Tuesday, July 24, 2012

Social Security Reform: Disability Insurance Benefits

Reality should be hard on policy failures

As discussed in last month’s postings, the Old Age and Survivors Benefits component of Social Security could be made viable by voluntary individual actions.  It only requires adjusting the program to reflect twenty-first century reality. The adjustments have no financial cost and minimal political cost, but they require encouraging longer work lives necessitated by increased life expectancies. A major obstacle to responding to reality seems to be that it would mean those politicians who want to run on class warfare-based lies would have to leave Social Security out of their rhetoric.  Some politicians find changing their rhetoric difficult, but others would quickly recognize that there are other ways to take advantage of the politics of envy.
Fixing the Disability Insurance component is more complicated.  Disability is an interesting phenomenon.   At the aggregate level it’s easy to analyze and identify, and as will be discussed tomorrow, it has almost nothing to do with disability.  It’s a different story at the individual level.  It’s extremely hard to analyze and identify, and usually has everything to do with perceived disabilities.
As a consequence, Disability Insurance is too convenient as a way for politicians to hide policy failures.  It is just so darn easy to get away with contradictory positions.  It’s apparent nothing related to disability is ever questioned.  For example, we pay lip service to providing the disabled with equal opportunities.  Simultaneously we provide Social Security Disability Insurance on the assumption the “disabled” can’t work.  Yet, we see no contradiction.  Further, we embrace advances in medicine that improve the ability to diagnose disabling conditions while ignoring medical advances that improve the treatment (e.g., we will have an Olympic sprinter running on prosthetic lower legs).  The reason is that the more government uses SS Disability Insurance to offset economic policy failures (lack of growth and the resulting high unemployment), the more popular it becomes.  
Meanwhile, the public is wise to the game and plays along.  Yet, the public shouldn’t be blamed.  We acknowledge that individuals aren’t always capable of assessing their own capabilities.  However, we fail to realize the same situation all too often applies to disabilities.  We completely ignore the role of motivation as an influence on ability and disability.  We pretend experience doesn’t influence an individual’s perception of disability.  Further, we totally overlook the role of an individual’s economic circumstances in defining disability.  Finally, we concede the judgment of what constitutes a disability to the faceless bureaucracy of government while ignoring the additional complications introduced by the bureaucrat’s prejudices.
The solution is so obvious, but it requires major changes in programs.  Most importantly, treat disability as a policy issue and totally separate it from Social Security.  Perhaps eliminate it as a component of the SS program.  There is no logical reason to complicate a program driven by demographics by folding in a program driven by business cycles. As administered by government, SS Disability Program is more like Unemployment Insurance than Old Age and Survivors benefits. 

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