CNBC Misleads on “Welfare State” Dominance

Bad math overstates government payouts

(UPDATE: See my follow-up post here: A Zombie Lie Is Born: CNBC’s false welfare-state story spreads far and wide.)

There are so many things wrong with this CNBC “Fast Money” story it’s hard to know where to begin.

But let’s start with the headline:

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

I guess the first thing to point out is that the story, which is based on a study by some investment firm, is just inaccurate. It says “social welfare benefits make up 35 percent of wages and salaries this year.” The immediate red flag here is that it seems rather artificial to do a ratio of government payouts to wages and salaries, rather than, say, GDP or even personal income. So I took a look at the numbers, and they don’t add up.

Indeed, CNBC says government “handouts” account for more than a third of all wages and salaries in the U.S. But that’s not right. Social Security payments and the like aren’t included in the Bureau of Economic Analysis’s wages and salaries numbers (CNBC doesn’t give us much data from the report it cites, much less link to it, but it says it was based on BEA data). Those come from, well, wages and salaries, which totaled $6.4 trillion last year. So if you’re going to try to figure out what percent of the total CNBC’s $2.2 trillion “handouts” numerator would be, you have to add it to the $6.4 trillion denominator to do any calculations. That right away moves our “handouts” to wages and salaries percentage down nine percentage points to 26 percent of $8.6 trillion.

But there’s more wrong here. “Fast Money” executive producer John Melloy (last seen writing this story : “Giant Full Moon Coming—Danger for Stocks?”) and the firm that did the study are only counting wages and salaries in the denominator (the $6.4 trillion number), while they’re counting health care in the form of Medicare and Medicaid, not to mention veteran’s pensions and job training, in the “welfare” numerator. That’s apples to oranges. Those “supplements to wages and salaries” came to $1.6 trillion last year, according to the BEA. Add those in to make this somewhat apples to apples and it brings our denominator to $10.2 trillion and the “handouts” are down to 22 percent.

The study also doesn’t include non-corporate business owners’ income. Nor does it include rent or capital income, like, say, interest from your savings account or capital gains from your 401k (owners of capital get “handouts,” too, CNBC). Those add another few trillion and after subtracting social-insurance contributions (sorry, “welfare” contributions, in CNBC’s parlance), we get to the BEA’s personal income number: $12.5 trillion. So Social Security, Medicare, unemployment, et al, account for just half of CNBC’s headline number—17.6 percent of personal income, rather than an artificial wages and salaries number.

But there’s a major conceptual problem here, too. Going along with the likes of the Washington Post’s Robert J. Samuelson (see my follow-up post on Samuelson here), CNBC accepts as fact the notion that programs like Social Security and unemployment insurance are welfare programs. Your grandpa would knock you upside the head with his cane for saying that.

Thing is, I’m about to write a check to the government for my 2010 taxes. A big chunk of that will go toward paying into the Social Security system. When I retire and/or if I become disabled, I’ll get paid benefits based on the amount of money and the length of time I paid into the system. If I haven’t contributed much, I won’t get much. If I contribute more, I’ll get more. The system does calculate payouts progressively (though it taxes regressively), but does all this sound like a handout to you? It sounds more like a pension to me, or as it’s normally known: social insurance.

I’m a contractor and so I don’t pay unemployment insurance and neither do my employers. Guess what? If I fall out of work, I don’t get unemployment benefits. That doesn’t sound like a welfare program to me, either. It sounds like insurance. (Now you could argue that the unemployment benefits extension passed to help folks through this recession is a form of welfare, but I’m guessing CNBC’s study doesn’t make any such distinction. I don’t know because it didn’t publish the data for us to see ourselves.) Moreover, at least 2 percent of those government “handouts” in the $2.2 trillion number are veterans’ benefits.

So CNBC’s welfare and “handouts” number, by any normal standard, is actually far, far lower than even that 18 percent I calculated three paragraphs up, much less its 35 percent number. If you exclude Social Security and veterans’ benefits, as you should, we’re creeping down toward 10 percent.

But too late, this one’s already hit the echo chamber. Here’s Ben Shapiro of Town Hall:

This week, CNBC reported that social welfare payments now comprise 35 percent of wages and salaries this year. In other words, more than a third of all people receiving “paychecks” are receiving government redistribution checks via welfare, Social Security, Medicare or unemployment.

This one will presumably be bouncing around the message boards and chain emails for years.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,