A New Scam to Slash Social Security (w/Dean Baker)

Billionaire-owned paper fights dirty ... again.

I spoke with economist Dean Baker of the Center for Economic and Policy Research about one of the Washington Post’s many salvos against Social Security, which is one of the most successful (and rightfully popular) government programs in US history. The Post’s latest pitch is one that’s been used unsuccessfully in the past: why should rich folks get Social Security?

If you feel that the rich have too much (as I do), there’s a much simpler solution: raise their taxes. Why come up with this complicated scheme instead? Dean helps us unpack the answer.

We also spend a few minutes at the end of the conversation talking about the AI bubble, so stick around if you’re watching.

I’ve appended some selected quotes and a (lightly edited) transcript below.

Read: “The Rich Own the Media. They Want to Take Your Social Security,” by Dean Baker

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Selected Quotes

Dean:

• “Cutting Social Security is not a moderate position.”

• “It’s important to understand that it really matters how debates are framed.”

• “What they really want to do is get their foot in the door so they can have big cuts to the people who are lower down, because that’s where the money is.”

• “They want to convince us there are all these seniors who are living too well.”

Richard:

• “We already have a mechanism to use when we think rich people are getting too easy a ride: progressive taxation.”

• “They talk as if the United States government was a pension plan with an army.”

• “If I get $100,000 worth of medical treatment in a year, I’m not $100,000 richer. Other people are getting the money.”

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Transcript:

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[intro clip]

Richard Eskow: And we are back on The Zero Hour. As always, I’m your host, Richard RJ Eskow. And. as always, I look forward to welcoming economist Dean Baker. Dean Baker is with CEPR, the Center for Economic and Policy Research. He wrote a great piece recently about an editorial I saw in the Washington Post. They’re up to their old tricks of maligning Social Security, and of misleading the public about it.

This must feel a little like being back in the saddle again, Dean, because we’ve been talking about this for years. You’ve been writing about it even longer. First of all, welcome back to the program.

Dean Baker: Well, thanks a lot for having me on.

Richard Eskow: Oh, it’s always a pleasure. And as I explained to you before we got on, I’m going to be looking in strange places because of some technical problems here. So if you’re watching this, don’t mind my wandering gaze, I’m really paying attention. Now, this piece, this blog post, was entitled “The Rich Own the Media. They Want to Take Your Social Security.” I love the plain-spokenness of that title and I think it pretty much sums it up. So what has Jeff Bezos’s paper done to take our Social Security lately?

Dean Baker: Well, let me just point out what I was saying to you before we started. It wasn’t an idle comment. I don’t mind picking on Jeff Bezos, but it’s not him alone. It’s important for people to understand that it really matters how debates are framed. Let me give an example: if I said I wanted to kill 100 kids, everyone would rightly be appalled. They’d say, what are you talking about, why would you do that? And suppose I then point to someone else and say, well, they want to kill 200 kids, so I’m the moderate one. That’s nuts. We’d all agree that’s nuts. But that’s kind of what’s happening in the Social Security debate. People say, oh, some folks want big cuts to Social Security, we don’t want to do that, we’re the moderates. That’s exactly what’s happening here, and it’s why it’s so important not to accept their framing of the debate.

Again, I don’t know Jeff Bezos personally, and I don’t have anything against him in particular. But whoever owns the media gets to decide how the debate is framed. And the point I was making is that cutting Social Security is not a moderate position. That doesn’t mean we can never have any cuts under any circumstances, but the idea that the program is out of control or overly generous, that’s just nonsense. And when they try to make that argument, they’re being completely dishonest.

I’ll be specific. I won’t get into all the numbers, but here’s what they do: they look at what a typical person pays into Social Security versus what they get back. So they took someone who makes $50,000 a year on average over their lifetime, which is actually a bit below average, but let’s go with it, certainly not high income. And they look at what that person gets back, which is more than what they paid in. And they say, see, the program is too generous.

But what’s the average benefit? It’s a little more than $2,000 a month, so about $24,000 a year. I don’t think anyone would call $2,000 a month overly generous. Someone getting $24,000 a year is not living high on the hog. No one thinks that. So when they talk about cutting benefits, they say, well, let’s just go after the people who get over $100,000 a year in Social Security. Okay, fine, that’s more than most people get, sure, but it’s still not a fortune. And how many people actually get $100,000 a year in Social Security benefits? Virtually no one.

Richard Eskow: Right.

Dean Baker: So it’s a bait and switch. If you actually look at their source, and I happen to know the source well, you can calculate how much those higher-income people paid in taxes versus what they’re getting back in benefits. And you’d find that higher-income people actually get less in benefits than what they paid in taxes. Now, I’m not crying for those people. That’s the design of the program. That’s literally the whole point. It’s an insurance program. If you were fortunate during your lifetime, good for you, and when you retire you’ll get more than someone who was less fortunate. But relative to what you paid in, you won’t do particularly well, just like insurance. I’ve been fortunate with my health insurance. I haven’t needed many benefits, and I consider that a good thing. But if I had needed them, they’d have been there. Same idea with Social Security.

So what they do is this bait and switch. They point to the fact that people are getting paid more in benefits than they paid in, and then when it comes to deciding who to cut, they focus on the high-end people and say, they don’t need that. And you could argue that’s probably true for most of them. They don’t need it, but they paid for it. People get a lot of money in interest on bonds too. They don’t need it, but they paid for it, and none of us gets that upset about someone earning $200,000, $300,000, $400,000 a year in bond interest if they paid for it. But what they really want is to get a foot in the door so they can eventually make big cuts to the people further down the income scale, because that’s where the real money is.

Richard Eskow: I want to underscore a couple of things implied in what you said, Dean. First, let’s not individualize this around Jeff Bezos. I have no particular affection for the guy, but this has been going on for decades, as we know. Pete Peterson and others have been sponsoring these lines of argument for a long time. This is a well-practiced routine. And the idea of targeting people at, say, $100,000, that’s always the foot in the door. Once you’ve said some people shouldn’t get too much from Social Security, you’ve opened the door to lowering that threshold. Now it’s $50,000. Now it’s $25,000.

But beyond that, the entire premise is fundamentally misleading before we even get into the specific deceptions. It’s misleading because we already have a mechanism if we think rich people are getting too easy a ride in this economy, which I do: progressive taxation. You could make the same argument about public schools that a Democratic presidential candidate made about college in 2016, saying I don’t want to pay for Donald Trump’s kids to go to college. You could say the same about elementary school. But there are other ways to handle that. With schooling, it’s usually property tax: a more expensive property, a higher tax bill. There are all sorts of mechanisms. But once you start cutting benefits, even at $100,000, which is at the high end of the Social Security payment spectrum, there’s not a lot of money there. So what you’re really doing is creating a rhetorical argument for cutting benefits for a lot of other people. Am I right about that?

Dean Baker: You’re totally right. We could tax more, and we already have the revenue. I won’t get into great detail, but this whole crisis narrative, that by 2032 we won’t be able to pay full benefits, ignores the fact that we actually have the money coming in. We’re repaying bonds held by the trust fund. The money is coming into the Treasury. So this idea that we suddenly won’t have the money in 2033 or 2034 isn’t accurate. I like the idea of keeping a separate trust fund so we can have an honest argument about that, but we can’t pretend we don’t have the money. It’s there. That’s how we’re paying benefits now, and Congress would have to change the law for that to stop, but right now, we are paying full benefits.

In terms of how we think about this, your point is exactly right. A lot of people were saying in 2016 that it was a little silly to argue we shouldn’t pay for Trump’s kids to go to college, because we pay for a lot of things Trump’s kids benefit from. They use the streets. They don’t pay a toll to use the streets. Maybe we could set up barriers and charge rich people to use the streets, but that would be a foolish way to handle it. It’s much simpler to just raise their taxes. We already have the tax system in place. You just make it higher.

But the other point you were alluding to, and this can’t be emphasized enough, is that they’re lying when they say they want to cut benefits above $100,000. It’s not even the beginning of a serious proposal, for two reasons. First, there’s very little money there. Second, and I’m assuming these people aren’t stupid, you don’t even need to know economics for this, just common sense. The only way a couple has $100,000 in combined benefits is if they deferred collecting until around age 70.

Richard Eskow: Right.

Dean Baker: So imagine you’re not the stupidest person in the world, and you see that if you have over $100,000 in benefits, you lose them. What do you do? You start collecting at 69 instead.

Richard Eskow: Right, right, right.

Dean Baker: That’s exactly what would happen. And again, I’m giving these people credit for not being the stupidest people in the world. They know that. They know this proposal would get them literally nothing. So why propose it? To get a foot in the door. They’re lying from the word go.

Richard Eskow: There’s another angle here too. You’re right that I hadn’t thought about that side of it, but there are websites, and people with higher incomes have financial advisors, who fine-tune exactly when to apply for Social Security. But before we get further into the shell game here, you also mentioned something very important: that this is social insurance. It’s a form of insurance, and you can always find a case that looks regressive or unfair if you squint at it that way. Take auto insurance, which isn’t social insurance but is still insurance. A wealthier person might have a bigger claim, probably will, in an accident if they have a nicer car. That could look regressive. If I pay auto insurance premiums for 30 years and then have an accident while I’m doing fine financially, someone might ask, why is that guy getting all this money? But that’s not the point of insurance, is it? Insurance is a smoothing mechanism. Do you see what I’m getting at?

Dean Baker: Yeah, I think it’s a well-designed system, and I want to be clear I’m not saying it’s perfect, but it’s well-designed in the sense that if you’re a higher earner, you pay more into the program and you get a higher benefit. So it’s progressive in one direction: if you pay more in, you get more out. But as a percentage of what you paid in, you get back less. Using rough numbers, for the first roughly $12,000 of average income, you get about 90% back. For the next $40,000, you get about 33% back. And above that, say above $50,000, you get just 15% back. So the share shrinks, but the dollar amount grows because you earned more. I think that’s a very good structure. Those exact numbers could be adjusted, but the underlying principle is sound.

And the insurance point applies clearly here too. Even someone from a relatively well-off background who gets a good education could have an accident or an illness and end up unable to work much of their life, or only able to work part-time. They thought they’d be a high-paid lawyer, but it didn’t work out that way. In that case, they’ll get a relatively high benefit relative to what they paid in. That’s exactly what you’d want from a system like this. So in my view, the basic structure is very well laid out, even if the specific numbers could be revisited.

Richard Eskow: Now, further into the Washington Post editorial, they begin by saying something like, to get the federal debt under control, start with the retirement state. That phrase annoyed the hell out of me, honestly, because this is what people do when they want to seem dispassionate but are actually using loaded rhetoric, as if the United States government were just a pension plan with a very large army attached. I don’t know if you had the same reaction to that phrase, “retirement state,” but to me it’s set up in a rhetorically inflammatory and misleading way, because there are plenty of other items in the federal budget.

Dean Baker: That’s right. These are two very popular programs, so if you said outright, let’s go after Medicare and Social Security, people would rightly be furious. So they use this phrase, “the retirement state.” These programs are popular because almost everyone benefits from them, and they’re also both very efficient. I’ve done the calculations a thousand different ways, and the basic story holds: private pension systems, or private 401(k)s, cost about 40 times as much per dollar of benefits as Social Security does. To my mind, that’s a genuinely great story. Same with Medicare. It’s far more efficient than private insurers, and we have the data on that, by a factor of five, maybe ten, depending on exactly how you count it. So why you’d be looking to cut two programs that are both hugely popular and remarkably successful at delivering their intended services at very low cost, that’s absolutely crazy to me. But instead of saying Medicare and Social Security directly, they use this term “the retirement state,” which sounds almost neutral.

Richard Eskow: And just to close the loop on this sleight of hand, Dean, your basic argument is that they claim it’s unfair for a couple making $100,000 a year from Social Security to get back more than they paid in. But the group they’re pointing to doesn’t actually get back more than it paid in. Do I have that right?

Dean Baker: That’s exactly right. If they said, look, people are getting $100,000 a year and that’s unfair because they get back more than they paid in, they can’t actually say that, because by their own calculation, those people get back less than they paid in. So they have a choice. Either they say we’re troubled by people getting back more than they paid in, in which case they’re going after people getting $2,000 a month, and that looks ridiculous. Or they say $100,000 is too much, but then they can’t claim those people are getting back more than they paid in, because it isn’t true. So it’s a three-card monte. They get you to focus on the people who genuinely do get back more than they paid in, then they pivot to targeting high earners, where that claim doesn’t actually apply.

Richard Eskow: And you’ve mentioned a couple of times this $2,000 or so average Social Security income figure. I think for women it’s even lower, something like $1,800. Is that right?

Dean Baker: I don’t have the exact figure in front of me, but yes, women on average get lower payments than men. I don’t know that it’s exactly $1,800, but it’s somewhere in that ballpark.

Richard Eskow: Yeah.

Dean Baker: So again, if you’re talking about cutting that, really, is that too much money?

Richard Eskow: Right, exactly. And beyond that, to argue that a woman shouldn’t get back more than she paid in, after standing on her feet for 40 years as a factory worker or a short-order cook, you name it, that somehow she shouldn’t be able to make ends meet in retirement because it offends the sensibilities of the Washington Post editorial board... I’ll give them credit for one thing: they’re smart enough to know that’s not a very effective argument to make directly.

Dean Baker: Right, and that’s exactly why, instead of making that argument, they make a totally dishonest one instead.

Richard Eskow: Right. And then, as you point out, they pivot to talking about shifting the system toward 401(k)s. Which, first of all, involves gambling to some degree on investment performance. But it’s not just riskier, as you’ve pointed out, it’s also a lot more expensive to run, isn’t it?

Dean Baker: That’s right. The average 401(k) has administrative costs of over roughly 1 percentage point a year. Now, one thing people get confused about, and I’ll try to explain it simply: that 1% is charged annually on the stock of money you have invested. The cost of Social Security, by comparison, is about 0.4% on the flow, meaning 0.4% of my annual benefit. The reason I distinguish stock and flow is this: if I want to get, say, $30,000 a year out of my 401(k), that money has to sit in the account year after year after year. Let’s say I start contributing in my twenties and pull the money out in my late sixties or seventies. On average, that money has been sitting there for maybe 20 years. So I was paying 1% each year for 20 years to generate that benefit, which means I end up paying about 20% of what I eventually receive. For Social Security, I’m only paying 0.4%. That’s the comparison: it’s roughly 40 times as expensive. That’s a lot of money essentially going down the drain.

Richard Eskow: Right. That’s a very important point. And then when we pivot to Medicare, you make another excellent point that I think rarely gets emphasized, and it shows how much they’ve stacked the rhetorical deck with these extreme framings. You point out that yes, people on Medicare cost more on average in healthcare than younger people. That’s a known actuarial reality. But that money isn’t going to them. If I receive $100,000 worth of medical treatment in a year, which, by the way, I actually do because I have a chronic illness, I’m not $100,000 richer. Someone else is getting that $100,000. A pharmaceutical company that could manufacture a pill for 70 cents is charging $20 for it. We could go on down the line: corporate-owned doctor’s offices, surgery centers, hospitals, profits baked in at every step. I think it feeds into this “greedy geezer” myth, that seniors are just spending hundreds of thousands like it’s water. Your subheading, I believe, was something like “Big bucks to hospitals and drug companies are not benefits to workers,” which is a great point. What have I left out that’s important there?

Dean Baker: The important thing is that it could be much less. We pay more than twice as much per person as the average for other wealthy countries. If you take the average of Germany, France, and Canada, the countries we used to compare ourselves to before Trump, we pay more than twice as much per person on healthcare. If we got our costs down to that average, our lifetime Medicare payments would be very similar to what we get back in benefits. So if someone says we’re paying too much for Medicare, I’m totally on board. Let’s cut the payments to the drug companies, the medical equipment suppliers, the hospitals. Let’s do that. But that’s not what they actually want to do.

Richard Eskow: They want to—

Dean Baker: They want to deny people benefits instead. And this comes up, it’s a bit of a sidebar, but with the Trump administration, when they talk about fraud in Medicaid, they make it sound like there’s this widespread abuse, and, you know, they’ll bring up undocumented immigrants who aren’t even eligible for the program in the first place, as if people are running off with the money. But insofar as there’s fraud in Medicaid, it’s going to providers. It’s not that some immigrant is pocketing large sums. Worst case, someone got a doctor’s visit paid for that maybe shouldn’t have been covered. But if someone is getting big money out of the system, it’s not the person receiving care. It’s literally not possible for it to be them.

Richard Eskow: And of course, the entire discussion about the federal deficit heated up recently because it passed the $40 trillion mark, although I suppose the value of the dollar has changed, so I’m not sure if that’s in constant dollars or not, but whatever the case, it reached a new high with real significance. But I haven’t seen much of that conversation focus on... I’ve heard plenty of people say we can’t afford the social contract, we have to cut Social Security and Medicare, we have to cut Medicaid, we have to cut anti-poverty programs. I haven’t heard nearly as many people say we can’t afford to sustain the level of corporate profits we’re currently paying for. In Medicare specifically, I think it’s a classic example. Nobody’s saying, hey, these margins, we’re happy you’re doing well, but maybe not quite this well. I know that sounds radical, and I am somewhat radical, but I’m making a broader point here: isn’t this more of the same kind of skewed framing you’ve been describing?

Dean Baker: Yeah, it comes down to what you choose to focus on. They want us to believe that people receiving Medicare and Social Security are living too well. I don’t mind if you want to say that about a small percentage of recipients, and honestly, taxing them more would be the best way to address that. But the vast majority of people aren’t living especially well on these benefits. Yet they want us to focus on that rather than on corporate profits going through the roof, or the tax burden, or the rich getting ever richer. Elon Musk, I don’t know exactly where he stands today, but he had a trillion dollars at one point earlier this year. There’s plenty of money out there. It’s just not going to the federal government. It’s not supporting people in this country. And that’s exactly why they don’t want us focused on it. They’d rather convince us that seniors are living too well.

Richard Eskow: So, to close out this part of the conversation on the assault on seniors: the good news, to me, is that despite decades of effort from Washington Post editorial board types (and, in fairness to Jeff Bezos, the paper was pretty rough before he bought it)...

Dean Baker: Absolutely.

Richard Eskow: Yeah. So, that said, the public remains strongly behind these programs. It’s no longer the case, as it was when you and I were railing against this 12 or 15 years ago, that both parties simply assumed these programs would have to be slashed, that “moderate” position of 100 kids instead of 200. There’s been real pushback, real progress. So in that sense, I feel more hopeful than I might have 12, 13, 14 years ago. What about you?

Dean Baker: Much more hopeful. The reality is overwhelming majorities of people across the political spectrum, even Republicans, support Social Security and Medicare, often over 80%, sometimes as high as 90%, depending on when the poll is taken and exactly how the question is phrased. There’s overwhelming support for these programs. That’s why it’s so difficult to get political traction for cuts, and why they resort to this subterfuge: “We like the program, we like the program, but what about just the people getting more than $100,000?” Because they know that’s a tiny share of recipients. Honestly, if you just said, fine, let’s shake hands and agree to cut benefits for people getting more than $100,000 and then stop talking about it, they’d run out of the room, because they know there’s no real money to be saved there. But it’s a hugely popular program, so they have to keep coming up with these tricks to get a foot in the door.

Richard Eskow: And by the way, Social Security income above roughly $25,000 is already taxed, so it’s not a complete free ride even for that hypothetical couple making $100,000. But before I let you go, Dean, and I apologize because this is completely unfair, we probably need a separate conversation for this, but you’ve been writing a lot about the AI bubble. Briefly, the more I read about it, the more I worry. The picture for a while has been that the AI companies themselves are the ones taking on the risk, but now I’m seeing signs that other financial institutions are exposed too. Something about JPMorgan Chase, something about hedge funds, the SEC looking into an investor fund that nearly collapsed. Are you worried this AI bubble, if and when it bursts, could pose a broader risk to the financial system?

Dean Baker: Yeah, I’m worried it could lead to a recession. The stock market right now is worth around $75 trillion in total value. If we had normal price-to-earnings ratios, it would be worth about half that. I don’t know that it’ll fall all the way back down, but a loss of $20 or $30 trillion in market value is a very plausible scenario. That’s almost certain to trigger a recession, for two reasons: we’d see a huge fall-off in AI investment, which is massive right now, and it would hit consumption hard. A lot of people have $200,000, $300,000, $400,000 in their 401(k)s. If that gets cut in half, they’re going to pull back on spending significantly. So that’s almost certainly a recession if the bubble bursts.

I’ll give you two reasons I’m fairly confident it is a bubble. First, at the end of the day, it comes down to how much you can actually sell the AI for. Nvidia, the chipmaker, is making a lot of money right now, and they are. But they’re selling their chips to the hyperscalers, the data center operators, largely Microsoft, Alphabet, and a few other big companies. Those companies are betting they can sell the output to firms like Anthropic and OpenAI, the two biggest players. The question is whether those companies will actually become hugely profitable. Everyone involved says, oh yes, absolutely.

Richard Eskow: Right.

Dean Baker: But there’s no real evidence for that. In fact, a lot of good analysis has found that the vast majority of tasks people want AI to perform could be handled with much simpler, cheaper models. They don’t need these massive hyperscaler systems. Chinese AI models reportedly cost a tenth of what ours do.

Richard Eskow: Right.

Dean Baker: So I don’t think the big profits are actually there. The other part of the story, and it’s surprising to me it doesn’t get more attention, is that we have economic growth projections. Projections can be wrong, of course, but people in Washington generally treat the Congressional Budget Office as the authoritative source. If the AI story were true, that these companies are about to become hugely profitable, we’d expect to see a massive surge in projected productivity growth. We don’t see that.

Richard Eskow: Right.

Dean Baker: Maybe the CBO is wrong. They have been at times. But they’d have to be hugely wrong here, and these are the same people who treat CBO projections as authoritative on every other issue. Suddenly, when it comes to AI, they act like the CBO has no idea what it’s talking about. So either the CBO doesn’t know what it’s doing, in which case stop citing it as authoritative on other issues too, or it’s roughly right, and we’re not going to see the kind of economic growth surge that AI proponents are promising.

Richard Eskow: And if we don’t see that growth, the ripple effects could be significant. We’ll also be left with a lot of torn-up land around the country where ground has been broken for data centers. A friend of mine in rural Wisconsin sent me a video of himself driving past one of these mega-centers. It just went on and on. I don’t think people realize the scale of these hyperscale facilities. They’re massive, and if they go into full operation, they’ll be massive consumers of energy too.

Dean Baker: And water. That’s exactly why, in my view, the sooner this bursts, the better. It doesn’t help anyone to have it drag on for another six months, a year, two years. I don’t have a crystal ball. I was warning about the housing bubble, and it lasted way longer than I expected. I was warning about the tech bubble in the ‘90s, and that lasted a long time too. So I don’t know how long this will go or exactly what will trigger the correction, but I’ll say this: the sooner it happens, the better.

Richard Eskow: You were, by the way, in closing, one of the lone voices warning about the tech bubble back when almost no one else was saying it. I don’t know if I’ve ever told you this, but afterward, I remember Alan Greenspan or some other policymaker saying something like, nobody I knew was saying this would be a bubble. And I thought, well, maybe you need to meet some new people. So, with that, Dean Baker of the Center for Economic and Policy Research, thanks as always for your great work and your great insights, and thanks for coming on the program.

Dean Baker: Thanks, Richard. I really enjoyed the discussion.

Richard Eskow: Me too.