Shocker: Proving CNBC Economic Analysis Wrong: SS, Medicare, Unemployment NOT “Hand Outs.”

Seriously, folks; before you believe anything you read from any source, check on it, especially when it’s offered up as an opinion piece. Don’t just believe it because it comes from what seems to be a reliable source. If the information doesn’t seem to make sense, it probably isn’t correct.

This is one such case; an article by John Melloy, who is Executive Producer of Fast Money on CNBC, and the article is on the CNBC web site. The article is complete and utter bullshit, beginning with the headline:

Welfare State: Handouts Make Up One-Third of U.S. Wages

As you could probably guess, this article has been re-published on a number of right wing sites, and it has been Tweeted by several right wingers, including some who probably know better. Their followers, however, do not, which is what they count on. The headline is complete crap for two reasons. Government entitlement payments are NOT INCLUDED in wage and salary calculations. They are two separate numbers that actually have no relation to one another. Therefore, the phrase “make up” is, well, made up. And that makes the basic premise false.

Keep in mind that this guy is executive producer of one of the most popular programs on a network that is geared toward the movers and shakers in the financial services industry. Also keep in mind that the woman he’s quoting is supposedly an “economist” of some note. The overall sloppiness in this article should give you pause, and make you realize that at least some of the people we trust with our economy are simply unqualified. This is the beginning of that 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.

Even as the economy has recovered, 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.

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.

First, I searched the entire Trimtabs site, and could not find such a research article, so I can’t look at their research and judge its veracity directly; I can only go by the quote and the source claimed for her statistics. So, I went directly to the Bureau of Economic Analysis web site, and I found the charts Ms. Schnapp apparently used to make her claim.  To say her “research skills” are lacking in this case is an understatement.

Not only does she attempt to compare two sets of numbers that have no relation, but her conclusion above bears no relation to reality. “Social welfare benefits,” as she calls them, are not “hand outs” at all, and they don’t really fall into the category “welfare,” at least in the pejorative sense that she and the author obviously intended to use them. Check the numbers yourself. Unlike CNBC’s web site, I’m giving you the tools.

Here is the chart showing Wage and Salary Disbursements by Industry. Click on the box marked annual, and look at the column for 2010. As you can see, the total for all wages and salaries for 2010 was roughly $6.4 trillion.  Keep in mind, $1.19 trillion of that is paid to government employees. It’s not welfare, it’s compensation for work performed. If the article had expressed alarm that roughly 15% of all wages and salaries in the economy were paid by the government directly, it might have had a compelling one. But it didn't. Payouts for “social benefits” are not included in that $6.4 trillion figure.  You’ll want to keep that in mind when you look at the other chart.

Wage and salary disbursements

The other chart used is entitled Government Current Receipts and Expenditures. Do the same thing with this one; limit it to “annual” and look at 2010. The figure on Line 19 – (Government Social Benefits) to persons — is $2.25 trillion.  Do some quick math using this figure and the $6.4 trillion figure above, and you can see how they came up with the 35% figure. Typical right wing math; you find two numbers, pretend they have some relation, and mash them together, and you have a number that sounds ominous.

Givt current receipts

And make no mistake; the two numbers are not related. The $2.25 trillion figure above is not actually a part of the $6.4 trillion paid out in wages and salary.  Therefore, if the author and his "source" plan to claim it “makes up” a percentage of wages and salary, they’d have to add it to the “wages and salaries number” first. And $2.25 trillion is only 26% of the $8.65 trillion we come up with that way.  Oops.

Oh, but there’s another line on the Government Receipts chart to check out. Line 28, Social Insurance Funds, shows a credit of $249 billion. That means the government only spent $2 trillion on government social benefits. That takes the 26% down to 23%. Funny, but when you actually look at the two unrelated numbers as if they’re actually related, the 35% becomes 23%, which should send up a caution flag when it comes to anything else said in the article.  

Gotta love that right wing math. 

Of course, the $2 trillion in government benefits includes Social Security payments, which come from the Social Security Trust Fund. That fund is made up of money that has been paid in by its recipients over time. That fund has always shown a surplus, which means the money paid out in Social Security benefits is more than paid for by the taxes collected the same year. You pay in your money over the 40-50 years that you work for a living, and you get that money back when you retire. There is no way it should be considered as a “handout” or “welfare,” under any circumstances. If that’s considered “welfare,” then the author and his "source" inadvertently made a great case as to why we need single-payer health insurance.

Since Social Security benefits paid last year came to about $650 billion (which, by the way, is considerably less than the $1.04 trillion paid into the Social Security fund by taxpayers), that takes us down to $1.35 trillion. And since that can’t be considered part of wages, we have to take it out of both numbers. That means $1.35 trillion out of $8 trillion.  Down to 16.8%.

But Medicare is also insurance that working people have paid for during their entire working life. You and your employer pay a percentage of your pay into the fund, and when you retire, you get that money back in the form of insurance. In fact, unlike Social Security, Medicare contributions aren’t even capped. Therefore, to include the $457 billion spent on Medicare last year (again, far less than the amount paid into the Medicare trust fund) in the category of “hand outs” or “welfare” is just plain inaccurate. That takes us down to about $900 billion, out of $7.55 trillion, or 11.9%. That’s pretty close to the 10% number the author seems to be comfortable with.

But wait. Unemployment insurance is much like Social Security and Medicare. You may not realize it, but all of you wage earners out there actually pay into an unemployment insurance fund every payday, in case you lose your job through no fault of your own. Even during these difficult economic times, the federal government’s share of unemployment payments was about $135 billion last year. Since workers pay far more into the unemployment fund than they take out of it, that shouldn’t be considered “welfare” or a “hand out” either. That takes us to $765 billion, out of $7.41 trillion, which is 10.3%.  

So, when you actually attempt to compare apples to apples, instead of apples to fighter jets, you find that the amount of money the federal government pays out in “hand outs” or “welfare” is about 10% of wages, the same as these clowns claim was paid out in 1960.

This is the problem with the right’s view of economy, folks. They just make shit up, and compare numbers that have no relation to each other, in a lame attempt to prove how incredibly smart they are. But they’re not smart; they’re just able to lie with impunity, because the rest of the media rarely calls them on anything.  

The compensation our elderly receive is hard-earned through the hard work they performed while working to build this country, as are the survivors’ benefits paid out to widows and children of workers who die suddenly. People pay a lot for that insurance, and for anyone to call that a “hand out” is supremely insulting, as well as inaccurate.

Social Security and Medicare, for the most part, pay for themselves, which is why including them in any calculations regarding the federal budget deficit is unwise and dishonest. I love listening to the pundits trying to sound smart when they say that you can’t talk about the deficit without considering Social Security and Medicare, because, in reality, it actually makes them look dimwitted. Social Security has actually been used by Republicans to make the deficit look smaller.  And Medicare’s problems (although it still pays for itself) were caused by the rest of the health care financing system being completely broken, and a prescription drug benefit that Republicans added without including price controls. The health insurance reform that passed last year should help keep Medicare solvent for a much longer time. But for now, and in the near future, Medicare is paid for.

I’d also like to address something else quoted in this article as coming from this so-called “economist.”

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.

Where do I start?

First, as I’ve shown, the two numbers she quotes are in no way related, so their comparison is random, at best. Her numbers above are completely meaningless.

But what I find startling about the above is the either/or ultimatum she comes up with. Either we have to raise wages and salaries or cut “social welfare benefits”? Here’s an idea; if we create an economy that actually employs people and pays them a living wage, BOTH of the above will happen. Isn’t that cool? See, when you pay out more in wages and salaries, the number of people who NEED “social welfare benefits” will decrease naturally. And then, guess what? Your two completely unrelated numbers will go back to where they were, and you can feel happy again. Not that it matters to the rest of us. 

As for the ridiculous statement about “government stimulus,” I’ll just say that consumption is consumption. Unemployment insurance is a great stimulius, as are Social Security benefits. And let's face facts; the fact that Medicare pays a lot of medical bills keeps prices down for the rest of us. Also, a lot of grocery stores and supermarkets would close altogether if not for food stamps. And when they tried closing some military bases years ago, how many towns got together and pleaded with the government to reconsider?

The fact of the matter is, all economies rely on government stimulus to function. The government provides the seed, and we make it grow. The concept that all growth comes from private investment is absurd. The government controls the currency; all money flows from government. The reason our economy is stagnant in recent years is because the government has stopped investing in anything that will create more wealth in the future. And that’s because our government has been dominated by a Republican Party that doesn’t give a shit about the future, and refuses to spend money on anything that doesn’t put money into their donors’/investors’ pockets at that very moment. We need to build a bright shiny new country that is the envy of the world, and we can only do that through government spending. And doing that will create jobs, which will create taxpayers with lots of money to spend, and will lead to a booming economy. 

When you hear something from someone claiming to be an “economist” or any expert, and it seems to smell funny, check into it yourself. You’ll be glad you did.  

Click here for reuse options!
Copyright 2011 The PCTC Blog

One comment

  1. Thank you for blogging about this particularly viral lie that seems to be spreading rapidly throughout the news media. I also smelled rotten stats and bad math when I heard about this yesterday and checked into it immediately.I have yet to find any news org that has questioned it, which says a lot about the current state of print and TV journalism. It was during this search that I found your post. I will keep on reading: )

Comments are closed.