June 1, 2005

We lay waste our powers  

In re one of my posts on Social Security, a reader writes that

[T]he entire point of Social Security originally wasn't to provide a safety net, but rather to by providing that safety net encourage older people to retire, so that their jobs would be made available to younger people, as younger people tend to spend their income on things that tend to drive the economy.
I don't know if I buy this. It certainly makes some sense from an economic policy perspective to try to put the money in the hands of those who will spend it, but was the money really in the hands of the elderly when Social Security was enacted? My understanding is that a huge percentage of older folks were in poverty up through that time, and that Social Security's single biggest effect has been the dramatic decrease in that statistic. Granted, this effect may not have anything to do with the aims of the architects of Social Security, but it seems strange that a program would be created to push wealth away from one group if that group was already poor.

An interesting counterpoint to this is Clinton's Freedom to Work Act, which allows those over 65 to receive their benefits even if they're still working. I don't know if the goal in that case was to manipulate the labor market, but it wouldn't surprise me. Of course, it was also wildly popular (ie politically) with older Americans, in particular the Wal-Mart greeter set, which is a huge and voting segment of the American population.

Comments
Sweth  {June 1, 2005}

The original 1937 booklet explaining Social Security spells it out quite clearly. After a very good--at times, almost poetic--discussion of the changes in American society that led to the situation where most people were unable to provide for themselves, and thus had to earn money with which to pay for their subsistence, they discuss ways that the Social Security Act would help states to subsidize the needy--and then they distinguish those subsidies from the "old-age benefits" that the SSA introduced:

Under another provision of the act grants are made to the States for old-age assistance. Old-age assistance is not the same as old-age benefits. In old-age assistance Federal, State, and local funds are used to help old people who lack means of their own. Regular assistance may be given to any aged person who is entitled to aid under a State plan approved by the Social Security Board. Thus old-age assistance is helping those who now are old and in need.

Old-age benefits, on the other hand, offer future provision for large groups of people who now are working and earning. Under the plan for old-age benefits, the majority of the Nation's wage earners can look forward to a definite old-age income of their own. Their old-age benefits will supplement any savings these workers have been able to make. They do not have to prove that they are needy. The benefits are theirs regardless of need.

... [T]he Social Security Act helps to assure some income to people who cannot earn and to steady the income of millions of wage earners during their working years and their old age.

(Emphasis mine)

Those old-age benefits, which are what we now refer to as "Social Security", were clearly not meant to help the elderly poor, but instead to provide stability of income to the elderly, regardless of their level of poverty or lack thereof. The only reasonable goal of providing that kind of stability is to offer the elderly who could work the "luxury" of retiring, and in the process freeing up jobs for younger workers. Roosevelt said as much himself in a 1935 speech discussing his proposal:

The establishment of sound means toward a greater future economic security of the American people is dictated by a prudent consideration of the hazards involved in our national life. No one can guarantee this country against the dangers of future depressions, but we can reduce these dangers. We can eliminate many of the factors that cause economic depressions and we can provide the means of mitigating their results. This plan for economic security is at once a measure of prevention and a method of alleviation.

Evan  {June 1, 2005}

Paul, ignore the comment.

The impetus for Social Security came from a mass social movement of elderly Americans, with the epicenter in my hometown, Long Beach. Dr. Francis Townsend organized hundreds of thousands of older people around the country behind his Townsend plan, which put forth a plan for a social security program in FDR's first term, before he put forward any such idea. An article on Townsend is here: http://www.post-gazette.com/pg/05037/453041.stm

Also, in 1934, Upton Sinclair's run for governor of California (the EPIC--End Poverty in California--plan) attracted FDR's concern, as Sinclair was running as a Democrat and was far more radical than any of the initial New Deal plans. Fearful that he would tarnish the name of Democrats across the country, FDR met with Sinclair and discussed his campaign. FDR was also concerned becase Sinclair had a social security plan in his campaign platform, something that he was planning to introduce after the midterm elections in 1934. Roosevelt persuaded Sinclair to drop his social secuity plan by promising to introduce a federal plan.

Sweth  {June 1, 2005}

Evan, before you suggest that comments be ignored, perhaps you should read the very articles that you cite. The Townsend plan was even more explicitly designed to redistribute income than FDR's plan; as that Post-Gazette article says:

A key part of the Townsend scheme was that every pensioner would have to agree to completely retire from the work force, supposedly opening up jobs for all the younger people who weren't employed, and agree to spend their pension payments within 30 days of getting them.

paul  {June 1, 2005}

Sweth -- for one thing I never said that the point of the program was to raise the edlerly out of poverty; I just said this was the primary effect. But even so, I don't see how providing workers with income stability or the luxury of a retirement has to be about making room in the labor force for younger workers who are better spenders. None of what you quoted spells that out... and it seems to me there could be plenty of other "reasonable" goals, having to do with intergenerational equity, progressive ethics, providing hope in the middle of a depression, etc.

Either way, I'm much less interested in the original intent of the Social Security program than I am in the way it is perceived by Americans today, since this is much more relevant to the political reality of changing or not changing it -- and surely you'll concede that views have changed significantly over the course of the past 70 years.

Evan  {June 1, 2005}

Sweth, I read the article. The passage you quote doesn't confirm the claim in the comment that Paul quotes--that Social Security intended to remove elderly Americans from the workforce, and that a safety net was a secondary effect. While that was part of the Townsend Plan, much more important was that elderly Americans demanded a proactive welfare program from the federal government, which they were willing to leave their jobs (of course, not everyone in Townsend groups were employed, and many of those that were working were previously retired and went back to work in order to cope with the effects of the Depression) to achieve.


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