The historic effectiveness of the Social Security program must be evaluated.
The Social Security Act is considered the first federal social welfare program in American history, being signed into law by President Franklin Roosevelt in 1935. American government pensions have existed for government employees and veterans since the Civil War, and private pension systems even longer. There was not great support for a public pension system in the US, as voluntary association and self-sufficiency was the standard. An example of this is the fact that nearly 90 percent of people over sixty-five in New York were not reliant on any sort of organized private, or public assistance programs prior to 1935.
Some assume that the Great Depression would automatically lead to an absolute devastation of the private pension system. Fortunately, this was not the case. More than 85 percent of private pension plans in existence operated normally during 1932. FDR would champion a social security bill in 1935, arguing that it was true insurance for all retirees. Amendments were introduced, including an amendment to allow Americans to opt out if their private pension system was more lucrative. It was not included in the final act, thus killing any competition in the pension system. One main argument against a compulsory social security system was that it could discourage hiring, as it would increase the cost associated with each employee. So, during the worst depression in modern American history, through the payroll tax, the president championed legislation which would force older people out of work and discourage business owners from hiring more labor.
The historic effectiveness of the Social Security program must be evaluated, and ideally compared to the private pension systems which are becoming less and less prevalent. The Social Security Administration’s published outcome indicators are meant to be a starting point but come with additional complications and red flags. Data provided an available report is mainly from the years of 1998-2002, it is thus extremely limited in its reporting. The report claims that it achieves high levels of eligibility and of utilization. This is of course, true, and would be true of any governmental program which is compulsory. The data provided shows a decrease in labor force participation of men between the ages of 25-54, but an increase of participation for men from the ages of 55 to 64. Participation also increased for men 65 and up. This trend should show some indication as to how Social Security benefits may not have benefited the government’s intended demographic.
The next indicators used are measures of adequacy, equity, and reliance. The main data presented for the five years given indicates how much a person receives from benefits in relation to their previous monthly income. Those from lower incomes will see up to a 70 percent match to their previous monthly income, while those in the high-income bracket may see as low as 30 percent. There is also data which suggests an overall decrease in poverty during a four-year period, but it is unclear if this is due solely to this program. The study points to a supposed increased level of reliability, as the percentage of families using OASDI for 50 percent, 90 percent, and 100 percent of their income slightly increased during the five-year time frame given. An increase of only 1-3 percentage points in each category is seen, which does not seem immediately significant.
Benefits to those who are temporarily disabled are next examined. The report admits that only a small fraction of recipients makes over their designated income amount, indicating Substantial Gainful Activity, (SGA). This simply means that a very small fraction of receivers worked enough to trigger the suspension, or termination of SSI benefits. Put into numbers, from the years 1999-2002, an average of 6.8 percent of SSI recipients worked at some capacity; and only .6 percent of working recipients met SGA requirements, with the rest working at, or below it. Without the examination of outside factors, and assuming a similar trend two decades removed, this would indicate that recipients of temporary SSI benefits are very unlikely to return to the workforce at full capacity.
The final indicator is the use of private pension plans. The administration notes that around 50 percent of the US population has been part of a private pension plan since the 1970s, with participantes dwindling greatly. The data notes that older individuals increasingly have insufficient savings to supplement Social Security payments, and that pension plans are being transitioned to defined contribution plans, which have associated risks that come with market changes.
This government report from over two decades ago is lackluster at best. The SSA failed to meet some of its own KPIs, while others were faulty from the start. While there are high levels of eligibility and utilization, this is not a marker of the necessity or effectiveness of said program, but simply how well the federal government has a grasp on coercive implementation. The Social Security Act is binding, and the components are seen by many as compulsory, with a complicated exemption process. It is not surprising that most of the population is eligible for this extremely accessible, and heavily subsidized program. The second indicator points to the reliability of the program. It is true that the number of participants using benefits for 50 percent or more of their income did rise slightly during the timeframe given. This amount is not significant and has potential negative externalities. Increased reliance on federal programs is not a sign that a program is beneficial for the economy; it is a sign that a program is siphoning participants away from the private sector, thus leading to more individuals who are reliant on the tax-funded program. This is problematic, especially as the program’s funding relies on the working, and thus taxed, population. More low-income participants means less funding for the system to tap into for future users.
Those who are temporarily placed on Social Security benefits are very unlikely to come off, as indicated by this data. One can point to human nature, the unemployment levels of the years examined, or to other factors, but the data is clear that the benefits greatly discouraged a meaningful return to the workforce during the four-year period that was measured. In the long term, this is a problem, as young working people need to contribute to the system to make it work. The use of private pension plans is then examined. There is no comparison to the cost efficiency of private plans, but simply the fact that roughly half of American adults have access to a private plan, and have had access since the 1970s. Older adults having far less savings is also not an ideal outcome, as the state is not immune to the effects of inflation or an insolvent program, thus potentially harming the quality of life seen by SSI users.
There are warning signs which point to the Social Security fund being insolvent by the year 2035. This short window into the effectiveness of this system should give clues as to why. Employers must pay more to hire an individual, leading to a marketplace where low-skilled workers are constantly priced out. This has worsened in recent years, as even recent college graduates are having trouble finding meaningful employment. Employers would also rather have the option to spend less to match their workers’ 401k, or similar fund, rather than provide a set pension.
This is the case, as Social Security is often seen as primary support, rather than supplementary. As more people become eligible for benefits, fewer are working to fund these benefits. Birthing rates have also dropped significantly when compared to the rates of 1935. Finally, these plans are not competitive. Employers used to pride themselves on the excellent retirement funds/pensions which were made available to employees. Rather than rely on innovation to create more meaningful retirement plans, the state has imposed a one-size fits all plan onto the American public. FDR, in his attempt to signal his goodwill to desperate Americans, championed a policy which was doomed to harm future generations.
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