Five—
Social Security

As a social insurance program that provides income protection against the hazards of old age, survivorship, and disability, social security represents a limited but generally encouraging model for the investments approach. Medicare, the medical services component of social security, involves both social insurance and other characteristics and is therefore discussed separately, in chapter 7.

Historical Background

The Social Security Act of 1935 marked the first inclusive, long-term effort on the part of the American national government to cope with social hazards.^[1] Civil War pensions, for example, were both categorical and short-term. When these pensioners died off, the United States did not, as some progressives had hoped, follow the industrial nations of Western Europe in creating social insurance for the general population.^[2] Instead, national government efforts declined, and there was less federal public social provision in the early twentieth century than there had been in the late nineteenth. A few state governments, spurred by the American Association of Labor Legislation and other groups, launched their own programs, but these efforts were slow and piecemeal at best.^[3] The principal successes were in workers' compensation programs and, to a lesser degree, unemployment benefits and "widows' pensions."

The depression of the 1930s brought the national government back into the enterprise of helping victims of social hazards. Prior to 1940, however, this help came in the form of emergency pro-

grams offering work or public assistance in response to the exceptional difficulties posed by the worldwide economic crisis. The Social Security Act, meager as its initial provisions now seem, was the first effort on the part of the national government to help vulnerable citizens generally and on a continuing basis. The Social Security Board (SSB) portions of the 1935 act involved three programs: unemployment; public assistance for poor elderly and blind citizens (now SSI) as well as some children (now AFDC); and—of least significance at the time—social insurance for the elderly.

Payroll taxes, an equal and modest 1 percent of a $3,000 wage base on both employer and employee, were instituted in 1937; at that time only workers employed in good-sized private industrial and commercial operations were covered. Under the original plan, modest benefits, starting at $10 a month, were to begin in 1942. But in 1939 the initiation of benefits was moved up to 1940, and eligibility was extended to dependents of both retired and deceased covered workers. This had the effect of shifting social security from a reserve to a pay-as-we-go system.^[4] Additionally, SSB became part of the newly created Federal Security Agency and no longer routinely reported directly to the president. In 1946 SSB was renamed the Social Security Administration (SSA), and in 1949 the unemployment compensation program was moved to the Department of Labor.

Under a major expansion of social security in 1950, benefits were raised by about 75 percent, coverage was extended to self-employed persons and domestic and farm laborers, and state and local government employees were given the option of participating. In 1953 SSA became part of the new Department of Health, Education, and Welfare (HEW). The expansion of eligibility and increases in benefits, tax rates, and the wage base continued such that by 1954 benefits were about double their pre-1950 level, and the vast majority of the labor force was covered.

After a lengthy struggle, disability coverage was added in 1956. Other changes included the extension of coverage to professional groups and the liberalizing of rules, particularly with respect to disability claims. Administration of public assistance was transferred in 1963 to a newly created bureau within HEW. Health insurance for the elderly (Medicare), the focus of a gargantuan debate, was introduced in 1965; SSI, a public assistance program for

poor, blind, elderly, and disabled citizens and administered by social security, was inaugurated in 1974. Throughout this period, the tax rate and wage base continued to climb.

The new era of expansion begun in the early 1970s marked a break with SSA's tradition of careful growth shepherded by the program's senior executives and a pair of congressional committees (Ways and Means in the House, and Finance in the Senate). Some attribute the impetus for growth to the ambitious aspirations of Robert M. Ball, then the SSA commissioner, and his fellow executives. But a variety of interest groups and public officials were also eager to see the program expand. Generous increases in benefits proved to be politically popular, and benefits were raised by 15 percent in 1969, by 10 percent in 1971, by 20 percent in 1972, and by roughly 10 percent in 1973–74.

Two dramatic changes were introduced in 1972. First, benefits were to be subject to automatic cost-of-living increases. Some proponents argued that price-indexing was essential to ensuring steady purchasing power, thus maintaining the relationship between benefits and need. Others viewed the automatic increases as a politically expedient way of rationalizing election-year increases in benefits.

The second change concerned the economic assumptions to be used in calculating the program's future stream of revenues. From the early 1950s the program had calculated its fiscal soundness through a comparison of future liabilities and income. Under an assumption that the program would be continued indefinitely, social security, in contrast to private insurance programs, had not attempted to accrue the funds to cover all future liabilities. Rather, it sought balance through assuring the future revenues to cover these liabilities. One aspect of the calculation of future revenues involved the level wage assumption , under which future revenues were estimated on the basis of current wage levels. But since wages increased over time, the level wage assumption repeatedly produced short-term surpluses. This manner of calculation, with its built-in margin for error, typified the conservative approach of SSA executives during the program's formative years. The dropping of the level wage assumption in 1972, however, removed this actuarial cushion.

Unfortunately, these two changes were enacted just as the econ-

omy slipped into stagflation. The ensuing double-digit inflation meant hefty annual increases in benefits, while high levels of unemployment meant lower revenues for the program.^[5] Short-term deficits occurred and long-term deficits were predicted, based on the falling worker-beneficiary ratio forecast for the early twenty-first century. For the first time since the program's earliest years, serious concerns were voiced about social security's financial solvency.

These difficulties gave rise to a decade-long struggle over funding and benefit practices.^[6] Both the Carter and Reagan administrations took modest measures to cut costs and increase revenues. If these measures are maintained, the program will be solvent through the year 2025, but more fundamental changes are likely to be necessary to accommodate the long-term decline in the worker-beneficiary ratio.

Despite current efforts to slow program growth, social security has continued to expand, both in the numbers of labor-force participants and beneficiaries and in absolute and relative costs. In 1986, nearly 38 million Americans (slightly less than 20 percent of the population) received cash transfers from social security, and benefits are now, even by Western European standards, fairly generous. Although opposition to particular operational aspects has been growing, the program remains popular, and many would agree that "the social security system is among the most effective and successful institutions ever developed in the United States."^[7] As noted in earlier chapters, much of social security's success and popularity reflects the visions of its creators, who presented their innovative program in terms of cherished American political symbols. More importantly, the success of social security in helping citizens survive old age and disability in a dignified manner has indelibly influenced Americans' attitudes toward the general concept of public social provision.

Distributive Justice

Social security operationalizes a sense of vertical, or work, equity.^[8] Recipients have extensive work histories (or, minimally, work histories covering the bulk of their adult lives) and have made regular contributions through payroll taxes.^[9] The program posed some horizontal, or support, equity problems for workers who were in-

eligible because of their age at the time social security was initiated, and a few related problems occasionally arise. However, today roughly nine of every ten workers and retirees participate in the program.^[10] The largest single group of workers currently not covered are federal government employees, who have their own pension programs, but under current legislation, they will eventually be brought into social security. For employees of state and local governments, participation in the program is optional but widespread.

Eligibility for social security benefits has been based on a rigorous interpretation of the investments (effort) principle of distributive justice, to use Hochschild's terms.^[11] Benefits may be viewed as a reward for regular exertion in the paid labor force (or, minimally, for being a dependent of such a person). The scaling of benefits to wage histories fits Hochschild's criterion of results, although since the early 1970s the overall benefit structure has been redirected toward meeting basic needs.

This firm link to regular participation in the work force has facilitated SSA's argument that recipients have an earned right to their benefits, a point bolstered by the use of carefully selected terms: "contributions," rather than "taxes," for example. The most important rhetorical strategy in distinguishing these earned rights from other forms of social provision has been the concept of individual social security accounts. By calling the records of workers' payroll taxes "accounts," the creators of social security effectively evoked the image of bank accounts, sums of money that workers accumulate through their contributions and that are held in their names by the SSA.^[12] And while recipients of means-tested public assistance must exhaust their resources in order to receive benefits, social security recipients simply draw on their personal accounts of prior contributions regardless of current means or need. This concept of earned rights to public income-maintenance benefits rather nicely conforms to American attitudes about human dignity, self-reliance, and self-help, thus clearly distinguishing social security recipients from the "undeserving poor."

Because need is not a criterion for receiving benefits, the program cannot ensure that benefits are used for basic needs rather than for frivolous luxuries. But we have good reasons to assume that most benefits paid out through the mid-1970s were spent on

basic needs. For one, professionals and some other high-income workers were not covered by the initial act; physicians, for instance, were not added to the program until 1965. Additionally, because social security was designed to supplement individual initiative with respect to thrift and savings, the proportion of a retiree's former earnings that benefits provide, the replacement rate, is generally low—around 25 percent for high-income recipients, rising to 40 percent for medium incomes, and climbing to 55 percent or so for those with low incomes.^[13] Indeed, state means-tested benefits have frequently been more liberal than social security pensions. Even in the early 1980s the minimum annual benefit was only $1,464, and the average monthly pension for a couple was $640.^[14] Earned (but not unearned) income greater than a specified amount (currently $7,500) reduces—and once eliminated—benefits.

Since the mid-1970s the system has included increasing numbers of high-income citizens, and benefit levels have risen. But not until 1980 did the percentage of elderly households below the official poverty thresholds fall to levels similar to those among the population at large.^[15] To some degree the formula by which benefits are calculated offsets recent trends. While the dollar value of benefits is directly related to recipients' earnings histories, the replacement rate rises as income falls.^[16] In contrast, the peculiarities of the indexing system adopted in the early 1970s led for a time to gradually rising replacement rates for everyone.

From the standpoint of an individual the redistribution that social security entails can be described as life-cycle: a covered individual contributes to the system when he or she is working and draws benefits when covered social hazards interrupt or halt employment. In comparison to means-tested programs that characteristically redistribute from more affluent strata to the poor, social security thus cannot be viewed as an attack on traditional property rights or wealth. As we will see, even the moderately progressive replacement rates are offset to some degree by regressive taxation and differences in the contributor-recipient ratios of high- and low-income workers.

Given the increases in benefit levels, the rising proportion of affluent beneficiaries, and the concerns about the program's financial

solvency, it is no surprise that social security has in recent years attracted wider critical attention.

Negative Liberty

Involuntary participation was an issue in the legislative wrangling over the 1935 Social Security Act; some analysts and officials preferred a system of voluntary annuities. But since then, involuntary participation has spawned surprisingly little criticism, except from the libertarian position.^[17] This counterintuitive development may be an example of Americans' operational or pragmatic views overwhelming more Lockean abstract or ideological views. But social security has also represented an extraordinarily good investment. Recipients have to date received vastly more in benefits than they have contributed in taxes, and benefits have, particularly over the last fifteen years, offered protection against inflation that few private annuities could equal.^[18]

Social security taxes a fixed percentage of a given wage base—currently (1988–89) 7.51 percent on $45,000. Employers match the worker's contribution. This tax is minimally not progressive in that it takes an equal proportion of earnings from low- and medium-wage earners within the wage base, and it is regressive in that people who earn beyond the wage base pay a lower overall rate. SSA has argued over the years that the progressivity built into the benefit structure adequately compensates for this tax regressivity, but not all analysts are convinced on this point.^[19] One problem with SSA's interpretation is that low-income workers tend to spend a greater period of their lives under this tax structure than do high-income workers, who usually start working later in life. And low-income workers often die younger than do professionals, so the former spend a smaller portion of their lives under the progressive benefit structure.

Social security taxes clearly reduce discretionary income, and for many low-income workers social security taxes exceed their federal income taxes. But aside from the compulsory reduction of discretionary income, the program leaves recipients unconstrained. Because it is a national program, there are no residency restrictions; nor do workers forfeit any contribution credits when they change jobs—a penalty often levied by private retirement pensions.

One of the virtues of direct national government delivery of social programs without third-party intervention is that it obviates complaints about constraints on the liberty of providers. Whenever private physicians have to alter their customary and preferred practices in order to deal with Medicare or other public patients, they can complain that the state constrains their freedom. But social security does not divert providers from their normal tasks to deal with paperwork or transfer payments. Even in the disability program, where SSA relies on state-level vocational rehabilitation agencies, public restrictions on the liberty of private providers are inconsequential.

Economic Efficiency

Relations between social security and various aspects of economic efficiency are disputed.^[20] With respect to social security's effect on work incentives for working-aged adults, some economists see a substitution effect: As taxes reduce the return from work, individuals increasingly prefer leisure. But other economists see an income effect: Higher tax burdens increase the need to work in order to take home enough to meet fixed or rising household expenses.^[21] Under the latter assumption, however, off-the-books moonlighting may seem preferable to labor that is taxed—a phenomenon that undermines social security's revenue base.^[22]

Social security entails some work incentives, but their importance is disputed. The central incentive is that a steady work history will be rewarded by an economically secure retirement.^[23] However, a worker armed with "economic man" preferences and good information would not necessarily produce steadily over a working life of thirty or forty years on the basis of this incentive alone, since social security does not require more than ten years of effort for any category of benefit. Clearly, other incentives—eating in the interim—come into play, and the middle-class character of social security recipients probably reinforces these incentives. By and large social security beneficiaries believe, in part on the basis of their life experiences, that effort returns a variety of encouraging results. Also, in contrast to private or union pensions, social security facilitates labor mobility, easing for instance, the process of mid-career workers shifting from sunset to sunrise industries.

For recipients, the program provides modest work incentives. For example, the earnings test that defines retirement has risen steadily over the years, and the current $7,500 disregard provides an incentive for productive labor. But overall social security appears to act as a work disincentive for those eligible for retirement or disability.^[24] This disincentive is probably stronger for those whose jobs offer few if any intrinsic rewards and for those whose jobs entail hard physical labor. Whether these disincentives are bad is a separate question. During the Great Depression a program that enticed older workers into retirement and made room for unemployed younger workers in the labor force was desirable. As the worker-beneficiary ratio continues to decline, however, these same disincentives may be undesirable. To contain costs, Congress is likely to raise the age at which people become eligible for benefits. But such a move could threaten program work incentives if people, especially low-income workers, cannot reasonably expect to collect benefits for more than a few years.

Some aspects of the survivors and particularly the disability portions of social security have been criticized as sufficiently generous to discourage recipients from working, especially if their options for work are dreary, dirty, or dangerous jobs that offer no rewards other than money. In seeking to protect working-aged adults from episodic social hazards, this argument runs, social security may create "unintended rewards" for experiencing such hazards.

The question of how social security influences the risk-taking decisions of corporate managers or entrepreneurs involves subtle judgments about the relative strength of other factors—such as social security's consequences for work incentives and saving—that are themselves hotly disputed. One smaller issue is, however, clear: social security does increase the cost of doing business. The costs related to handling the paperwork afflict all employers roughly equally, but economists disagree on the effects of the payroll tax. To the degree that this tax—particularly the employers' portion—is considered an added expense necessitated by the program, social security does raise the cost of doing business and thus discourage some risk taking. But to the degree that the payroll tax is considered deferred wages that would go directly to the employee in the program's absence, this deleterious effect disappears. This latter interpretation seems less applicable on the fringes of the labor

market, among small-scale employers or relatively unskilled workers, but even in the mainstream economy social insurance costs may contribute to incentives to move jobs offshore, particularly to third-world countries.

Because payroll taxes contribute to the costs of production, one might also argue that social security hampers the international competitiveness of American goods and services. But cost is by no means the sole determinant of competitiveness. BMWs are not clogging American highways because they are less expensive than Mercurys or Buicks. More importantly, the people who manufacture BMWs pay higher social insurance costs than do American producers. Thus it does not seem appropriate to lay any significant portion of the blame for America's competitiveness problems on social security taxes.

Although the United States does not spend as large a percentage of GNP on public social provision as do most other advanced industrial societies, against the consciousness of American political elites and the population generally, social security commands impressive resources.^[25] And there is the temptation to think that somewhere in the $202 billion that SSA expended in 1987 there exists waste. In response, SSA has repeatedly boasted that administrative operations consume only 1 to 2 percent of revenues, a low rate by comparison with most other social programs or private insurance operations. SSA has also reminded the public that, since no general revenues are used, the costs of the system are borne entirely by the beneficiaries. While this is in a sense true, the pay-as-we-go funding means that current workers are paying for current beneficiaries, and in turn they hope to be supported by the next generation of workers.

During the program's early years, these intergenerational transfers did not attract great attention or create funding difficulties. The program was largely perceived as facilitating a life-cycle redistribution, with old-age benefits bearing a direct and sensible relationship to a recipient's prior contributions. But once benefits substantially exceed contributions—even when adjusted for interest, inflation, and greater productivity with higher standards of living—systematic disparities develop and the intergenerational redistribution cannot easily be recouped.

American social security, like the social insurance systems of

many other advanced societies, currently faces this difficulty. To the degree that Americans take their individual claims to benefits on an "I paid for my benefits!" criterion as opposed to a more general good-faith effort approach, their claims are dubious.^[26]

In order to reduce these intergenerational transfers to reasonable proportions, several changes regarding program taxes and benefits have already been legislated for introduction later. Further changes seem likely. Overall, the program will probably continue to shift further away from a defined-benefit approach and toward a defined-contribution approach.^[27]

Finally, on the criterion of target efficiency, the degree to which benefits are focused on the neediest, social security by design gets generally low marks. Unlike a public assistance program intended to help the impoverished, a system of social insurance serves a socioeconomic cross-section of the public and aims to keep those who confront various episodic hazards from falling into poverty. Thus target efficiency is not among the criteria relevant to the evaluation of social security.

Administrative Complexity

Social security is a federal program that for the most part does not rely on state or local officials. In centralized Baltimore offices, national officials rather quietly carry out an array of complex operations: actuarial calculations, rule development and interpretation, and record keeping. SSA's fairly clear, if not exceptionally simple, instructions do not allow for much decentralized discretion in its field offices. Thus while social security is not a simpler program than the notoriously complex AFDC, its complexities are centralized and hidden, and recipients and the public generally perceive its operations as relatively straightforward. Senior program administrators have also been efficient and effective in choreographing adroit political maneuvers to ensure the program's popular success.^[28] Until the early 1970s SSA executives confidently knew what needed to be done to fulfill the program's objectives, had the requisite expertise to plan the necessary tasks, and had the autonomy to execute and monitor their plans.

Since then, program executives have seen the size and complexity of their tasks grow while their autonomy has been eroded by

the executive and legislative branches.^[29] Given that social security now touches the vast majority of American households, it is not surprising that Congress and the White House have begun to take more interest in the program. In the face of increasing outside intervention in program decisions, even this gifted and devoted program bureaucracy can no longer assure a high degree of administrative efficiency.

Executive and congressional interventions designed to counter funding shortfalls have also focused attention on several distinct limits issues. The first, sometimes referred to as the adequacy-equity dilemma, concerns in part the adequacy of benefits for workers in the lower socioeconomic strata. By design, social security does not single out pockets of exceptional disadvantage and focus its resources on them. Indeed, the program's contributory prerequisites exclude the most disadvantaged, and retirees with histories of low earnings qualify for only modest pensions. At the program's founding, problems of social disadvantage were believed to lay in the bailiwick of short-term public assistance. Public-employment efforts begun during the Great Depression and worldwide economic recovery were expected to ease unemployment, and the addition of survivors benefits to social security would, it was hoped, eventually eliminate the need for public assistance. This view, however, overestimated the national commitment to full employment and overlooked social discrimination, structural unemployment, the inadequacy of the wage structure for household support, and the resulting underclass. Today it seems both necessary and reasonable to ask social insurance to do more than social security now does for the disadvantaged. Early SSA administrators were probably correct that "a program for the poor is a poor program."^[30] Precisely because this is so, the disadvantaged must be incorporated into broadly inclusive insurance programs to the maximum degree that the nature of their resource inadequacy problems allows.

The equity aspect of the dilemma emerges at the other end of the socioeconomic spectrum in the practice of granting relatively high benefits to persons with substantial unearned income. Social security currently serves some households that cannot reasonably be seen as experiencing a social hazard. But halting earned benefits in instances in which aging poses no financial threat carries the risk

of diluting the firm association social security currently has for Americans with principles of distributive justice of which they generally approve—effort and results.

An independent limits concern stems from the narrowness of the range of social hazards that social security covers. In addition to the deficiencies with respect to the three social hazards that are covered, social security offers no general security against catastrophic illness or against wage disruption due to childbirth and or child-rearing to name two basic gaps in protection.

Because social security focuses almost exclusively on people who are no longer expected to work due to age or disability, until recently the program had not prompted many of the harmonization concerns that frequently arise in discussions of social programs. One of the rationales used to sell social security to a hesitant Congress in the 1930s was the encouraging effect it was anticipated to have on aggregate demand, and there is little reason to suspect that these hopes have gone unfulfilled. Precise effects are difficult to estimate, but most social security benefits are spent rather than saved, so they contribute, minimally, to maintaining demand and employment levels. That these benefits therefore also contribute to inflation did not until recently attract a great deal of attention from economists, with the exception of caveats against the double indexing of the 1972 benefit increases (corrected in 1977). Today, however, the overall size of the program, particularly in conjunction with recent federal budget deficits, casts an increasingly long shadow over federal fiscal policy. In the words of Peter G. Peterson, a former secretary of commerce, "the prospects for social security and for general prosperity are now inseparable."^[31]

As noted earlier, social security has had an odd relationship with American concerns for limited and local government. The Roosevelt administration's initial plan for social security was assaulted by Townsendites, among others, as too little, too late for the elderly who faced immediate resource inadequacy problems. At the same time, the Chamber of Commerce and the American Medical Association (AMA) decried the compulsory program as an attack on individual freedom and discretionary income.

In anticipation of these latter concerns, the program's formulators made every effort to distinguish social security from the limited and rather disappointing record of previous American efforts

at public social provision. So, for example, the SSB portion of the 1935 Social Security Act did not use the term social insurance . Two separate bills, one authorizing the collection of payroll taxes by the Treasury and the other authorizing the appropriation of these revenues by SSB, were based, respectively, on Congress' power to tax and appropriate funds.^[32]

Surprisingly, amidst all this hostility, social security prospered. The Great Depression no doubt facilitated the acceptance of the three-rights conception of democracy and the contemporary conception of human dignity, but most appealing was the program's firm basis in the effort-oriented principle of distributive justice. As social security grew to benefit a larger group of people more thoroughly, it increasingly fulfilled its theoretical underpinnings, which in turn themselves became more popular despite American preferences for limited and local government.

Conflicts of Interest and Compliance

Since social security's inception, SSB/SSA program executives have been the public elites most actively involved with social security policymaking. If we examine their initiatives over time, it is hard to argue that they have not been concerned with the objective of helping vulnerable citizens.^[33] The disparities between SSA preferences and what we might regard as recipient interests reflect in part matters of timing and emphasis. The cautious, conservative approach adopted by SSB in the early days can be justified by the need to carve out a secure niche for the immature system in a hostile environment. Nonetheless, as Jerry Cates convincingly argues, several preeminent SSB executives were also swayed by their pre—New Deal experiences with the Wisconsin school of social policy.^[34] Their idea about the proper way to handle social hazards, which Cates terms "conservative social insurance," led them to limit the initial extent of social security benefits and to later reject various liberalizing alternatives. All in all, program executives were more concerned with safeguarding the philosophy and form of their new program than with addressing the needs of the nation's depressionera elderly.

From the mid-1950s on, as social security officials became less fearful of their opponents, the program's conservative orientation

became less obvious, and an effective incremental approach to program development was adopted.^[35] But program executives still insisted on extensive and limiting eligibility prerequisites, the supplemental and wage-based character of social security benefits, and financing through regressive taxation. Since program executives were far more involved in initiating policy than were others in the legislative or executive branches,^[36] their conceptions prevailed. In the 1950s, however, increases in social security benefits were a relatively common accoutrement of election years, and by the late 1960s political candidates enthusiastically associated themselves with program development. And while Congress exhibited considerable reluctance with respect to initiating disability benefits, once the disability program was in place, members of Congress tended to side with disgruntled disability applicants against SSA. To many beneficiaries' advantage, SSA executives are no longer the independent arbiters of their interests.

Employers represent another affected constituency, with the program dependent on employers' cooperation in completing the paperwork and paying their share of the payroll tax. Collectively, individual small-scale employers can limit the program's reach at the fringes of the labor market. Employers of domestic workers and restaurant help have at times circumvented social security by imposing exchanges of desperation on their employees. Other than that, private third-party providers are involved only marginally (disability determination) in the non-Medicare operations of social security.

In the area of compliance with program objectives, social security offers various incentives. For the working-age population, the program reinforces socially approved behavior, namely working regularly and earning as much as possible in covered employment.^[37] The program's capacity for relying on positive reinforcement is bolstered by two exceptional features of retirement as a social hazard. First, it happens to most people and, second, it happens at a fairly predictable time, late in life. A social program aimed at the elderly thus avoids the disincentive problems that plague such programs as unemployment insurance.

Up to now, participant noncompliance with the retirement aspects of social security has come only from small, fairly unrepresentative groups. For instance, some workers would like to opt out

of social security, arguing that they could do better financially with a private alternative. Other workers, particularly those in low-income jobs, are troubled by the tax bite and seek work in the unrecorded labor market.

Recipient noncompliance with social security's disability provisions is more problematic. Although the disability program remains a modest portion of social security ($23 billion as opposed to $171 billion in 1986),^[38] the number of recipients has grown much more rapidly than was anticipated. It is hard to ignore the possibility that people working in low-paying, dispiriting jobs may abuse the program, and the potential for such abuse cannot be eliminated entirely. During the lengthy struggle to add disability coverage to social security, Roswell B. Perkins, an assistant secretary of HEW, argued forcefully that a safeguard would be provided by having disability determined by state vocational rehabilitation agencies.^[39] But the recent growth of disability claims suggests that a revised approach may be needed.

Through it all, SSB and SSA program executives have perceived themselves to be acting in the national interest, and their actions represent a relatively rare example in which statist interpretations fit American politics.^[40] In the last fifteen years the executive branch has increasingly sought to slow the proportion of national resources consumed by social security. This effort will necessarily continue. But antagonistic third-parties such as the Chamber of Commerce and the AMA are unlikely to overturn the program. Even if a serious intergenerational struggle develops over social security in the early twenty-first century, the program might be altered but hardly scrapped.

Summary and Implications

Despite recent controversies, against the criteria applied here social security is a strong program that enjoys an exceptionally encouraging set of attributes from the perspective of the American political culture. Some of social security's strengths, however, cannot be transferred to programs directed at other social hazards. As a public pension program for the elderly, social security intrinsically enjoys greater popular support than any other category of public social provision.^[41] The program's inclusiveness is clearly one

attraction: though not everyone lives to be elderly, most people probably expect and hope to do so, whereas far fewer people expect or minimally hope to experience serious illness, unemployment, disability, or divorce. Additionally, by and large it is not difficult to make the case that elderly recipients have made some contribution to society. Further, the social hazard of retirement is clearly defined by age, although specific eligibility rules (age 62, 65, or 67) may be controversial. Also, the program has a relatively stable beneficiary population, a characteristic that facilitates efficient administration. Recipients die, but rarely do they move off and then back on the rolls.

In contrast, those strengths of social security that arise either from the inherent characteristics of social insurance or from certain politically acceptable design features could be extended to other social hazards. Among these strengths are the focus on distributive justice, the prerequisite of sustained effort, the indexing of benefits to prior wages, and the supplementary character of benefits. The theme of personal accounts, which gives workers a sense of having a personal stake in the program, is preferable to the unemployment insurance system's reliance on employer accounts. Additionally, social security, apart from the taxation it entails, poses few constrains on negative liberty or property. And since social security taxes are regressive, the wealthy cannot on the whole claim that they are paying for benefits accorded to others, even though the benefit formula is progressive. The economic features of the program include some work incentives and some support for aggregate demand and employment. While the cost of the program is high, this cost is in a sense borne by the beneficiaries, although potential intergenerational inequities exist. Finally, because the program targets a fairly representative cross-section of the population, recipients are not stigmatized.

This degree of fit between social security practice and the values of distributive justice, negative liberty, and economic efficiency is insufficient for strict libertarians and free-marketeers. But as social programs go, social security involves less conflict with these values than do some others.

The practical virtues of social security may also provide useful models for other programs. SSA executives have accrued an enviable record of administrative efficiency, and their strong com-

mitment to their vision of what the program should become has contributed importantly to improving American attitudes toward public social provision.

Additionally, social security relies heavily on a structure of incentives that allows for the positive reinforcement of interests people have for acting in productive, responsible ways. It does so by rewarding work and thrift.^[42] It enables people to meet some of life's most disturbing hazards in a dignified socially approved way.

Juxtaposed to these strengths are some weaknesses. Social security creates a pattern of distribution that deviates from what the market would produce. The intergenerational transfers occurring now are hardly modest, and whenever a larger generation is followed by a smaller one, the systematic granting of benefits that vastly exceed contributions are apt to produce serious funding difficulties and intergenerational resentment.^[43] Imbalances between benefits and contributions also become more troubling as a growing proportion of benefits flow to households for whom retirement does not produce much economic vulnerability or constitute a social hazard.

Another potentially disruptive facet of social security derives from its constraints on individualism and negative liberty. Thus far, however, the program's compulsory character has not been keenly contested. This is a surprise, given the position of negative liberty in American political culture. One explanation may be that social security has represented a good deal financially. And perhaps various features of the program's design offset the provocation that compulsory participation poses for individualism and negative liberty.

With respect to economic efficiency, social security clearly reduces the work incentives of people over sixty-five. In 1935 this disincentive was deemed desirable; today many argue the opposite. As a program financed through payroll deductions, social security contributes to production costs. So in both cost-push and demand-pull senses, the program contributes to inflation. As we have seen, however, we cannot attribute America's lack of competitiveness to social security.

In theory social security may be faulted for violating American preferences for limited and local government, but in practice this clash has not affected the program's popularity. Again, this coun-

terintuitive result most likely reflects the program's design: complex operations are centralized in low-profile, efficiently administered bureaucracies.

Despite social security's track record as a good deal, until recently the retirement benefits have been of questionable adequacy. The introduction of Medicare in 1965 and the cost-indexing of benefits have provided some remedies. But social security's targeting of both social hazards and population remains limited, and the program thus presents some horizontal or support equity problems.

Finally, it is reasonable to expect that current obligations to future beneficiaries in conjunction with the declining ratio of workers to beneficiaries portends increased conflict over social security. When the interests of elected officials, SSA administrators, workers, and beneficiaries differ, the burden is all too likely to be borne by the most vulnerable.

That the preceding list of weaknesses and potential problems has not seriously undermined social security's political popularity and programmatic success suggests that some of social security's strengths eclipse its weaknesses—such as its compulsory character, its size, and its central administration. Part of social security's aura derives from its focus on retirement and is not transferable to other social programs. But social security's three quintessential design features can be applied to other forms of social provision: (1) eligibility rests on doing what society deems appropriate for able-bodied adults—working regularly and building a private contribution to financial security; (2) efforts exerted in the labor force create a clear index by which rights to social insurance benefits are earned; and (3) the program's specific features and language evoke symbols richly laden with traditional American values. Such design features have been crucial to the success and political viability of social security, and they can be adapted and extended to protect Americans against some social hazards now under the aegis of public assistance, as my proposals in chapter 8 will show.