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Home Publications Blogs Beat the Press Sorry Kids, Thomas Friedman Is Not Very Good at Economics

Sorry Kids, Thomas Friedman Is Not Very Good at Economics

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Wednesday, 16 October 2013 15:47

Many young people may have been misled by Thomas Friedman's column, titled "Sorry Kids: We Ate It All," which implied that our children might somehow suffer because we are paying so much to seniors for Social Security and Medicare. The reality of course is that if our children and grandchildren do not enjoy much higher standards of living than do current workers and retirees then it will be because the rich have rigged the deck so that they can accrue most of the gains from economic growth.

This is easy to show. For example, if we look at the Social Security trustees report we see that average annual wages are projected to grow at more than a 1.3 percent annual rate between now and 2050. As a result, the average before tax wage will be more than 60 percent higher in 2050 than it is today. If our children and grandchildren get to share equally in these gains then they will be far richer than we are today.

It's true that we will have a higher ratio of retirees to workers in 2050, just as we have a higher ratio of retirees to workers than we did in 1970. Just as the increase in the ratio of retirees to workers over the last 4 decades did not prevent an increase in average living standards over this period, there is no reason to think it will prevent an increase in average living standards over the next four decades.

This is easy to show. Imagine that we saw an increase in the payroll taxes needed to supported to Social Security of 10 percentage points, far more than any plausible projections would imply is necessary. In this case, the average after-payroll tax wage would still be more than 40 percent higher than it is today. Should that make us apologize to our kids?

Of course these are averages. If we continue to see the pattern of the last three decades, in which the wealthy were able to secure for themselves most of the gains from growth, then our kids may not see a rise in living standards. But that would be a problem of upward redistribution, not an issue of the old benefiting at the expense of the young.

Furthermore, a large and growing cost of caring for our elderly is the cost of health care provided through Medicare and Medicaid. These costs are grossly out of line with costs in other wealthy countries. This is not due to our elderly getting better care, but rather due to the excessive payments made to doctors, drug companies, insurers, and medical supply companies. This is also a story of upward redistribution since the rich are the main beneficiaries of these excess payments.

 

 

health care -budget 844 image001

 

If our health care costs were in line with costs elsewhere in the world we would be looking at huge budget surpluses and would have all sorts of money freed up for improving infrastructure, education, and research. (Of course this is a long-term story assuming we get back to something like full employment. At the moment the only thing keeping us from increasing spending in these areas is people with a bad understanding of economics.)

So kids, Thomas Friedman unfortunately may have misled you. There is no reason to worry about your parents or grandparents Social Security and Medicare putting you in poverty. The real problem is the money being redistributed from your parents, grandparents, and quite possibly you, to Wall Street traders, private equity barons, CEOs, drug companies, doctors, and others who are masters at gaming the system.

Comments (10)Add Comment
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written by Eric, October 16, 2013 5:34
Thomas Friedman isn't really good at anything. As a millennial, I direct this question in all seriousness to my elders: did the New York Times ever not suck?
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written by Chris E., October 16, 2013 5:40
The chart isn't loading properly for me...the turquoise line is UK healthcare costs, light blue is ?.

I think single payer and having the government get aggressive with bargaining (not just on drugs but costs in general) will solve a lot of the overpayment problems. It's interesting to see cost adjustment simulations of alternatives if we reformed the system.
Stuck in a Zero Sum Loop: Why Friedman Keeps Getting Away With It
written by Last Mover, October 16, 2013 8:43
The real problem is the money being redistributed from your parents, grandparents, and quite possibly you, to Wall Street traders, private equity barons, CEOs, drug companies, doctors, and others who are masters at gaming the system.


True, this is the face of the problem but doesn't convey the full picture by any means. When presented this way, the political right pounce on it to show with (legitimate) arithmetic for a given year of output, taking the excess of income (over some average) diverted to the rich and giving it all to the rest on a per capita basis so small to be barely noticed.

It's a zero sum argument used repeatedly to shut down claims about income and wealth redistributed upward into the obscene concentration it actually is.

This is implicit in everything Friedman and most others in MSM (whether political right or loser liberals) have ever said about the false claim of inter-generational transfer caused by SS and Medicare - that since the rich are not really getting rich off everyone else, that must mean everyone else is getting poor because of SS and Medicare - not because of the rich.

Of course everything Dean Baker has said about the causal factors of income and wealth concentration taken together, do explain how it's not a zero outcome, not even close.

The rich sacrifice a huge amount of total output by destroying it as they carve out the remaining gains for themselves. That's negative sum big time that no one can win back in the form of lost growth and jobs.

Any redistribution starts with this shrunken economic pie and goes in the opposite direction claimed by Friedman, et al via market power and the extraction of economic rent from real income through protectionism for the rich and competition for the rest administered through their acquired government powers to control these factors to produce unfree trade for all but themselves.

A rebuttal to Friedman's cute title, "Sorry Kids: We Ate It All", should be titled, "Honey, Let's Shrink the Economy for the Kids and Keep the Rest, So They Won't Have Enough to Eat".
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written by watermelonpunch, October 17, 2013 12:40
"We ate it all", by "we" he means Wall Street traders, private equity barons, CEOs, drug companies, doctors, and others.
Of course if the Brits trained a few more doctors, and didn't overpay them quite so much
written by Rachel, October 17, 2013 1:04

...they might have a little more social mobility. As it is, the Gini coefficient for Britain is almost as bad as ours. The UK is not, it seems, a place where hard-working talented people kids can really expect to get ahead.

It's true that they do live a little longer than we do. But that's not saying much.
Wait, so we're worried about after-tax wages increasing for the working
written by Auburn Parks, October 17, 2013 9:13
class? There is another way to increase after-tax wages for these people. Stop taking so much of their income away with FICA! You can't advocate for greater after-tax wages and simultaneously advocate for higher FICA taxes. Thats a kind of cognitive dissonance one should expect from a conservative "economist"
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written by kharris, October 17, 2013 10:58
Friedman is just singing along with the rest of the choir, pretending he's got a solo. Pete Peterson calls the tune, and Friedman sings it, along with Will and Samuelson any number of ill-informed "serious people" who have a little bit of real estate in the public sphere. Friedman doesn't know enough about these issues to have an opinion, much less express an opinion in public. It's a scandal how much ignorance is allowed in our public debates.
Friedman should have to link to Dean Baker
written by trish, October 17, 2013 11:47
What's really maddening is so many people read Friedman, the unabashed proselytizer of policies for his elite club, and not enough read the purveyors of actual facts like Dean Baker. the NYT is joke in so many ways.
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written by Kat, October 17, 2013 12:17
Of course everything Dean Baker writes is true, but probably the most offensive part of this column is that he equates this "movement" to dismantle of one of our greatest anti poverty programs ever with the movement to end the war in Vietnam. What an awful man.
The "Royal We"
written by Aaron, October 23, 2013 1:40
If your complaint is that the statement, "Sorry kids, we ate it all," is only true if the "we" is the 1%, let's keep in mind that Friedman (by virtue of marriage and inherited wealth) is among the 1% who are in fact "eating it all".

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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