What is Social Security?

In a letter to the editor this morning in the Sacramento Bee, a writer asked whether Social Security is an insurance or a retirement program. In reality, one of the problems with the program, is that according to who is describing it, it is both. The program is called Old Age Survivors and Disability Insurance. Although both elements require some fiscal planning, the assumptions between a retirement program and an insurance program are different. In an insurance program, especially one with welfare elements in it (and the S and DI parts are clearly welfare allocations to compensate citizens for unforeseen events) the payouts are not entirely predictable. But the retirement part of the program is entirely predictable – people pay in until a pre-determined age and then begin to draw funds from the program. Obviously, a retirement program can include equity considerations. And an insurance program can (and should) include some actuarial considerations to make the program solvent over time. Until the distinctions of retirement versus insurance and the desired quantities of equity are made clearer, we will not make much progress on either the president’s proposals or on any that will come from the democrats.