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Addressing Social Security’s Adequacy Problem

By Matthew Yglesias on November 5, 2010 at 8:31 am

"Addressing Social Security’s Adequacy Problem"

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Earlier this week, Peter Orszag proposed an effort to address the long-term actuarial gap in Social Security’s finances, presumably in part by reducing benefits below the currently promised level. Dean Baker shot back with a variety of arguments, one of which is the underrated observation that the Social Security benefit “is already small by international standards.”

And, indeed, there are real questions about the adequacy of Social Security benefits. For example, though the Great Society was hugely successful at reducing poverty among senior citizens the existing retirement safety net has not eliminated elder poverty:

Of course this raises the question of what kind of political dynamic could help address the adequacy problem with Social Security. Silja Haeusermann of the University of Zurich did an interesting Monkey Cage post a while back about the 2003 Swiss pension reform, which combined net reductions in expenditure with increased benefits for the most vulnerable workers. She claims this is, in general, the most viable path forward for countries facing pension difficulties:

[R]eforms could be achieved, under the condition that governments combine cutbacks with elements that benefit the most precarious social groups, mostly low-skilled, young and female voters. In a book that will be out with CUP this month, I have shown that this kind of “package deals” has become a necessary condition for successful pension reforms over the last 20 years, not only in Switzerland, but also in Germany, France and other European countries.

The Social Security proposal that Orszag wrote five years ago with Peter Diamond had more-or-less this structure. Better benefits for the most vulnerable classes of retirees than currently exist, but less for the middle class majority.

That’s not to endorse Orszag’s plan. But it is to say that progressives should consider this adequacy issue to be more than just a talking point. It’s a real issue. Social Security is supposed to keep people out of poverty, and it doesn’t do as good a job of that as it could or should. Getting that changed would be desirable, whether in the context of an overall fix or not.

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