The Future of Social Spending

There are some who believe that Social Security will go bankrupt unless it is changed. Others assert that a switch to private accounts will result in a decrease in the amount of benefits that are guaranteed. A common view is that once social spending programs are introduced, they are never dismantled. I don't believe that any of these statements are correct.

First, the point about a social spending program going bankrupt if interpreted literally is unlikely. No social program will likely be forced to go through a bankruptcy proceeding. Naturally a program cannot spend money that it does not have. A program can, of course borrow money or be financed out of general revenue, but this is much different from bankruptcy.

As for Social Security, the important issue is what happens if congress fails to make any changes in existing legislation. My understanding is that the program will continue to give the benefits that are established by law until the "trust fund" runs out. The trust fund is seen by some as a legal fiction since it is money that the government is lending to itself, but it is part of the law. In order for congress to permanently remove this money from the Social Security system congress would have to pass legislation. Since we are considering what will happen if they do not, then for the purposes of our discussion the trust fund is quite real. Once the trust fund runs out, benefits will automatically be reduced so that the system pays out no more than it takes in. This is projected to result in a sudden 30% reduction in benefits.

Whether it is actually realistic that congress will allow Social Security benefits to suddenly drop by 30% is another matter. There are many reasons for believing that this is unlikely. However, any change from this policy will require the approval of the president, a majority in the House of Representatives and 60 senators.

This is the reason why it is not accurate to talk about guaranteed benefits. Social Security has the legal status of a social spending program. Some look at it as a forced savings and investment plan, but this is not how the program is treated in the courts. None of the money that retirees receive is guaranteed. The whole program could immediately be eliminated by an act of congress, although congress is unlikely to act in that way. For this reason, predicting how congress is likely to respond to a sudden 30% reduction in benefits depends on guessing about the future mood of congress.

This brings me to the point about the alleged permanence of social programs. Social spending in the future depends on what congress is likely to do in the future, which in turn depends on what voters are likely to want them to do. The observation that voters have never called on congress to eliminate a social spending program once it had been erected does not imply that they will not do so at any time in the future. In fact, I suspect that this observation depended on looking at what happened during a period of time when an important demographic shift in the voting population favored expansion of the social welfare state.

The economist John Lott has shown evidence that the recent increase in social spending dates back to the point in time when women were first allowed to vote. He points out that women in general and single women in particular are more likely to support higher social spending. If this is the case, then this trend is unlikely to continue. The reason is that life expectancy is increasing. Thus for each age a larger proportion of the population is likely to survive to enter the next age group.

There are roughly 105 males born for every 100 females. Roughly 3% of men and 1% of women will be gay. Thus if an equal number of men and women reach child bearing age, there will be about 102 men for every 99 women available for marriage. This will make it easier for women to get married. This will mean that single women will make up a smaller proportion of the electorate.

This might motivate congress to take the sudden 30% decrease in benefits as an opportunity to decrease benefits without the necessary 60% majority in the Senate. In fact any departure from this policy will require such a majority in order to pass. We are likely to suddenly move from the level of spending that 40% approve of to the level supported by 60%. The more people have to approve, the smaller the level of spending will be.

In the past, no social spending program was likely to be dismantled. This is because in order to remove such a program 60 senators must dislike it, even though at some point in the past 60 senators approved. The level of spending would have to decline in popularity in the Senate from 60% down to 40%.

What is necessary to dismantle a social program is a sustained decline in popular support for social spending. If I am right, we are likely to experience such a decline.

I would predict that our Supreme Court will be the branch of government that will remove social programs. They are likely to do so on the basis that programs of this sort are not specifically enumerated powers of congress. Hence, they will argue that congress had no authority to implement the programs to begin with. It will take some time until the president will be able to appoint justices who support this point of view, but I suspect that this will be easier than reducing the programs with the approval of 60 senators. The Senate will find it politically costly to allow positions on the Supreme Court to remain vacant. A filibuster on a piece of legislation will be much less so.