It's Time to Study Social Security's Origins
September 19, 2011 · By Tim Butterworth
The Great Depression taught Americans that the costs of unemployment and poverty are shared by all of us.
After a bubble economy burst, the stock market collapsed. Main street businesses began to fold and jobs soon vanished. Millions of job seekers remained unemployed as the months turned into years. Both government and personal debt soared. The best economic minds in America came together to find solutions and decided we needed a new program: Social Security.
Hold on a minute. Aren't people telling us we have to slash Social Security to solve these same problems? Texans Ron Paul and Rick Perry want to see the federal program ended. President Bush wanted to treat it as a private investment. That may have sounded appealing, at least until our investments went south.
Back in 1935, six years into the Great Depression, Franklin D. Roosevelt's Committee on Economic Security declared, "We can eliminate many of the factors that cause economic depressions...This plan for economic security is at once a measure of prevention and a method of alleviation."
They found that 18 million people subsisted on emergency relief, and 10 million people had only "relief work." Relieving the suffering of those people was a great humanitarian act. But lawmakers had learned a great lesson. The Great Depression taught them that the pain and suffering of a significant group in a society inevitably spread to the whole system.
It was an insurance plan. Prudent policy required collecting revenue during good times instead of scrambling amid downturns when state coffers were empty.
It was a federal plan. Every congressional delegation knew that if states had to set up their own systems, they'd end up racing each other to the bottom as they vied to be deemed the most business-friendly.
It was a big plan, which recognized that everything and everyone was connected. It recognized that unemployed people paid no taxes and didn't shop in local stores; that sickness or injury left families homeless and children badly educated; that elderly poor people were a drain on the resources of families and the states. They knew that a bad economy hurt everyone, not just the unemployed.
The Social Security Act addressed the problem of the indigent elderly. About half the people over 65 were dependent on others, but Congress didn't act solely out of sympathy for them. "The thought is not just to make the aged people independent in their old age: It is also to take the responsibility for caring for the old off the shoulders of the young," explained Sen. Elbert Thomas, a Utah Democrat in the 1930s. "This, of course, makes for better and happier young lives as well as better and happier old ones."
The act also created unemployment insurance, funded by companies, to discourage seasonal layoffs and weekly hiring and firing. That became a source of economic stability, leveling out booms and busts. Direct government funding for the unemployed, including food stamps and hiring for infrastructure construction, increases economic activity by more than a dollar and a half for each dollar spent.
In hard times, this government-subsidized spending allows many stores to keep their doors open. In contrast, today's tax cuts for the wealthy cost a dollar for a boost worth only 30 or 40 cents to the economy.
The Social Security Act of 1935 also recognized the importance of maternal and child health and nutrition assistance. This isn't just good for children. States now recognize that early childhood services are essential for turning potential prisoners, at an average cost of $24,000 per year, into workers who pay local, state, and federal taxes.
Social Security provided support for poor children and the elderly, but also opened the door for decades of prosperity and two-income households. As Sen. Thomas said, "The real lesson of life will come when men realize that they cannot be happy while their neighbors are sad."