High Unemployment Masked by Exploding Disability Claims that Lead to Permanently-Higher Government Spending

The official unemployment rate is going down, but that’s partly because many long-term unemployed people went onto Social Security Disability, citing ailments such as depression.  Now that they have a monthly government check, they are never, ever going back to work, and they are no longer treated by the government as unemployed, since they are not seeking work. The Washington Post’s Bob Samuelson explained recently how vast numbers of Americans are going onto Social Security Disability. Carter and Reagan tried without success to reform this program, and were blocked by Congress. The current administration has no interest in reforming it, since it helps mask persistently-high unemployment.

As Zero Hedge notes, exploding disability claims are credited “with distorting the unemployment rate and making it lower than most expect or believe.” It cites a study noting that “nearly 25% of those not actively seeking a job had applied for, and been accepted, by disability — mostly Social Security.” It cites a JP Morgan Chase report noting that “once someone starts receiving these benefits, it’s almost impossible to take them off the program. In 2011 only 1% of the recipients lost their benefits because they were no longer deemed disabled. . .The cost to the federal budget of these programs has escalated along with the number of claimants, and now runs around $200 billion per year — more than the budgets of the Departments of Commerce, Energy, Homeland Security, Interior, Justice, and State combined. Thus a quarter of people who drop out of the workforce and come off the unemployment benefits, simply move to receiving disability payments. And most stay there until they roll into the social security program when they retire — from their disability.”

As the Post’s Samuelson notes,

In 2010, Social Security’s disability program cost $124 billion plus another $59 billion for Medicare (after two years, disability recipients automatically qualify for Medicare). This exceeded $1,500 for every U.S. household. For the past two decades, disability spending has increased at a 5.6 percent annual rate, compared with 2.2 percent for the rest of Social Security.  . . .In 1988, 4 percent of men and 2 percent of women aged 40 to 59 received disability benefits. By 2008, the men’s rate was almost 6 percent and the women’s, 5 percent. . . .Now, mental problems (depression, personality disorder) and musculoskeletal ailments (back pain, joint stress) dominate (54 percent of awards in 2009, nearly double 1981’s 28 percent). The paradox is plain. As physically grueling construction and factory jobs have shrunk, disability awards have gone up.

The JP Morgan report suggests that if anything, Samuelson has understated the problem somewhat. The Obama administration is not the only enemy of reform. As Samuelson notes, lawyers also benefit from the status quo, and would “resist big changes”:

The Social Security Administration initially rejects about two-thirds of applications, but about half of these are appealed by lawyers and other professional advocates before administrative law judges, where the approval rate is between 60 percent and 75 percent. In a series of well-reported stories, The Wall Street Journal’s Damian Paletta showed that the system is open to abuse. But it’s also lucrative. Lawyers and other advocates are entitled to 25 percent of back benefits. . .

Government spending on welfare is skyrocketing in other ways as well. The Obama administration has blocked states’ attempts to fight food stamp fraud, as food stamp use has surged to record levels, with even non-poor people qualifying for food stamps in some states, due to changes backed by the administration.

The stimulus package backed by President Obama largely repealed welfare reform, as Slate’s Mickey Kaus and the Heritage Foundation have noted. In 2008, Obama ran campaign ads claiming to support welfare reform, even though he had actually fought against meaningful welfare reform as an Illinois legislator. This claim was as dishonest as his claims that he would enact a “net spending cut” (which he flouted as soon as he took office) and that America would undergo an “irreversible decline” if the stimulus package wasn’t enacted (when even the CBO admitted that the stimulus will actually shrink the economy over the long run). The stimulus package gave priority to welfare and social spending, rather than useful infrastructure.