“Expanding SS” refers to a suite of fiscal policies that accompany increased generosity of current benefits, or establishing new types of benefits for new recipients.

Wilson’s model predicts that when a policy has both diffuse costs and diffuse benefits (as in Social Security) such policies tend to gradually expand over time. At least half of this is intuitive. If the benefits are widely diffused in the polity, this will result in wide support for expanding those benefits. But would not widely dispersed costs create an equal countervailing pressure? According to Deborah Stone, on the cost side of the matrix, policymaking has a bias toward action and holding the line on costs is more passive and less visible than expanding benefits. Moreover, Stone argues, policymakers can successfully camouflage costs through rhetoric and other devices.14 In her view, this is why a policy like Social Security meets less resistance than Wilson’s model would predict.

Stone, however, questions the whole idea of assigning Social Security to this quadrant of Wilson’s model. She points out that in recent years, debates over Social Security have featured highly active special-interest groups (her example is the American Association for Retired Persons, the AARP) that have managed to successfully define the beneficiaries of Social Security as a more concentrated group than the cohort bearing the costs. Stone made this argument in 1997 and had she waited another decade or so she could have pointed to the cohort of cost bearers (in the form of today’s young workers) also forming special-interest groups to concentrate their identity in the policy matrix.

However, Stone makes the error of mistaking the demographically driven expansion of the Social Security program as being a form of policy expansion (a distinction that will figure at various points in this analysis).15

[Footnote 15]15 The program has certainly expanded in terms of its size and cost, but this type of expansion is not an expansion in policy, rather it is a function of the sheer demographics of population growth. An expansion in policy, as I will use the concept here, involves adopting policies that make the program more generous, or available to more classes of individuals, or make it easier to qualify for benefits, etc. In other words, policy expansion is program growth as the result of policymaking, not merely due to demographics.[End Footnote 15]

Even so, the general point she was making—that whether an interest group is concentrated or diffuse is a relative and moveable assessment—is valid. Stone, however, went beyond this point, to question the basic premise of the Wilsonian typology. In her counter-view: Our ability to move Social Security . . . from one box to another suggests a fundamentally different way of looking at the relationship between problems and policies. Policy issues don’t determine the kind of political contests that occur, but instead, politics shapes the way problems and policy issues are perceived in the first place. . . . a large part of politics consists in trying to influence how other people perceive effects of policies and proposals. This interpretation explains why issues seem to move around on the table as they are played out over time.16

This approach—which places politics in a superior position to the content of policies—is certainly sometimes valid and useful, but is not always true to the actual historical development of a given policy regime. A more sophisticated model of the policy process, particularly in Social Security, has been offered in recent scholarship by professor of government, Andrea Campbell, in her book, How Policies Make Citizens.17 Campbell’s basic thesis is that rather than politics driving policy, as Stone would have it, or policy driving politics as Wilson suggests, there is a reciprocal relationship between political participation and public policy. In her model—extensively documented by opinion survey data— Campbell sees not only political participation influencing policy, but the content of policy also shapes participation. As she states her basic thesis: “I show that mass participation influences policy outcomes—the politically active are more likely to achieve their policy goals . . . And the ability of the politically active to do so is in part a legacy of existing public policy.”18 Campbell refers to this as the “participation policy cycle.”

In this respect, Campbell’s model of policymaking is very much in harmony with the APD models of Pierson, et. al. In the APD model, the idea of “path dependency” is another way of observing how past policies constrain present opportunities to make new policy. The APD model tends, however, to be a little more linear in this regard, whereas Campbell’s model is hyper-dynamic, perhaps even past the point of usability.19

This purpose of this dissertation is not to examine models of the policymaking process, nor will the present research be used as either illustration or critique of any particular model.

This dissertation is not a theoretical or model-building research project. It is likewise not an attempt to identify the stages of the policy process, or to use the examined policies to illustrate any particular policy typology. In common with most policy historians, I tend to think that the thick descriptive details are where the insights lie, more than in the construction of abstracted models. This dissertation will thus be an empirical research effort seeking to understand the policy history and development of key aspects of the U.S. Social Security system. This will be descriptive and analytical policy history. To the extent that this empirical history gives rise to familiar (or novel) patterns of policy development, these may be noted along the way, but this will not be a significant aspect of this research project. However, before advancing to the specific theses to be examined, it will prove helpful to undertake a brief review of the origins and development of the Social Security system in America, as this historical background provides the policy matrix in which the issues to be examined are embedded.

Chapter 2: The Origins of Social Insurance in America

The problem of economic security is an eternal and universal human problem. This is the question of how an individual or a family provides for some assurance of economic support when an individual is too old or too disabled to work, when a family breadwinner dies, or when a worker faces involuntary unemployment. All societies throughout human history have had to come to terms with this problem in some way. The various strategies for addressing this problem rely on a mix of individual and collective efforts. Some strategies are mostly individual (such as accruing savings and investments), others are more collective (such as relying on help from family, fraternal organizations and unions, religious groups, charities, social welfare programs), and some strategies are a mix of both (such as the use of various forms of insurance to reduce economic risk).

The insurance principle is the strategy of minimizing an individual’s economic risk by joining a pool of others who contribute to a central fund out of which benefits can be paid when an insured individual suffers a loss (such as a fire that destroys the home). This is private insurance. The modern practice of private insurance dates at least to the 17th century with the founding in 1696 of Lloyds of London. In America, Benjamin Franklin founded one of the earliest insurance companies in 1752. Historically private insurance was mainly a way that the prosperous protected their assets—principally real property. The idea of insuring against common economic “hazards and vicissitudes of life” (to use President 15 Franklin Roosevelt’s felicitous phrase) really only arose in the late 19th century in the form of social insurance.

Social insurance is a method for dealing with the problem of economic security in the context of modern societies in which most people derive their income from wage-work. The concept of social insurance is that individuals contribute some portion of their wage income to a central fund managed by governments and this fund is then used to provide income to individuals when they become unable to support themselves through their own labors. “Unearned” income, that is, income from investments and other forms of economic “rents” is thus not part of most social insurance models. This connection to paid labor is a defining characteristic of most social insurance schemes, and it is certainly a defining characteristic of the American Social Security system. As we will see, some scholars are critical of this foundational principle, preferring alternative forms of social provision that do not have a necessary connection to paid labor. This preference is as it may be, but for our present purposes, we will be examining the dynamics of the American social insurance system as it exists and as it has functioned over the course of its policy history.

Social insurance differs from private insurance in that governments employ elements of social policy beyond strict actuarial returns in their social insurance systems. Thus, in the U.S. Social Security system, for example, benefits are weighted such that those with lower past earnings receive a proportionately higher benefit than those with higher earnings. The formulae for calculating benefits are thus “socially weighted” such that a low income beneficiary will on average receive a retirement benefit that is about 60% of their working income, while a high income beneficiary’s 16 ratio of benefit to working income will only be around 20%, and a middle income beneficiary will receive a benefit that is approximately 40% of their working income. Such elements of social policy would generally not be permissible in private insurance plans.

The Social Security Act of 1935: The Cornerstone of the American Welfare State

The proposed Economic Security Act was submitted to Congress by the Roosevelt administration on January 17, 1935. Hearings were held in the House Ways and Means Committee and the Senate Finance Committee throughout January and February. The bill was debated in the two houses for a total of 18 days, and it was signed into law on August 14, 1935. The legislation that now is thought of simply as “Social Security” was in fact an omnibus bill containing seven different programs.

Table 2: Programs in the Social Security Act of 1935

Titles Program Description

I Old-Age Assistance Federal financial support and oversight of statebased welfare programs for the elderly

II & VIII Federal Old-Age Benefits The Social Security program

III Unemployment Insurance National unemployment insurance, with federal funding and state administration

IV Aid to Dependent Children State-based welfare for needy children (what would come to be called AFDC)

V Grants to States for Maternal and Child Welfare Federal funding of state programs for expectant mothers and newborns

VI Public Health Work Federal funding of state public health programs

X Aid to the Blind Federal funding of state programs to aid the blind

Note: Title VII of the Act created a Social Security Board to house the federal responsibility for these seven programs and Title XI of the Act contained the General Provisions of the law, consisting of definitions of key terms and standard “separability” and “reservation of power” clauses.

The fact that one of the seven programs under the Social Security Act of 1935 (Title II) has come to bear the name of the Act itself and to be exclusively associated with it, is one of those ironies of this policy history. Even so, the distinction between the various programs in the 1935 Act will prove important because, as we will see, failure to keep these programs distinct has led some scholars to errant conclusions regarding the Social Security program. That is to say, we will see that scholars have mistaken features of one or more of the other programs under the 1935 Act as being features of what we now know as the Social Security program.

Much of the debate and interest in the Congress in 1935 concerned the Unemployment Insurance and Old-Age Assistance programs (Titles I and III of the Act). Most members of Congress paid scant attention to the Title II program, even though history would prove it to be the most significant provision of the law. What little debate there was over the Social Security program involved two major issues: 1) the program’s financing, in particular, the role of a reserve fund; and 2) the question of whether participation might be made voluntary for certain employers.

On the financing issue, President Roosevelt insisted that the program be selfsupporting, in the sense that all its financing must come from its dedicated payroll taxes and not from general government revenues. He viewed the idea of using general revenues as tantamount to a “blank check” that allowed lawmakers to engage in unbridled spending and he feared it would inevitably lead to unfunded future deficits. By tying expenditures to a dedicated revenue source, the program could never spend more than it could raise through payroll taxation. In addition to this concern, Roosevelt believed that a contributory payroll tax would give the program participants “a legal, moral, and political right to collect their pensions.”20 In other words, it would make the program politically as well as financially secure.

However, there are a couple of well-known problems with the start-up of all pension schemes. Typically, their costs are lowest in the early days of the system when few participants have retired and much higher later on when more people qualify for benefits. Funding a pension system on a current-cost basis thus would impose significantly higher taxes on future cohorts of beneficiaries. To offset this tendency, the CES planners proposed using a large reserve fund that could be used to generate investment income thus meeting a portion of future program costs. The idea of the Social Security reserve was thus created. Out of an abundance of caution, the reserve fund could only be invested in government securities or “in obligations guaranteed as to both principal and interest by the United States.” As enacted, the Social Security Act created a reserve that would reach $47 billion by 1980.21 Congressional opponents of the reserve believed that the reserve was unworkable. These members made two arguments: Congress would spend the money in the reserve for purposes of which they might not approve, and the idea of government bonds as a repository of genuine economic value was dubious. Thus, the Republican members of the Ways and Means Committee dissented from passage of the law. Most members of Congress, however, gave no indication of sharing these concerns, and the law was adopted with an overwhelmingly bipartisan vote in both houses of Congress.

The second problem with the start-up of pension systems is that early program participants do not typically have the opportunity to work long enough to qualify for an adequate benefit amount—if their benefits are computed on strictly actuarial grounds. Most pension systems (in both the government and private sectors) usually make some special allowance in the form of a subsidy to early participants. Benefits to the earliest cohorts of Social Security beneficiaries were in fact subsidized in this way.

This kind of subsidy for early recipients is an expression a foundational principle of the Social Security system: Benefits should be both adequate and equitable. “Adequate” means that the benefits should be generous enough to provide real economic security to the recipients; “equitable” means that the benefits should be related in some way to the level of contributions that a participant has made to the system (for example, higher contributions should result in higher benefits). Some policies seek to address the adequacy half of this principle and others seek to address the program’s equity, and policymaking in Social Security is often a question of seeking the best balance between these two factors.

The issue about voluntary participation focused on those (few) companies that had existing company pension programs in 1935. An amendment introduced by Senator Clark (D-MO) proposed that any firm having a plan that was at least as generous as the proposed government plan, be allowed to opt out of participation. This issue held up the bill for a month as the conference between the two houses was stymied by the Clark amendment. Finally, the sponsors of the amendment dropped the provision and the bill went to the President for his signature.

The Development of Social Security in America

The U. S. Social Security program is by far the largest social insurance system of its type in the world. For most of the last 20+ years, the Social Security program (Title II) has been the biggest single function in the federal government’s budget.22 Indeed, the amount of money flowing through the system each year is greater than the Gross Domestic Product of all but the 16 largest economies in the world.23 More than 54 million people currently receive benefits under the system and nearly 200 million are working under jobs covered by Social Security and contributing payroll taxes to fund the program, with the expectation, as President Ronald Reagan put it, “that they will get their fair share of benefits when they retire.”24

The modern Social Security system consists of the three types of cash benefits payable under the program: retirement, survivors and disability benefits. Also central to the system are the automatic adjustment provisions of the program, which aim to keep benefits in step with both wage and price inflation.25 The development of the modern American Social Security system can be conceptualized as consisting of four major policy phases, running from 1935 to roughly 1972.