chart below, the amount of money flowing through PCTR has been growing at an accelerating rate.  In the last ten years PCTR nearly doubled to $2.1 trillion in 2009 from $1.1 trillion in 2000.

Personal Current Transfer Receipts between 1990 and 2009

The culprit?  The next chart shows the growth in Medical Benefits which more than doubled over the last ten years to $892 billion in 2009 from $427 billion in 2000.  Digging deeper shows an even faster rate of growth in Medicare which grew 128 percent to $500 billion in 2009 from $219 billion in 2000.

Of course, some of the recent spike is due to a surge in unemployment insurance thanks to the “Great Recession.”  Yet, remove that surge, and the underlying trend-line is not encouraging.  Given the eminent retirement of the baby-boom generation, it is within the realm of possibility that PCTR could double again . . . not in ten years, but within the next five years.

The questions is . . . how do we pay for it?  Think personal income is going to be doubling in the next five years?  And it’s always instructive to see the difference between Maine and New Hampshire.

Medical Benefits between 1990 and 2009

The State of America’s Private Sector I

The ability of America’s private sector to generate income and create wealth has been unparalleled in the history of the world.  More amazingly, the private sector continues to do this despite its ever diminishing role in the overall economy.

The chart below shows the private sector share of personal income since 1929 (the first year of available data) to 2009 (the last year of available data).  The opposite of the private sector is the public sector which is defined as all government compensation paid to employees (military and civilian) plus all personal current transfer receipts (Social Security, Medicare, Medicaid, Welfare, etc.).

As the chart clearly shows, the private sector has been steadily crowded-out by the public sector.  Nationally, the private sector has plummeted 24 percent to 69 percent of personal income in 2009 from 93 percent in 1929.

Additionally, the decline in the private sector can vary dramatically by state.  The chart shows my two favorite states for making such comparisons–New Hampshire versus Maine.  These two states are alike in so many ways, yet differ in one major area which is the size of the public sector.  New Hampshire has the 2nd largest private sector in the country while Maine has the 39th largest private sector in the country.

Why is this important?  At the end of the day, a bigger private sector means a bigger economy.  New Hampshire’s economy (as measured by personal income) is $8.3 billion larger than Maine’s despite having identically sized populations.  As a result, New Hampshire has the 8th highest per capita personal income while Maine has the 28th highest.  In dollar terms that amounts to an additional $6,085 more for every man, woman and child in New Hampshire.

This is an extremely important measure to keep abreast of.  As a result, this will be a regular series here at Wealth Alchemy . . . stay tuned for more analysis and updates using the most recent data.

Private Sector Share of Personal from 1929 to 2009