"Social Security" Under the New Deal
- The social-security bill was with signed by
the President on August 14 with a succession of pens and under flood lights--as
if to make up for the previous lack of publicity accorded it. Never before
in the history of this or any other country has a bill of such great scope
and import been passed with public opinion in such a daze about the issues.
Unfortunately the present law seems doomed from the start by its complex,
slovenly, and mangled character. The subject of social insurance, in which
economics, politics, statistics, social policy, trade unionism, wages, and
industrial production are intertwined, was barely discussed in tile United
States prior to the President's message to Congress in June, 1934, when he
promised to undertake "the great task of furthering the security of the citizen
and his family through social insurance." For more than half a century social-insurance
programs have been keen political issues throughout Europe, but here there
has not been even academic interest; our newspapers gave the subject no notice
until a year ago and have given it very little since. Everywhere abroad social-insurance
measures have been championed chiefly by organized labor. Our labor movement
has either opposed them or given half-hearted and uninformed support.
- No wonder, therefore, that the President's
speech of June 8, 1934, fell like a bombshell on the country. The most ardent
advocates of social insurance in America were bewildered by its boldness and
political audacity. Even more deluding was the almost universal approval which
greeted the speech. Everybody jumped on the social-security bandwagon. Governors
made it their campaign issues. Congressmen spoke for it. Candidates for state
legislatures made it a plank in their platforms. Even candidates for city
councils and sheriff's offices felt compelled to declare themselves in favor
of social security. And when, on November 6, 1934, the American electorate
gave the President the most Democratic Congress in two generations, hopes
were raised sky-high.
- Like all nine days' wonders, it was too good
to be true. The President spoke of "social security," and who could be against
that? True, he did mention "social insurance," but why bother to discover
the meaning of so strange a term? Of several hundred articles and newspaper
stories on social security appearing during the past year, less than a score
attempted an analysis of social insurance Social security was identified with
old-age pensions, for an ardent twenty-year campaign for old-age security
had brought about a tremendous popular demand for old-age protection. More
than half the states had actually adopted pension laws. This movement had
gained such popularity that it attracted a galaxy of nondescript promoters
ranging from the Fraternal Order of Eagles to the messianic Dr. Townsend.
The country was thus clamoring for old-age pensions. But the Administration.
symbolized by Madame Secretary Perkins, seemed for a while almost totally
unaware of this uproar. Miss Perkins had been principally concerned with the
problem of unemployment insurance. As late as November 14, 1934, there was
an attempt to confine the federal program to unemployment insurance. At that
time the President, in a speech admittedly prepared under Miss Perkins's supervision,
said, "I do not know whether this is the time for any federal legislation
on old-age security."
- This conflict in basic objectives marked only
the beginning of the confusion. Difficulties were inherent in the very make-up
of the President's Committee on Economic Security. For in creating a committee
to study this subject and prepare legislation, the President, instead of setting
up an expert commission, entrusted the subject to five of his busiest Cabinet
members, already driven to distraction by the many tasks of the New Deal program.
The responsibility for formulating the concise and comprehensive legislation
fell naturally upon the chairman of the committee, Miss Perkins. For one reason
or another Miss Perkins ignored the recognized American students of the problem.
A one-day circus was staged in Washington on November 14 with over 300 "experts"
in attendance and with the formal speeches so arranged as to frustrate one
another. A staff composed largely of complete novices in social insurance
or of persons connected with some fringes of the problem was recruited to
advise the Cabinet committee. There were also a Technical Advisory Committee
of office-holders, government office-holders, some fourteen other committees,
and an Advisory Council of prominent representatives of the public, employers,
- The direction of the committee's staff came
exclusively from the chairman of the Cabinet committee. Since Miss Perkins
had no particular panacea for old-age dependency, the staff was comparatively
free to work out this phase of the program. Had their recommendations been
followed, we might have had a constructive method of meeting the problem of
old-age dependency. But Miss Perkins had a palliative for unemployment. Early
in 1934 she sponsored the Wagner-Lewis bill providing for the encouragement
of unemployment insurance through the tax-offset method. This involved a federal
tax on employers' payrolls throughout the nation, to be remitted to employers
who paid a duplicating tax under state unemployment-insurance systems.
- When, after the nation's reaction to the President's
speech of November 14, it became clear that action on old-age security could
not be postponed, old-age pensions were added to the-security program. Since
the old opponents of labor legislation were busy fighting the NRA and other
New Deal activities, their opposition to the measure was palsied. They were
also convinced that it was useless to fight the swelling tide of enthusiasm
for old-age pensions, and they were not much worried about the cumbersome
tax-offset method proposed, since they felt this would either be held unconstitutional
or prove so complicated and irksome as to nullify itself. There remained only
the question of health insurance. Here the reactionary American Medical Association
got busy at once and succeeded in suppressing any suggestion for health insurance
made by the Cabinet committee, as well as the committee's staff report on
health insurance, promised for March 15, 1935.
- The Administration had probably never dreamed
that it would have to do more for old-age security than establish a system
of federal subsidies to states enacting standardized pension laws. Such bills
had been before Congress for many years, and committees in two successive
Congresses had reported them favorably. This legislation would have passed
the Seventy-third Congress had not the President promised a more comprehensive
program for 1935. But when the Cabinet committee learned of the future expense
involved--considerably exaggerated by the staff because of unfamiliarity with
the problem--it indorsed the logical plan of instituting simultaneously a
system of contributory compulsory old-age insurance. Although handicapped
by a total lack of information on a subject requiring years of study, the
staff did draft a reasonable plan, which was approved by the Cabinet committee
and incorporated in the original bill.
- This plan provided for payroll contributions
from employers and employees to reach 2 1/2 per cent each within the next
twenty years. Pensions to all insured were to begin in 1942 out of money borrowed
from the accumulated fund. After thirty or thirty-five years the federal government
was to reimburse the loan. But when the President learned that the federal
government would owe the fund more than a billion dollars by 1970 he ordered
his Secretary of the Treasury--a member of the Cabinet committee, who apparently
had approved this scheme before it was introduced--to insist that under no
circumstances would the federal government assume any financial responsibility.
The plan must be made self-sustaining.
- Under White House pressure the House committee
stepped up the contributions to a total of 6 per cent within twelve years.
This transfers the entire burden of old-age dependency after 1942 to the backs
of the young workers and their employers, to the exclusion of the well-to-do,
who have shared in the maintenance of the aged poor since the establishment
of the Elizabethan poor-law system three centuries ago. Since industry will
make every effort to pass on its levy to the consumers, it means that the
young employees--in their dual role of workers and consumers--will bear the
major cost of the accumulated problem of old-age dependency. No other nation
has ever put into operation a plan of this nature without government contributions
derived from the higher-income groups.
- The old-age contributory insurance plan is
fraught with many other dangers. Enormous reserves, estimated at more than
$10,000,000,000 by 1948 and at more than $40,000,000,000 in 1980, are contemplated.
These will create a stupendous problem of investment. Experience everywhere
indicates that politicians will hardly be able to keep their hands off such
easy money. The cold-storaging of so much sorely needed purchasing power not
only frustrates the expressed aims of the New Deal but may definitely hamper
recovery. The constitutionality of the entire scheme is also extremely doubtful.
- In the matter of unemployment insurance the
staff's task was even more onerous. Despite violent criticism no other plan
except the tax-offset method was countenanced. When the staff's expert on
unemployment insurance opposed this plan as ineffective, he was promptly dismissed.
His report was never published. Every effort was artfully made to have the
Advisory Council endorse the tax-offset method. This body also was ignored
and dismissed as of no further use when, after careful deliberation, all the
representatives of the employers and of organized labor and some of the outstanding
members of the public decided by majority vote against this plan. Only the
clumsy, duplicating tax-offset method permitting individual company reserves
and making possible a miscellany of forty-eight contradictory state laws with
grave constitutional difficulties was permitted to emerge.
- The work of the Cabinet committee was shrouded
in mystery until the day the bill was introduced. It was prepared in great
haste by an inexperienced young Harvard graduate without consultation either
with students of the problem or the experienced Congressional draftsmen. It
is even doubtful whether all the members of the Cabinet committee examined
it. So incompetently and loosely drawn was the bill that its introduction
caused a sensation. Although it was completely unintelligible, Administration
impatience rushed Congressional hearings at which official spokesmen attempted
to explain away the meaninglessness of the drafted bill. Administration spokesmen
consumed more than 1,000 of the nearly 2,500 pages of testimony in both houses.
Only after these spokesmen were through were others who persisted in their
attempts allowed to speak. The House Ways and Means Committee attempted to
limit all outside witnesses to five minutes and on one occasion forcibly ejected
a Communist spokesman when he overstepped the time limit--a procedure unknown
in Congress in many years.
- The House committee could not proceed with
the bill as presented and ordered its draftsmen to make it intelligible. The
latter, unable properly and constitutionally to retain the unemployment-insurance
provisions permitting all kinds of individual schemes, limited all state plans
to the pooled fund. Angered by the slipshod job presented to it, the committee
took the Social Security Administration Board out of the Department of Labor
and made it independent. Outside of the contributory old-age insurance plan
insisted upon by the White House and the questionable tax-offset scheme the
House bill was sound in its federal grants to states for the aged, dependent
mothers, and child welfare.
- The proponents of social insurance were encouraged
by the improvements made in the House. They looked forward to the removal
of other faulty features in the Senate. But this was not to be. The Administration
was insistent, and few members in either house had time to master the lengthy
and complicated bill covering ten different subjects. Convinced that the Administration's
choice was "all or nothing," they made up their mind to vote for all. Thus
during five full days of Senate discussion not even half a column of the Congressional
Record was devoted to the prodigious and unprecedented scheme of unemployment
insurance, outside of explanatory remarks by the committee chairman and Senator
Wagner, the sponsor of the bill. The economically unwise and socially menacing
contributory old-age insurance plan was given less than a column in the hundreds
of pages of Congressional debate, and that only toward the very end. Only
its constitutionality was thoroughly discussed. Senator after Senator declared
that this part of the bill is unconstitutional but no one made an effort to
amend it to avoid nullification. During the debate on the Clark amendment
to exempt private pension schemes from contributory insurance a number of
Senators pointed out that this would further complicate the constitutional
difficulties. To this Senator Clark replied in typical vein: "The constitutionality
of the proposed act is already so doubtful that it would seem to me to be
a work of supererogation to bring up the question of constitutionality in
regard to the pending amendment."
- The Senate bill not only differed much from
the original proposal but destroyed every improvement made in the House. The
Clark amendment further ruined the old-age contributory plan. The House improvements
on unemployment insurance were wiped out by restoring most of the original
questionable provisions. Even the simple subsidy plans were undermined by
the Russell amendment granting federal pensions in states which have no pensions
as yet, thereby pitching the entire subject into the political arena and halting
state action for old-age security. At the insistence of the House conferees
the Clark amendment was eliminated and the Social Security Board, which the
Senate had reinstated in the Department of Labor, was again made independent.
- The United States thus possesses a new Social
Security Act, just as a short while ago it also possessed a National Industrial
Recovery Act and a Railroad Retirement Act. Its fate now lies with the courts.
The federal grants for pensions in old age, to dependent mothers, to the blind,
and to varied child-welfare and public-health activities are sound and constitutional.
They mark truly advanced steps and genuine progress. The unemployment-insurance
and oldage contributory insurance plans, however, are administratively and
- The effect this bill may have on the American
social-insurance movement is of vital importance. Social insurance is recognized
today as offering the only practicable instrument for meeting the problem
of insecurity arising from modern industrial development. It is used in communist
as well as capitalist and fascist countries. Its chief asset lies in its power
to distribute the cost over all groups in society--the rich as well as the
poor. But in placing the entire burden of insecurity upon the workers and
industry, to the exclusion of the well-to-do in the nation, the present social-security
bill violates the most essential modern principles of social insurance. There
is also grave danger that the administrative perplexities inherent in the
bill, to say nothing of possible court nullification, may deal a death blow
to the entire movement in the United States.