SOCIAL SECURITY: A VERY BRIEF OVERVIEW

The Social Security System of the United States, a child of the Great Depression, dates its birth to 1935. It was controversial then and has remained so in varying degrees ever since. The requirement since 1983 to make 75-year projections of its financial prospects, where demographic changes in the age distribution of the population play a key role, have generated sobering, and in some quarters nearly hysterical, reactions about its sustainability. It is not my intent to review these issues in any detail. Many careful studies of the problems facing Social Security have concluded that they can be solved by relatively minor adjustments. An especially cogent analysis in this vein is provided by Peter Diamond and Peter Orzag in their book Saving Social Security — A Balanced Approach (2004). Their adjustments to revenues and benefits are based on three components: improvements in life expectancy, changes in earnings inequality, and what they call the legacy debt that arose from the early recipients’ relatively large benefits…