Social Security: The Broader Issues

Abstract

In this paper, the author argues that the primary Social Security "issue" is not how to design that particular system for retirees 50 or 75 years hence. Instead the broader question is whether the federal government budget can be adaptable enough over time to best meet the needs of all people over the next 50 or 75 years. Right now, Social Security and other elderly programs have large amounts of growth built into them in fairly rigid ways. Legislators simply cannot create systems with that much built-in growth without having impacts far beyond the systems themselves. This paper analyzes three major areas affected by the existing structure of growth in elderly programs. The first is the budget. Built-in growth does not just affect future budgets; it is already a major factor affecting current budget battles. The second is the labor force. Social Security induces people to retire at what now must be considered late middle age. If that trend continues as the baby boom generation retires, there will be a significant reduction in the percentage of the adult population that will be working. The third is the needs of the elderly. Because legislators have set growth patterns in ways that are acclimated to deal with problems as perceived in the past, the system has become less targeted toward the most pressing problems of the elderly themselves. In particular, for each additional dollar of expenditures it makes, Social Security is targeting smaller and smaller shares of benefits to either the older or the more needy among the elderly. By predetermining growth rules, however, change is hard to make. The structure of the existing system confronts politicians with the dilemma of reneging on some set of promises if they want to make the system better at meeting its basic purposes. What we face as a society is a much broader question of how well we are going to allocate scarce resources to meet the most important needs of our nation. Demographic changes have merely forced this issue to the fore, but they would be there to some extent anyway. The issue plays itself out in the three topics discussed here: the current and future allocation of the federal budget and how those allocations are affected by automatic built-in growth of a few major programs; the extent of future labor force participation by adults and how current institutional structures may be blocking a very natural movement toward work by what will soon be a very large stock of older - but not necessarily old - people with significant capabilities; and the continual allocation of decreasing shares of the elderly budget away from those elderly with the greatest needs.