Diverting Class Warfare Into Generational Warfare

In the last-half century, productivity has outpaced the growth of real compensation for the median worker by more than 40 percent. This means that if workers’ pay had kept pace with productivity, as it did in the three decades after World War II, it would be roughly 40 percent higher than it is today.

This would mean that instead of a typical worker earning $34 an hour, they would be earning close to $48 an hour. That implies an annual wage of $96,000 a year for a worker putting in 40 hours a week for 52 weeks a year.

Getting workers their fair share should be, and to some extent has been, a central issue in political debates. However, there is a continual effort by the media to pull the focus away from within generation inequality, and instead tell young people that their problems stem from their parents and grandparents getting too much money from Social Security, Medicare, and other government programs.

The major media outlets love to highlight absurd stories of generational inequality, with baby boomers ripping off their children and grandchildren through Social Security and Medicare. A New York Times column by Gene Steurele and Glenn Kramon is the latest effort.

Their basic story here is that baby boomers are getting far more back from Social Security and Medicare than they paid into these programs. It turns out that this is not especially true, even by Steurele’s own calculation.

If we look at a lifetime average wage earner who turns 65 in 2025, Steurele and his co-author Karen Smith, calculate they will have paid Social Security taxes with a present value of $391,000 and will be getting back benefits with a present value of $394,000. If we move up the income scale to someone who earned the Social Security maximum (currently $160,000), the present value of taxes would be $953,000, compared to benefits of $634,000.

If we look at couples the story looks better for beneficiaries, especially one-earner couples (a rarity) and also for moderate-income workers. However, in a world where raising taxes on people earning less than $400k seems to be beyond the pale, I’m not sure too many politicians will be anxious to take away benefits from low-earning retirees.

Steurele and Smith find a much larger subsidy from Medicare. There are some technical issues here but the most important point is that the supposed “subsidy” is primarily due to the fact that we pay twice as much per person for our health care as people in other wealthy countries without having much to show in terms of better outcomes.

The reason is that we pay drug companies, medical equipment suppliers, doctors and other providers twice as much as in other wealthy countries. The subsidies really are for these actors in the healthcare industry, not for retirees.

Insofar as young people are having difficulty getting ahead the problem is all the money going to people at the top end of the income distribution. The money going to retirees for Social Security and Medicare is a trivial part of this story, regardless of how much the NYT wants to tell us otherwise.

This first appeared on Dean Baker’s Beat the Press blog.