She Knew the Social Security Formula at 16. Now She's Warning Washington It Won't Save Itself

What does it mean when one of the country's leading labor economists, a former Obama White House advisor who served as chief economist at the Department of Labor, tells you that Washington's bet on AI saving Social Security is built on a foundation of wishful thinking, and that the real numbers have been pointing toward crisis since 2017?

Betsey Stevenson studied physics at Wellesley, switched to economics because the marginal costs were lower, earned her PhD from Harvard, passed up a Michigan faculty offer to work in the private sector, wrote a brand-new job market paper from private sector data to re-enter academia, and eventually landed at the Gerald Ford School of Public Policy at the University of Michigan — where she now teaches, researches, and co-authors a leading economics textbook with her partner Justin Wolfers.

In this episode, Professor Kotlikoff sits down with Stevenson for a conversation covering the divorce law economics that launched her career, what Title IX actually proved about sports and upward mobility, how two economists navigate a two-career relationship, and a frank assessment of where the US economy is heading under the weight of deficits, AI hype, and a capital income tax structure that may be quietly turning America into a servant economy.

What You'll Learn:

• [00:10:39] Why Betsey passed up academia after Harvard and what working at Forrester Research taught her about big data before big data had a name
• [00:11:00] The dissertation that launched her career: how unilateral divorce laws changed women's bargaining power inside marriage without changing the divorce rate at all
• [00:17:00] The surprising finding: no-fault divorce dramatically reduced spousal violence but also reduced spouses putting each other through school
• [00:22:16] The Title IX paper: how giving girls access to sports improved graduation rates, college attendance, and adult earnings using a natural experiment almost nobody had thought to use
• [00:36:00] How Betsey knew the Social Security formula at 16 and why she called it a pure tax on her teenage paycheck
• [00:40:31] Why the fiscal gap has been unsustainable since Trump's 2017 tax cuts, and how COVID made it dramatically worse
• [00:42:33] Why cutting short-term interest rates when inflation is above target pushes long-term rates up: the mechanism Washington keeps ignoring
• [00:46:13] Why AI productivity gains may flow entirely to capital rather than wages, and what that means for Social Security funding
• [00:47:29] The servant economy scenario: with foreigners owning most US investment, AI returns could look a lot like Jamaica's resort economy
• [01:04:33] Betsey's tax proposal: tax all income including unrealized capital gains, and why the Daniel Radcliffe vs. Johnny Depp analogy explains exactly why she opposes a wealth tax

Featured Guest:

Betsey Stevenson is a Professor of Economics and Public Policy at the University of Michigan's Gerald R. Ford School. She earned her PhD from Harvard and served as Chief Economist of the US Department of Labor and as a Member of the President's Council of Economic Advisors under President Obama. She is a Research Associate at NBER and co-author, with Justin Wolfers, of Principles of Economics.

Resources:

• Principles of Economics (3rd Ed.) by Stevenson and Wolfers: amazon.com
• "Bargaining in the Shadow of the Law" — the divorce and domestic violence paper, QJE 2006: nber.org
• "Beyond the Classroom" — the Title IX and sports earnings paper, ReStat 2010: nber.org
• Betsey Stevenson's faculty page: fordschool.umich.edu/faculty/betsey-stevenson
• Economics Matters Substack: larrykotlikoff.substack.com

Economics Matters: The Podcast is hosted by Larry Kotlikoff, Professor of Economics at Boston University.

Disclaimer: Any opinions expressed on Economics Matters are those of the authors and guests. These are not the opinions of Boston University or Economic Security Planning, Inc.