Disability Insurance: The Problem of Contagion in the Media

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Tuesday, 26 March 2013 12:56

Economists are used to talking about contagion, the idea that a financial crisis can spread from one country to another. Unfortunately it appears to be at least as serious a problem in news reporting.

Last week This American Life ran a full hour long segment on the Social Security disability program. While the piece was well-done and provided much useful information about the difficulties facing people on the program, it fundamentally misrepresented the economic context. The piece implied that the program has seen a sustained explosion in costs as displaced workers seek it out as a lifeline. This theme has now been picked up in a piece in The Atlantic.

While there have been problems with the disability program for some time, these problems changed qualitatively as a result of the downturn. Disability payments actually had been somewhat below projections until the downturn. The downturn following the collapse of the housing bubble then sent costs soaring. The Trustees projections show that this rise is temporary and projected to fall back once the economy returns to something resembling full employment, as shown below.

ss-disability-costs-2013

Social Security Trustees Reports, 1996 and 2012.

You can get a somewhat fuller discussion of this point in my earlier blog post. Anyhow, before reporters just pick up the This American Life piece and start yapping about how disability costs have exploded out of control, they should take a moment and look at the projections in the Trustees report.

The reality is that the explosion in costs is just one more spin-off of the disastrous economic policy crafted in Washington. We have not suddenly become a nation of slackers or unemployable deadbeats.