Wednesday, February 02, 2011

Social Security: how retirement insurance became controversial


For people who understand that Social Security is an insurance program for older workers, paid for through their contributions during their working life and managed by the federal government, it's hard to understand why it continues to be so politically contested.

Sure, changing demographics (more retirees; smaller relative workforce) -- and the failure of successive Congresses to make the small tweaks that would help -- mean that, if nothing is done, in 2037 Social Security might be in some actuarial imbalance. Unless as one smart young person has noted our politicians take sensible measures.

... in the 75 years after 2037, to keep benefits at their current projected levels, taxes would need to rise by 1.92 percent on payrolls. That’s an extra $1.92 for every $100 earned -- about half as much as the latte you had this morning.

Or we could take my favorite path to long term solvency: get rid of the cap on FICA contributions that means that people stop paying in on their yearly income when it goes over $106000. People who are making that kind of money (double the median household income) can afford to pony up!

Nancy J. Altman's The Battle for Social Security argues that several factors have led to decreased confidence in the program. She notes that, beginning in the 1980s, politicians and policymakers began to subject the program to the same sort of short term thinking that we see on Wall Street today. Where earlier plan administrators had looked decades into the future and sought to ensure Social Security's solvency, President Reagan's budget director David Stockman wanted no part of such long term planning. He was only interested in the political calculus of the moment.

"I'm just not going to spend a lot of political capital solving some other guy's problem in 2010." He saw only money going in and money going out. It was enough for him to worry four or five years down the road.

This short term thinking took place in the midst of a widespread decline in citizens' trust in government. Altman writes:

Public confidence in the future of Social Security, so high in the past, dropped precipitously and remained low. In 1975, 63 percent of those polled answered that they felt very confident or somewhat confident in the future of Social Security; 37 percent replied that they felt not too confident or not at all confident. In just three years, the numbers had just about reversed, with only 39 percent responding that they felt very or somewhat confident and 60 percent answering that they felt not too confident or not at all confident.

Some of this reflected a drop in confidence in government generally. In 1964, 75 percent of Americans believed they could trust the government in Washington. The numbers started to slip into the low 60s and 50s along with the escalation of the Vietnam War. Watergate caused the numbers to take a nose-dive, from which they have never recovered.

Disillusionment with government has made political space for a sophomoric libertarianism that imagines that people could be better off taking care of themselves without government support. The Depression generation knew better; Altman describes right-wing think tank speculations about privatization and other schemes to undermine Social Security as

academic exercises, based on simplified economic models to permit analysis and comparison, but inapposite to the real world in which Social Security resides.

Much of Altman's book is devoted to celebrating the policy intellectuals -- especially Robert M. Ball, Wilbur Cohen, and Robert J. Myers -- who worked in a non-partisan way, through successive administrations, to make Social Security a safe, well-grounded promise to elders. Our society no longer seems to be congenial to developing and nurturing their kind of applied expertise in the service of the common good.

I have a number of my own thoughts about why that is which I think amplify Altman's picture.
  • Many of the best of my generation of progressive boomers who came up in the late 60s and 70s didn't think our job was to study and propose workable policies. Our job was to help people put political pressure on politicians to attend to their needs. It was a lot sexier to be an activist than a policy wonk. We would create the heat that moved politicians to act; they could figure out how to do their job so as to satisfy us. Insofar as we left it there (and I know I often did,) we were foolishly shortsighted.
  • In the same cohort, youth was where it was at. Who wanted to understand a program for old people? Old people didn't matter. Oops, now we get to feel the agism we once encouraged.
  • It's all very well to remind people that Social Security is an insurance program, but "insurance" doesn't carry the positive connotation it may once have had. The label brings to mind "health insurance" -- a nasty business that makes its money by not paying out when people who have paid in need costly medical care.
As a result of all these factors, we now have large numbers of political pundits and politicians who don't even begin to understand how Social Security works. In striving to take in Altman's lessons, I've become attuned to the huge number of simply false assertions that pass for reality about Social Security. Unhappily these are nearly as common from "liberals" as from right-wingers. These people simply don't know what they are talking about.

For example, William Galston in The New Republic thinks Social Security should be defended as benefiting

... the lower-income elderly who depend on these programs for a decent and dignified old age.

No, no, no -- Social Security is a program for all old citizens that all of us put into. It's not some kind of generous handout for those old people who failed to get rich.

Discussions of the two percent cut in worker's share of FICA included the President's December tax compromise with the Republicans were mostly equally clueless -- when they happened at all. Most pundits seemed to have no idea that FICA is an insurance premium, not some arbitrary levy, and that a "cut" would unbalance the somewhat delicate system that ensures Social Security will have taken in enough to pay out future benefits owed to recipients. I was disgusted to hear a podcast featuring some of the bright young writers from the American Prospect blog talk about the negative reaction to the President's deal as a "Liberal Tantrum." They didn't even mention the concerns of Social Security's defenders. It was obvious they had simply no idea of the dangers hidden in the compromise because they had never really thought about how Social Security works. And these are liberal policy pundits.

Social Security will continue to face threats from all sorts of potential gimmicky "fixes" that its opponents will come up with to undermine the system. We'll be told it is "bankrupt" -- that is simply false unless Treasury bonds are also no good. (Don't tell the Chinese!) We'll be urged to raise the retirement age; that's a disguised benefit cut. There is no crisis. The alarm opponents sound is a fiction.

I want to give Nancy Altman the last word here, because she gets to the heart of why Social Security should be defended by people of all ages.

Though Social Security has prevented millions of people from falling into poverty, it is much more than a poverty program. It is a program of social insurance, which provides benefits as a matter of right, not as a result of need. Franklin Roosevelt envisioned a program in which all workers paid in during their working years and drew benefits out when they were no longer working. ... [...the] attack on Social Security is rooted in the politics of fear.

As in so much of our national life, fear makes for bad decisions and taking harmful directions. We can do better.

2 comments:

Damon said...

Nice post. I too wonder about the future of this program. It seems to me that as the baby boomers start to collect, there will be great resistance in that generation to let the program be modified greatly. But, as the baby boomers die, I wonder if younger people will become actively opposed to the program, partly in retaliation for the debt they've inherited from the previous generation. I wouldn't blame the next couple generations if they felt that way, despite what the program is meant to be.

As for the 2% reduction in payments this year, I'm angry because it was effectively a tax increase on low income people and a big cut for me, and I don't need it. I've told my wife that I want to donate that 2% to the first true progressive who wants to run for President.

Eagle Security Solutions said...

Disciplined and functioning society no longer seems to be congenial to developing and nurturing their kind of applied expertise in the service of the common good.

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