It Is and It Isn’t

In 2015, towards explaining what the Democratic leadership was seeking with the ACA (“ObamaCare”), I wrote something about the political dynamics of the Social Security old-​age benefits.

“To understand what really drove the Democratic Party to pass the Affordable Care Act, one may look at the experience of the Social Security Act (1935).

“The programme of old-​age benefits — which is what most Americans have in mind when they refer to Social Security — is one that had been failing slowly over the many decades of its existence. Population growth has slowed strikingly, and life-​spans have been extended significantly, so that the number of people paying into the system has declined dramatically relative to the number of people to whom payments have been made. At the same time, in various ways the typical payment per individual has been allowed to climb. The tax used to fund it has never collected enough revenue to do so indefinitely. At times, revenues have been much greater than benefits; but, none-​the-​less, there has never been a moment over the last 50 years or more when the demographics did not show that, within the expected lifetime of a young person, promised benefits would exceed revenues and exhaust whatever had been saved under the revised programme.

“Congress did not plan for the old-​age benefits programme to fail, slowly or otherwise. Congress simply didn’t take a careful look at the future. The immediate concerns of Congress were to exploit the political gains to be had from promising a pension programme, and to short-​circuit political support for the ruinous Townsend Plan. But this slow failure has proved to be hugely rewarding to the party most responsible for effecting the programme.

“Because the programme has failed slowly, there was sufficient time for a large share of Americans to become dependent upon it. It was even, for a while, said to be the third rail of American politics — analogous to the rail delivering current to an electrically powered train, in the sense that touching it would prove fatal. As failure has recurringly loomed, Republicans (having increasingly become the party of opposition to the New Deal Coälition) struggled with how to respond to the failure of a programme with such broad support, while the Democratic Party has been able to position itself as rescuer. The slow failure of their creature has been an important part of the success of their party.

“Although supporters of the programme often speak and write as if opponents would simply and abruptly withdraw benefits from all recipients, a more common suggestion has been to phase-​out the present programme in favor of an overt poverty-​relief programme. Thus, for example, those born after some point in time would received reduced benefits — perhaps in some cases no benefits — if they had income or wealth measured above some levels. This idea meets resistance not only from those who would lose benefits, but from those who would then find themselves on welfare.

“Younger people, looking at a future tax burden, and perhaps doubtful that the next major reforms will prove sufficient to maintain the programme through their own retirements, are most often open to suggestions of reform. But, as time passes and they age, they find themselves having paid much of the tax that they might earlier have hoped to avoid, so that the principal pecuniary result of a phasing-​out would be either to deny them benefits or to place them on welfare. Additionally, as they age, so do their parents, who go from being perhaps middle-​aged to being elderly.

“A sense may often be retained that they would have been better-​off had the programme been phased-​out when they were younger, and that those now young would be better-​off if the programme were phased-​out now. There is, thus, something of the flavor of a sub-​optimal Cournot-​Nash equilibrium to it all. A lot of people would admit that the programme ought not to have been instituted; but, since it was, and since they would personally be hurt by an attempt to end the programme, they will not assist in an unwinding, and may even actively oppose an unwinding.

“And, so, they are increasingly inclined to support the Democratic Party, which continues to promise to do whatever is necessary to keep the programme going.”