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The Plan, Day Two: Social Security Is Broke

This is a rush transcript from "Glenn Beck," April 13, 2010. This copy may not be in its final form and may be updated.

GLENN BECK, HOST: All right. America, here is the — here's the problem. Entitlements — this is social spending — in 1950, spending on social services by the U.S. government was 33.4 percent of total federal expenditures. Today, it is 61.3 percent.

Entitlements are causing us to go broke. If you look — if you look here, this is a share of total spending. If you look at this here, we have defense, 20 percent; Social Security, 19 percent; Medicare, 13; Medicaid, 8. This is unsustainable.

In less than six years, the federal government will be paying out more in Social Security benefits than the taxes that it takes in to fund it. Our Social Security Administration is getting $788 billion in fiscal year 2011. That breaks out to $6,500 per U.S. household.

You write a check for that? Can you write a check for that? 'Cause that's what we're doing.

Now, let's look how to fix this problem. And we have a couple of — we have a couple of guests with us.

First of all is Chris Edwards. He's the director of tax policy studies at the Cato Institute and author of "Downsizing the Federal Government." He's actually — we've been using kind of his blueprints here just to get us started this week.

And Stephen Dubner — he is the author of "SuperFreakonomics" and a guy I really respect because he thinks out of the box. And I think that is the main thing, is to — is to imagine a world that doesn't look like this one.

So, Chris, let me start with you. First, how do we — where do — where should we even begin on this?

CHRIS EDWARDS, DIRECTOR OF TAX POLICY, CATO INSTITUTE: Well, Social Security is going bankrupt. And young people are right to be concerned that Social Security won't be there for them when they retire. A couple decades down the road, the government won't able to pay the bills of people retiring.

So what do we do about that? We have to move to a system of private Social Security accounts like two dozen other countries around the world have. That will give individuals control over their own retirement future.

BECK: OK. Here's the problem with that, because they'll say 401(k), that's private. And, you know, everybody would — you know, everybody would have lost, you know, half of their retirement and everything else. I mean, everybody is looking for a guarantee. And the second thing is that doesn't end it.

EDWARDS: I think that there's a lot less market risk than there is government risk. The current system, people are trusting politicians to pay those benefits. And, frankly, the money isn't going to be there when they retire.
Over the long-term, over a person's working lifetime of 40 years, investing in equities and bonds is very safe, and the countries that are privatized have very high returns on their Social Security private accounts like Chile and Australia.

BECK: I tell you, people who are investing in the market—it just went up yesterday—what is it, 11,000? It went up yesterday.

STEPHEN DUBNER, AUTHOR, "SUPERFREAKONOMICS": Yes. I mean, you know, what you said is true about 401(k)s. If you — if you've been investing for, let's say, eight years, and then the recession happened, and the stock market meltdown happened, and you sold in the middle of it, and you haven't bought back yet, you lost 40 percent, 50 percent, 60 percent.

BECK: All right. And people who are investing —

(CROSSTALK)

BECK: — is going to — you're going lose it again.

DUBNER: Well, you know, you will.

Here's one problem with looking at the economy in the long run. Honestly, looking at our government in the long run.

BECK: Yes.

DUBNER: Every time we look at a historic event or a series of event, every time you look at the stock market, every time we look at the big — the macro economy, we say, when this happened, then it caused that. We always want to put cause and effect together. That's our nature as human beings.

The problem is we've got a sample set of one. We've got one economy we're looking at. We've got one history we're looking at.
So, I don't think it's so easy to say — these answers aren't so easy, if they were, you wouldn't be wrestling with them all week.

BECK: Yes.

DUBNER: But I don't think that the only correct answer is to say, hey, the market can't help us out, because as Chris has said —

(CROSSTALK)

BECK: No, I'm not saying that the market can't. I agree with you.

DUBNER: The stock market, not the free market, the stock market.

BECK: Yes, yes.

DUBNER: Yes.

BECK: I agree with you — I mean, that's better — a better bet than the federal government because we ain't getting anything. I knew that growing up.

DUBNER: If nothing else, the people who own the accounts can decide what they do with the accounts.

BECK: Right.

EDWARDS: And just think about the private sector and stock investment these days. When you invest in the stock market, like the S&P 500, you're essentially investing in growth in the whole global world economy. So — I mean, over decades, the world economy is going to grow. Private accounts will grow. And the return, again, in Chile and Argentina is very high.

BECK: So, how do you get people — how do you convince people to do this without the emergency?

EDWARDS: What you do with Social Security, you give them a voluntary choice. For old folks who are retired, you don't touch their benefits at all.

For young people under, say, 55, you say, you have a voluntary choice. Stay in the current system that's going bankrupt, and you have to trust politicians, and you have no legal rights to your benefit, or go to private accounts, put money in Fidelity, invest it there for decades, watch it grow — that's the choice we give to young people.

BECK: OK. Back in just a second.

(COMMERCIAL BREAK)

BECK: This week is the beginning of a plan for America. Today, how to cut Social Security and Medicare, a beginning idea as laid out by Chris Edwards from Cato. And he has for social security - the system is going bankrupt. He has his solutions. Private savings, right? More security. What does that mean?

EDWARDS: Individuals have more security owning a private account. On the current social security system, you have no legal right to benefit and Congress can cut the benefits anytime it wants.

BECK: And Chile, Australia - that's a good example. We should model ourselves after that?

EDWARDS: Absolutely. Both systems have been in place for a couple decades. You put up 10 percent of the money into private accounts. And it's -

BECK: See, my problem is this goes against everything these guys stood for. This is progressive light. I mean, I don't want - here is my solution. You're 55 years old to 62 - maybe you get 40 percent. I mean, I just made this up on the spot.

Sixty-two-plus — OK, we're going to take care of you, 'cause, you know what? It's - you're turning the ship. But if you are below 54, and this includes me, you get nothing. You get nothing.

And then we go back to - again, this is progressive light but here is my compromise—we do it to the life expectancy, just like it was, you know, when it started. And we slave it to the life expectancy. As the life expectancy goes up, so does the retirement age. You're a "Freakonomics" man. I mean —

DUBNER: I'm ready to retire now. I can't but I'd like to.

BECK: Yes, but I mean, you know, in another 25 years, our life expectancy could be - well, we'd be retiring - it would be like retiring when we're 35.

DUBNER: Here's the problem. With all the systems, whether you're looking at social security, whether you're looking at electoral politics, health care, education, we inherit these systems, right, that have evolved over years and years. And we like to think that they evolve rationally.

BECK: They didn't.

DUBNER: They're totally chaotic. The problem is that we try to solve the problem rationally by untangling them and we can't. They've been baked into a big mess.

BECK: So how is it not reasonable? I called a good friend of mine, Jon Huntsman, Sr. –- he's an industrialist and the guy who invented the, you know, plastic fork and spoon and Styrofoam cup. I mean, he's given America so much.

He's a philanthropist now. He pays 150 percent in income - he pays 50 percent in income tax and gives away his income. He has to pay a higher rate of income tax because in this country, if you give away 100 percent, they charge you 50 percent because something must be up, OK?

So he's an amazing man. He told me — I called him a couple weeks ago and he said, "Glenn, you've got a zero base budget." You can't look at this budget. You want to fix this country, you have to go at zero because otherwise you're dragging all the bones from 30 years that nobody even understands anymore.

DUBNER: I think that's why exercises like this are really helpful. You are probably not going to solve many problems —

BECK: You don't think?

DUBNER: Or any problems in a week.

BECK: Yes.

DUBNER: But I think what is important is people need to learn to think about problems differently. We get fed so much information. We like to think that it's just tinkering around the edges that's going to solve it.

But I'd like to do thought experiments. Take a situation, pretend you're coming to it new. Here's my favorite one — pretend that neither alcohol nor marijuana existed until today. Somehow civilization got to this point with neither, which is practically impossible.

BECK: Yes.

DUBNER: They're both discovered. How are they both regulated and distributed and sold? Probably not the way they are today, that alcohol would be legal everywhere and marijuana would be legal everywhere in this country, right?

BECK: Right.

DUBNER: We get the systems we inherit because that's the way they are. But then, to try to untangle them like this one — I think, you need to kind of start by thinking over.

BECK: But don't you — I was going to say. Did you see the episode yesterday? Is the mutually assured economic destruction still on the backside of this chalkboard? It is? Can we flip this chalkboard over?

DUBNER: This is a risk on live TV. You're going to flip it. You don't know who's been drawing on the back of the blackboard.

(CROSSTALK)

BECK: Yesterday I talked about this. This is the way we solved — one way we solved the nuclear holocaust. It was mutually-assured destruction.

DUBNER: Right.

BECK: And the idea was that it wasn't just that we would vaporize each other.

DUBNER: Yes.

BECK: No, it's not that. It wasn't that we would vaporize each other but we would also tie our economies together.

DUBNER: Yes.

BECK: And so you would have limited war, you wouldn't have world war anymore. Well, I mean, we are all going down together. The system's going to reset.

Is there a way to — before you get there to make the case to people — hey, hey. We need to do something dramatic to spit ourselves out of that system so we will survive.

EDWARDS: I think both of you are getting to the point that, you know, all these government programs have changed our behavior. I mean Americans don't save because they have these massive government retirement programs.

So I'm with you. Let's pay the social security over the long run. That will give individual Americans a huge incentive to save. And if we reform the tax code and make it easier for them to save, that's the direction I'd go.

BECK: We have to take a break. I want to come back because I want to start there with you, Stephen. Because you and I talked about helmets, football helmets.

DUBNER: Yes, yes. It's very much like — it's exactly the same issue.

BECK: It is. This is an amazing fact. And we'll be back in just a second.

(COMMERCIAL BREAK)

BECK: We're talking about making serious changes to Social Security and Medicare and what would the changes look like for Americans? These are the kind of questions that you really need to start thinking about.

Chris Edwards - he is the director of tax policy studies at the Cato Institute. And Stephen Dubner, author of "Superfreakonomics."

In a really weird parallel universe where I was president, he would be my main advisor.

DUBNER: I thought I'd get to run the NFL. All right.

BECK: I read "Superfreakonomics," and I think — well, it makes total sense. I don't like it. I don't want to believe that, but it makes total sense so we should do that. And unfortunately, nobody in Washington thinks that way. We're trying to think today about Social Security and Medicare.

We were talking before the break about football helmets. We've had this conversation before. Football helmets actually cause more injuries.

DUBNER: More concussions, yes. We invented a safety measure to stop a certain kind of problem, which were skull fractures, and we did pretty well. The new helmets do that well.

What they do, however, is give players so much padding that they now use the head as a weapon and cause more injuries to other guys and to themselves.

BECK: And you know that because of — what is it, Australian football?

DUBNER: Well, Australian rules on football and rugby don't use the helmet so you can't compare there. But can also just look at the data within the NFL and see there's been a huge behavior change.

The point is, when rules are made, behavior changes. That's what we do. We're animals. That's what we do. The point is when you add safety measures or when you add a safety net, it changes behavior.

So there's a new paper out today that says that people who have insurance, health insurance and people who have the most generous health insurance plans are more likely to attain more body mass index.

In other words, insurance can lead to obesity. Why? Because the problem is going to be taken care of, that's why, and so your behavior changes.

BECK: I will tell you that since Obamacare came in, I can't tell you the number of people that have said — that said, "I have to change my eating habits because I don't want to ever go to the doctor. I don't want to have to need anything because I'm not going to be able to —

(CROSSTALK)

DUBNER: Well, that's the other thing. When you have health insurance and you have an all-you-can-eat health care plan, which most people who have health care do — what do they do? They consume more. And that's a big problem.

BECK: Right.

DUBNER: That's what the costs are all about. And they crowd out the sick.

BECK: So how would you take on Medicare?

EDWARDS: Well, Medicare — the costs are exploding. It's the single biggest financial threat to our nation's future. There's no doubt about it.

Why are the costs exploding? Because tens of millions of elderly — they go to doctors and hospitals. They get essentially free service so they demand more and more. The doctors and hospitals send the bills to Washington.

Medicare has over a billion bills sent to Washington every year and they pour $450 billion on this program. And it's sort of like a Soviet- style top-down Washington program shoveling out the money.

There's 7,000 different price controls in Medicare. And the basic problems — people are demanding too much. So the solution is you go to an individually-based consumer system.

Someone hits the age of 65, you give them a federal $11,000 voucher. They can go and buy health insurance in the private market if they want.

That will help them, that will encourage them to be a good consumer, like they are good consumers when they buy a new car or any other product. So the money has got to go to the consumer and empower that person.

BECK: That is the problem, isn't it, with everything that we — I mean —

DUBNER: Yes.

BECK: Doctors — my evidence of this is doctors, if they're ever writing you a prescription, they'll always do this — "Do you have insurance?" And you say yes. And they'll say, "OK, great."

Or if you say no, they say, "I'll write this." I mean, they make the choice right there.

DUBNER: I think it is amazing that we think right now that the problem is that there is too little health care to go around. And I would argue — I think you could make a strong argument that the problem really is, is that there is too much health care going around, and it's going to too few people.

Right now, Americans' out-of-pocket medical spending is 12 percent. That's all we're paying for — 12 percent on the dollar, OK? Switzerland, which we think of as a kind of much more progressive government — 30 percent. When you pay for what you get, it changes your behavior.

BECK: That's why we should have — first of all, take the employer out of it.

EDWARDS: Absolutely.

DUBNER: Yes.

BECK: It's got to be with you. You have to be the person that says — you have to be informed consumer, "I don't know, doc. Do I need that?"

Now, there are times that you say, "I don't have any idea what I'm talking about, fix my leg." You know what I mean? But you have to be an informed consumer. And also, if we would cap that, do that, with making sure that you can't sue for absolutely everything, have some sort of responsibility for, you know, anybody who is suing for anything — I think England does this, don't they?

DUBNER: I don't know. But the thing about insurance tied to the employers is also the fact — think of the drag on economy, because people get in what is called a job lock, right?

BECK: Yes.

DUBNER: When you have insurance and you have a preexisting condition, what does that do to the economy? Everything we like about this economy — it's innovative. It's noble. That starts to go away.

(COMMERCIAL BREAK)

BECK: Back with Chris Edwards, director of tax policy studies at the Cato Institute and Stephen Dubner, author of "Superfreakonomics." Thanks for both of you guys, being here.

Well, I want to talk a little bit about fraud in Medicare because it's as high as 20 percent of the entire budget. That's an outrage.

EDWARDS: It's incredible. Medicare - we spend $450 billion a year on. As much as 20 percent of the money simply goes down the drain. Basically, because Medicare processes over a billion claims every year for services from hospitals and doctors.

All the claims are just paid by computer. So if you have a laptop and you submit forms to Medicare, you can get reimbursement. And they might or might not catch you.

There was an interesting story last year, covered by the "Washington Post" that this high school drop-out in Miami submitted over 100,000 claims to Medicare, and she netted $100 million from the federal program before she was caught.

BECK: Stephen?

DUBNER: That's better than being a T.V. host.

BECK: Yes. You'd be on the cover of "Forbes." You know, you think out of the box, and that's what these people - you know, and every time bad guys - that's what they do. They just think of ways to beat the system.

EDWARDS: Yes, that's right.

BECK: So I mean, you think out of the box. We need somebody like you to look at fraud.

DUBNER: We need someone like my co-author Steve Levitt who is really a genius at taking gigantic pile of data and trying to - here is what you've got to do. You have to think like a cheater and that's what- look, the government — our government, let’s give them credit where credit is due.

Our government can be very, very good at law and order. Our government has been pretty damn good at anti-terrorism in the last several years. No question. And every time we don't hear about it is another mark of success.

That said, they don't employ enough people like my co-author Levitt who really understands the mind of a cheater. And what you do is you learn to look at data in a new way.

We did it in "Superfreak." We wrote about it. We worked with a British bank to look for terrorists in their retail banking data. In the first book, we wrote about catching cheating teachers. No Child Left Behind. We like the idea - make people accountable.

You know what else it did though? It changed teachers' behaviors. All of a sudden, they had more responsibility. They started cheating. How do you find them? In the data. You look for patterns.

For instance, a kid will fill in 30 questions and leave 10 blank. Then, lo and behold, they fill in the last 10 and they got all the last 10 correct. But that wasn't the student, that was the teacher. But until you learn to think like a cheater —

BECK: Holy cow.

DUBNER: Think like a fraud, you can't do it.

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