Academic journal article Economic Inquiry

The Growth of Social Security: Electoral Push or Political Pull?

Academic journal article Economic Inquiry

The Growth of Social Security: Electoral Push or Political Pull?

Article excerpt

THE GROWTH OF SOCIAL SECURITY: ELECTORAL PUSH OR POLITICAL PULL?

I. INTRODUCTION

During the post World War II period, the social security program was among the fastest growing programs in the federal budget, surpassing defense spending as the largest category of expenditures in the mid 'seventies. The program which disbursed only 132 million dollars in 1942, disbursed more than 156 billion dollars forty years late, a thousand-fold increase. As a consequence of this growth and the program's recent financial problems, a number of economists have turned their attention to the economics of social security. Recent examples include Kahn [1988], Boskin et al. [1987], and Veall [1986]. Yet only Weaver [1982] and Turner [1984] attempt to analyze the growth of the social security program. Weaver's legislative history of the program suggests that special interest groups had a major impact on social security programs. Turner argues that program benefit levels are affected by demographic changes which affect the cost of intergenerational redistribution. In this paper, we use the public choice approach to explain increases in benefit levels from 1946-1980.

We develop and test three alternative public choice models of the politics of retirement benefit levels. Our analysis thus sheds light on an important question neglected by previous research. Have social security expenditures grown because special interest groups have effectively "captured" the Congress, or is Congress simply responding to demands placed on it by the electorate? The answer to this question is relevant to normative analysis of existing programs and to alternative proposals for reform. In addition, our study of the principal determinants of the growth of program benefit levels serves as an event study for assessing the merits of alternative theories of political decision making.

Borcherding [1985] discusses two public choice explanations for the growth of public expenditures. First, Public programs may expand as a result of the voting rules which underlie the political process. When decisions are made by majority rule, an increase in the median voter's demand for public services tends to increase public service levels because prospective candidates will revise their policy positions in order to be elected. The Wagner [1958] hypothesis, for example, maintains that increases in real income cause individuals to prefer both absolutely and relatively larger public expenditures. Borcherding notes that about 40 percent of the rate at which public sector spending has replaced private sector spending over the past eighty years can be explained with a median voter approach. Such an approach does better in what Borcherding calls traditional areas of public expenditure, where a median voter model can account for about 73 percent of the rate at which public expenditures, excluding transfers, have displaced private expenditures.

The median voter might favor public transfers to the elderly for two reasons. First, he may have an interdependent utility function in which the plight of the elderly poor arouses a charitable response. While the redistribution from young to old does not simply target the old poor as a group, the elderly do seem to be relatively less wealthy than the middle aged and the yound if one considers the average capitalized value of future income receipts from labor and capital.

Second, to the extent that the social security program offers a connection between reductions in current consumption and increases in future consumption, it is a rather complex savings and insurance program. The median voter's motivation for transferring monies to today's elderly may be a vehicle for ensuring future transfers to himself. While this explanation is difficult to motivate at the individual level, since a savings program for future retirement need not pay anything to today's elderly, a continuing program of tax-funded transfers is plausible method of establishing the moral constitution necessary to ensure that future transfers do in fact take place. …

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