Robert Samuelson Is Upset that the Government Gives One Thousand Times as Much Money to Billionaires Like Peter Peterson as It Does to Poor Children

November 22, 2013

Actually he is not upset by this fact, but he would be if he applied the logic in his column consistently. The column makes a point of highlighting how large transfers are to the elderly relative to transfers paid out to the young (e.g. food stamps and Temporary Assistance to Needy Families). Transfers to the elderly are large, but there is a good reason for this fact. People paid for their Social Security and Medicare benefits in their working years.

Samuelson wants us to ignore the fact that workers paid taxes that were designated for this purpose. That would be fair if he also thought that we should look at the billions of dollars in interest paid out on government bonds to rich people like Peter Peterson without taking account of the fact that Peterson and his billionaire friends paid for these bonds. That would be perverse but at least consistent.

As a practical matter, people pay somewhat more in Social Security taxes on average than they get back in benefits. They do get more back from Medicare than what they pay in taxes, but this is primarily because the United States pays so much more for health care than other wealthy countries. If the United States paid the same amount per person for its health care as other wealthy countries then Medicare taxes would roughly cover the cost of Medicare benefits. So this isn’t a story of the government being too generous to seniors, it’s a story of the government being too generous to doctors, drug companies, medical supply companies and others in the health care industry.

Samuelson is also badly confused when he tells readers:

“If lobbyists aim to empower the rich, they’re doing a lousy job. Democracy responds more to the mass of voters and to political crusades than to the wealthy or business interests. In the recent government shutdown, corporate America discovered that its influence on congressional Republicans was modest or nonexistent. It’s not that big companies and wealthy individuals are powerless, but their power is vastly exaggerated.

“The idea that government is routinely bought and sold by the rich is a source of widespread — but misleading — cynicism.”

Samuelson’s assertion is based on the fact that the rich don’t get many direct handouts from the government. But this is not what their lobbyists are trying to get. Instead they work to rig markets so that income will flow to their clients. This is easy to show in a large number of industries.

For example, the lobbyists have gotten drug companies patent monopolies that allow them to charge around $270 billion a year (@ 1.7 percent of GDP or 7.8 percent of the federal budget) more for their drugs than the free market price. They are currently drafting a trade deal, the Trans-Pacific Partnership, that will extend these monopolies in our trading partners thereby allowing the drug companies to charge higher prices overseas.

The financial industry has been able to arrange for too big to fail insurance that is equivalent to an annual subsidy of $80 billion a year (@ 0.5 percent of GDP or 2.0 percent of the federal budget). They are also likely to get a system under which Fannie Mae and Freddie Mac will be replaced by private banks issuing mortgages with a government guarantee. This is likely to mean tens of billions of dollars in fees each year for the banks involved.

There are many other ways in which lobbyists use their power to get the government to structure markets so that the rich get richer. Samuelson is right that this is mostly not done through direct government payouts, but that is ignoring what the lobbyists are doing. (For more information read the good book on the topic.)


Support Cepr


If you value CEPR's work, support us by making a financial contribution.

Si valora el trabajo de CEPR, apóyenos haciendo una contribución financiera.

Donate Apóyanos

Keep up with our latest news