TOPICS > Economy

Do Social Safety Net Programs Shrink Gap in U.S. Economic Inequality?

September 21, 2011 at 12:00 AM EDT
As part of Paul Solman's reporting on Making Sen$e of financial news, The NewsHour has been airing a series on economic inequality. The widening wealth gap in America was examined in a past report, but economist Bob Lerman says those data are flawed because they do not include the value of Social Security and health insurance.
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JEFFREY BROWN: And we return now to our continuing series on inequality.

NewsHour economics correspondent Paul Solman has been examining that subject, including studies showing an alarming rise in the so-called wealth gap. But tonight’s interview takes issue with that view.

It’s part of Paul’s reporting on Making Sense of financial news.

ROBERT LERMAN, Professor of Economics, American University: It would be nice if there was more equality, but let’s not overdo it.

PAUL SOLMAN: Bob Lerman is professor of economics at American University, a fellow at the Urban Institute, and an old college friend a year ahead of me at Brandeis University in the ’60s.

ROBERT LERMAN: Oh, nice shot.

PAUL SOLMAN: Thank you. That’s the one we’re going to use on the video.

We sometimes play tennis when Lerman visits Boston. But this match at our alma mater was prompted by an email he wrote in response to our recent story about inequality, in which we asked people on the “David Letterman” ticket line in New York to pick the chart that best depicted America’s distribution of wealth.

Which one do you think the United States is?

MAN: I would — I might say this one.

PAUL SOLMAN: In the first chart, each one-fifth of the population has 20 percent of the wealth, in the middle pie chart, a middling amount of inequality — the richest fifth owns 36 percent, the poorest fifth only 11 percent — and, in the third chart, extreme inequality, where the richest fifth owns 84 percent of the nation’s wealth, while the bottom two-fifths, 40 percent of the population, owns an almost invisible 0.3 percent of the nation’s property.

MAN: I think the middle one is U.S.

PAUL SOLMAN: Middle one is U.S.? Middle one is U.S.? Middle one is U.S.?

Which one would you think the U.S. was?

MAN: Hopefully that.

PAUL SOLMAN: The punchline: Most people in surveys like this one, including ours, get it wrong. The third, and most unequal, chart is America, based on the distribution of housing and financial wealth.

But Bob e-mailed to say he thought the survey was misleading.

You think inequality really isn’t a problem?

ROBERT LERMAN: No, I think it’s somewhat of a problem, but you way overstated it. There were no nuances to the report. You ignored a big source of wealth, which is the wealth embodied in Social Security.

PAUL SOLMAN: Since we both embarked on adulthood here at Brandeis, Bob knows the Boston area well enough to make his case in and around town.

Just down the road, the EPOCH nursing home, a venue for his main nuance.

ROBERT LERMAN: A good part of wealth is embodied in the right to your Social Security flow of income and also to the guaranteed health insurance that you get. That’s worth hundreds of thousands of dollars to a typical person. And you multiply that by the number of persons, and you have got a lot of wealth.

Take a lot of the people right here at this nursing home. Medicare is a source of wealth that finances their stay here.

PAUL SOLMAN: People like Clare Devane and Dorothy Arnold.

So you two were just sitting here while we were doing the interview. We didn’t discuss this before.

Your point is?

ROBERT LERMAN: How are you being financed here?

WOMAN: Through Medicare and MassHealth.

WOMAN: Me, too, Medicare and MassHealth.

PAUL SOLMAN: So this isn’t your own private savings that’s paying for your room here?

WOMAN: Some of my money came here, but then the Medicare took over and MassHealth.

PAUL SOLMAN: How old are you?

WOMAN: Ninety-four.

PAUL SOLMAN: And, as Lerman would point out, the longer you live, the more wealth Medicare or Social Security represent. So Medicare is like a stash of wealth that you’re now drawing on.

WOMAN: Right.

WOMAN: Yes.

WOMAN: That’s right.

WOMAN: Wouldn’t be able to come here otherwise.

WOMAN: That’s right.

PAUL SOLMAN: And that’s your whole point?

ROBERT LERMAN: That’s my whole point.

PAUL SOLMAN: Downtown Boston, and a street busker we couldn’t resist, maybe because of the snazzy hat. He was playing on the Boston Common, so named because, from 1634 on, everybody had equal access to it, up through today’s regal swan boats ready and willing to offer commoners a ride.

After the American Revolution, General Washington came here to celebrate our right to the pursuit of life, liberty and happiness, made possible these days, says Bob Lerman, by the social safety net, which is not counted as part of the official wealth numbers.

So, Social Security represents hidden wealth for most of the distribution?

ROBERT LERMAN: Yes.

PAUL SOLMAN: And so does Medicare?

ROBERT LERMAN: So does Medicare. And another element of it — and it’s related — is health expenditures overall for all ages.

PAUL SOLMAN: As it happens, this public patch of Boston features a monument to a monumental breakthrough in health care: ether for anesthesia to relieve pain. Like most of modern medicine, says Lerman, it’s available to us all.

ROBERT LERMAN: The distribution of health spending is pure equality — 20 percent of health spending is on the bottom 20 percent, 20 percent is on the next 20 percent, and 20 percent is on the top 20 percent.

PAUL SOLMAN: But you can’t tell me that the top 20 percent of Americans in terms of wealth get the same health care as the bottom 20 percent? These guys have concierge doctors whom they can call on at any time. These guys are lucky to get into the emergency room.

ROBERT LERMAN: Well, I agree that the top 1 percent or the top half of 1 percent have fundamentally different health care, but not the overall top 20 percent.

PAUL SOLMAN: But the huge disparity is between the people at the very top and everyone else.

ROBERT LERMAN: Well, that might be fair if the people at the very, very top could actually get a better operation. It’s not at all clear that’s the case. The wealthiest person 25 years ago could not get access to the same care that the middle-income person gets today.

PAUL SOLMAN: The bottom line, to Lerman, is that, if you add in health care and Social Security wealth, the distribution wouldn’t look like this — the richest fifth of Americans with 84 percent of the wealth, the poorest two-fifths with an almost invisible sliver — it would look something like this: richest fifth, 55 percent, poorest two-fifths, almost 17 percent — more details on our website.

But then, if you look at the top 10 percent, the top 5 percent, the top 1 percent in America, you’re going to have something that looks just as unequal, if not more so, than this picture does.we

ROBERT LERMAN: Paul, you know what’s amazing, it’s amazing we don’t have more inequality than we do have, given the fact that 40 percent of kids are born to unmarried parents, we have had a lot of immigrants from very poor countries come into the country. And, yet, still, the distribution of consumption, the distribution of health expenditures is relatively equal.

PAUL SOLMAN: Just half-a-block away, it looked pretty unequal to us.

You can’t tell me that the people who shop at Chanel here on Newbury Street in Boston or stay at the Taj Boston — that used to be the Ritz-Carlton — aren’t living a significantly different life than the rest of the American public.

ROBERT LERMAN: The very top are, but, overall, you don’t see that big a gap.

Today, you could have a Ferrari or you could have a Kia. You could stay at the Taj Boston or you could stay at the Holiday Inn. Is there that big a difference? So, let’s be clear. The rich do have more opportunity to consume than everyone else, but I’m not sure that we need to be as concerned about it as implicit in your program.

PAUL SOLMAN: Now, all this may not reassure those worried about economic inequality. The rich don’t just buy status duds, they might point out, but private limos, private schools, private everything. And their money also buys security and power, getting others to sing your song on Boston Common or, some would argue, Washington, D.C.

Skeptics might have one final concern as well: that America’s famous economic upward mobility, where even the ugliest of ducklings can turn into a swan, is becoming a thing of the past.

But though Bob Lerman agrees that what he calls the super-duper rich have been pulling away from the rest of us, he thinks there’s a more positive way to look at our picture of inequality.

ROBERT LERMAN: It’s accurate for financial and housing wealth, but not for the comprehensive picture of wealth. The distribution of wealth is still wide, but it’s not nearly so wide as you might expect.

PAUL SOLMAN: We will look further into this and other issues as we continue our series on economic inequality.

JEFFREY BROWN: And, in a coming report, Paul explores connections between economic status and personal health.