Social Security

As an issue they were studying became the center of a heated national debate, Eric Patashnik’s students saw the complex mechanisms of American policymaking in action.

By Robert Brickhouse (MFA, Creative Writing '91)
Patashnik.

Patashnik.
Photo by Jack Mellott.

Last semester the students in a seminar taught by Eric Patashnik (History, Economics ’87) had a rare opportunity to observe firsthand the complex mechanisms of American policymaking as an issue they were studying unfolded before their eyes. They received a healthy dose of history and economics while noting the roles played by partisan maneuvering, powerful institutions and public opinion.

Although few of us will examine the issue as closely as Patashnik’s advanced undergraduates did, all Americans now have a front-row seat at this “unique window” into our society’s hopes and values. The subject of our ongoing national seminar is the fate of the largest and most popular government program, Social Security.

Some leaders, including President George W. Bush, argue that Social Security requires a fundamental change to its structure, while others say that only incremental fixes are needed to preserve what has been a fair and responsibly run system. “How it is resolved will have massive implications for the economic well-being of both seniors and workers,” said Patashnik, an associate professor of politics who has written widely on economic and social policy.

Patashnik and his students took a demanding and even-handed look at all parts of the Social Security question. An essential problem is that the benefits owed over the next 75 years are eventually going to be much greater than what would be collected, as the number of retirees grows faster than the number of workers who pay into the system.

Conservatives and Republicans, including President Bush, propose changing the system to allow younger workers to divert a portion of their Social Security payroll taxes into individual investment accounts, allowing the possibility of higher growth but with market risk. Liberals and Democrats hope to preserve the basic structure of the guaranteed system established by President Franklin Roosevelt in 1935. They have suggested a variety of modest but possibly painful mechanisms that would keep Social Security solvent, including raising the amount of wages subject to the Social Security tax.

After their scrupulous analysis from all angles, “a slim majority” of the 22 students, reflecting the views of many younger Americans, favored some form of “privatization,” Patashnik said, “because they thought it would give them more control over their lives.” In short, they had more confidence in the market than in government.

But the entire class had two important reservations, Patashnik said. “They were very concerned about what would happen to poorer Americans” under privatization because they realized that Social Security has been highly successful in lifting people out of poverty; for many it is their only source of income.

The other student reservation was belief in the need for U.S. fiscal responsibility and concern over more government borrowing to fund benefits during a transition to private accounts. “The class was unanimously opposed to privatization if the transition costs would add to the already large federal budget deficit and simply be passed on as another problem for future generations,” said Patashnik, who has taught at UCLA and Yale and has been a fellow at the Brookings Institution.

His own view is that the odds are heavily stacked against a bipartisan compromise because of the ideological polarization of the two parties. Yet he also thinks that action cannot be ruled out. One politically possible scenario would be to maintain the existing system, with modifications to keep it solvent, and “add on” an Individual Retirement Account-like feature. While many Republicans will resist this kind of centrist reform package, President Bush, mindful of his legacy, may push hard for a deal. But Democrats may not negotiate unless Bush first takes privatization off the table, which would alienate many conservatives in his own party.

Patashnik is equally interested in why Social Security, the famous “third Rail” that politicians dare not touch, has arisen now as an issue. He cites political scientist John Kingdon’s notion that “three streams” — a problem, solutions and politics — must intertwine for action to happen. The problem is that Social Security has been a pay-as-you-go system, and with demographic change and Americans living longer there will not be enough money coming in. Furthermore, “the entire budget is on an unsustainable path,” Patashnik said, because of recent tax cuts and the rising costs of health care programs like Medicare and Medicaid.

The solutions that have arisen include allowing private investment accounts and making incremental adjustments to keep the system strong. But “the political stream is the most important and has several elements,” Patashnik said. Those elements are that a growing number of Americans have become stock investors and are increasingly familiar with financial markets; that Americans’ trust in government has declined in recent years; and that liberals and Democrats are not in power at the moment.

Conservatives have long wanted to dismantle Social Security, the most popular and successful liberal program ever since it was founded during the Great Depression, Patashnik said. “Conservatives have always seen it as a major expansion of government” and for many years have sought ways to convert at least part of it to the private sector.

But, with risks and costs, “the more people find out about private accounts the less they like them.”

Democrats, for their part, “need to acknowledge that real Social Security reform will require someone to pay more,” he added, whether it involves raising the retirement age, modifying benefits, or increasing the wage base from its current cap at $90,000 or some combination.

One sure bet, he said, is that whatever happens in coming months, the issue of Social Security will continue to offer political complexity, and its window on American politics is not going to disappear. “It is a great way to look at the inner workings of American government.”