Franklin Delano Roosevelt, Can You Forgive Me?
All my adult life I've assumed that Social Security functions just as FDR wanted it to function--in a word, as a giant Ponzi scheme. As a recent piece by Robert Samuelson demonstrates, I was simply mistaken:
When Roosevelt proposed Social Security in 1935, he envisioned a contributory pension plan. Workers’ payroll taxes (“contributions”) would be saved and used to pay their retirement benefits. Initially, before workers had time to pay into the system, there would be temporary subsidies. But Roosevelt rejected Social Security as a “pay-as-you-go” system that channeled the taxes of today’s workers to pay today’s retirees. That, he believed, would saddle future generations with huge debts — or higher taxes — as the number of retirees expanded.
Discovering that the original draft wasn’t a contributory pension, Roosevelt ordered it rewritten and complained to Frances Perkins, his labor secretary: “This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress . . . to meet.”
But Roosevelt’s vision didn’t prevail. In the 1940s and early 1950s, Congress gradually switched Social Security to a pay-as-you-go system. Interestingly, a coalition of liberals and conservatives pushed the change. Liberals wanted higher benefits, which — with few retirees then — existing taxes could support. Conservatives disliked the huge surpluses the government would accumulate under a contributory plan....
Millions of Americans believe (falsely) that their payroll taxes have been segregated to pay for their benefits and that, therefore, they “earned” these benefits. To reduce them would be to take something that is rightfully theirs. Indeed, Roosevelt — believing he had created a contributory program — said exactly that:
“We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions. . . . No damn politician can ever scrap my Social Security program.”
But of course the damn politicians did scrap the contributory program--a historical fact (I see, now that I'm at last aware of it) of immense importance. Barack Obama, Nancy Pelosi, Harry Reid, and the whole Democratic leadership that insists the present Social Security system should be treated as sacrosanct and untouchable--every last one of them is betraying the legacy, properly understood, of FDR.
Which brings me to one final request for forgiveness.
President Reagan used to say that he wasn't opposed to the New Deal but to the Great Society. I never quite bought that, assuming the Gipper was permitting nostalgia for FDR to get the better of him. But Reagan seems to have understood the New Deal--again, as properly understood--better than did his young speechwriter. FDR, Ronald Reagan, can you both forgive me?
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Dec '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
It was my understanding that it was always funded by a shell game of investing in non-tradeable securities (promises for higher taxes later).
It is a pay-as-you-go system because constitutionally, the FICA tax is a tax that funds the federal government, some of which they send as checks to old people and are under no obligation to do so. This legal seperation was necessary to pass the constitutional muster of the time, for much the same reasons the healthcare mandate is failing. The government cannot compell your activity or participation. Nor does it have the power to create a retirement program for people other than its own employees.
This is clearly written and argued in Flemming v. Nestor to avoid paying social security to a communist who moved out of the country.
The legal seperation of the payments and the taxes is written in the history section of the SSAs website, which is much more difficult to find these days.
It has been from day one the dole, because they can tax you and they can spend money on pretty much anything they like, but they cannot compel your participation in a retirement program.
Edited on April 11, 2012 at 11:44pmNov '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
Maybe I'm missing something....but it was still compulsory, even in FDR's original vision. We can't trust Americans to fund their own retirement? Why must Social Security be mandatory?
May '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
Don't forget LBJ, who is the one who first mixed SS payroll tax receipts into the general fund to subsidize the deficits in the latter.
May '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
Peter, so your entire opposition to the New Deal up until this point was based around your assumption on a single program? Perhaps you do need to read up a bit more...
That said, SS was clearly presented by FDR as a retirement savings plan, and of course he didn't intend it to become a ponzi scheme (at least I hope not). The main purpose of the program was to provide a 'secure' savings system in the wake of the stock market crash and run on the banks (because nothing is as secure as the always benevolent, fiscally sound federal government...). This would have been ok, had the ND had simply established a program that gave people the opportunity. However, it instead created a program that was mandatory for all wage-earners, eliminating the right for individuals to choose how to invest their own money. That's why you should hate the program. The fact that the program became a giant ponzi scheme is only piling on. I'm also fairly skeptical of the notion that FDR didn't see it as a means of pursuing a transfer of wealth.
Edited on April 12, 2012 at 12:17amApr '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
I did not know about this, and would be keen to learn more. I'm turning in now, but if anyone had any reading recommendations, I'd love to find out who in Congress was on which side of that debate. The late 40s and early 50s had balanced enough Republicans that it'd have to be at least somewhat bipartisan, whether under Truman or Ike.
Thank you Peter and Duane! Certainly food for thought there.
Dec '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
James Of England: I did not know about this, and would be keen to learn more. I'm turning in now, but if anyone had any reading recommendations, I'd love to find out who in Congress was on which side of that debate. The late 40s and early 50s had balanced enough Republicans that it'd have to be at least somewhat bipartisan, whether under Truman or Ike.
Thank you Peter and Duane! Certainly food for thought there. · 2 minutes ago
http://www.ssa.gov/history/
Apr '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
Were contemporary social security circumstances contrasted against those of it's infancy, it may well become less of a third rail. I say bravo Peter for acknowledging it's past, while sincerely hoping the left will come to acknowledge it's present.
Re: Franklin Delano Roosevelt, Can You Forgive Me?
Peter, when Reagan distinguished between the New Deal and the Great Society, he was being disingenuous. Almost everything accomplished by the Great Society was proposed in FDR's annual message to Congress in 1944, and the New Dealers tried to enact much of it under Truman.
May '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
What I remember most about Reagan and social security is that he effected a doubling of what I have had to pay in for almost 30 years to a system that is now effectively bankrupt.
Thanks Gipper, for effectively preventing me from saving on my own so I can work until I fall over dead.
Oct '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
The current tax stucture is regarded as Progessive, the more one makes the more paid in an idealistic sense. However, the SSI tax was implemented with a cut off related to income. The original concept being that anyone with an income over X experienced limited contributions and were assumed able to deal with retirement on their own.
In a manner of speaking this was not quite the forced measure of altruism we see today.
Could have or should have the original model been updated to meet the demands on the system today ? Appears the model was never rethought to address any future requirements.
Just how do we as a whole address the issue of atruism to where it becomes seperate of free will to do good as opposed to a must imposed by a governing body ?
Edited on April 12, 2012 at 1:58amApr '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
In 1976, I wrote my high school senior paper on Social Security. What I remember most from that experience was that even then Social Security was considered unsustainable and that us baby boomers would break the bank, so to speak. That, and the fact that I picked the topic to suck up to my 60-something teacher.
Sep '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
I was also surprised to learn this: FDR was also suspicious of public sector unions. From an essay in National Affairs by Dan DiSalvo:
Apr '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
In 1976, I wrote my high school senior paper on Social Security. What I remember most from that experience was that even then Social Security was considered unsustainable and that us baby boomers would break the bank, so to speak. That, and the fact that I picked the topic to suck up to my 60-something teacher.
Feb '12
Re: Franklin Delano Roosevelt, Can You Forgive Me?
As I understood the Social Security story it would have been unconstitutional to require persons to contribute to a pension, so instead they just called it a tax, and since the tax power is pretty much always constitutional Social Security is "safe" from challenges wrt its constitutionality. Unfortunately for the program, reality is its biggest obstacle.
Maybe the original vision was a contributory retirement system (and this is the vision the American people were sold long ago), albeit compelled , but whatever that vision was I *think* that it was always enforced, and payed for, via the tax power, not "contributions."
May '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
FDR was certainly an optimist to think that the Federal Government was going to provide all the following without saddling future generations with debt or, that the Country would retain any of the qualities of individual liberty, industry and character that had made it great. Or that the 'rights" would have stopped with these.
“The Economic Bill of Rights", January 11, 1944:
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
http://www.fdrheritage.org/bill_of_rights.htm
Dec '11
Re: Franklin Delano Roosevelt, Can You Forgive Me?
The biography of FDR by Conrad Black was enjoyable. I don't think anyone would accuse Black of being a liberal, so I think he gives a pretty balanced view of the subject. I would even suggest some of his articles at Natl Review. The world and the US now is a very different place from FDR's time. Seeing the current president trying to use the same rhetoric employed by FDR is just pathetic.
I think a much more significant negative legacy of FDR is what was done to the currency and how he managed to use inflation to help take a little of the edge off of the Depression. The problems with the fiat currency he started are coming home to roost. Love or hate the man, FDR is a fascinating subject.
Oct '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
We can't? I mean, conservatives have wanted to privatize Social Security forever. There's a lot of advantages to a mandatory savings scheme for retirement, and the predictable pool of savings and capital it creates. Among other things, it would finally allow us to stop running large trade deficits.
Oct '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
But the New Dealers still failed to enact their more disastrous ideas. That was Reagan's point--he talked about the New Deal as it actually happened, not as its architects wish it had happened.
Oct '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
New Boss:
I think a much more significant negative legacy of FDR is what was done to the currency and how he managed to use inflation to help take a little of the edge off of the Depression. The problems with the fiat currency he started are coming home to roost.
Excuse me? Most monetarists think he failed to spark as much inflation as was necessary to keep the money supply from collapsing. I know classical monetarists and Austrians have fallen out as of late, but I'm still surprised to hear this viewpoint.
Fiat money was born in 1971, when Nixon took us off the Bretton Woods fixed exchange rate system. If FDR hadn't devalued the dollar against gold, in one or two years the public would have totally rejected gold--and we would have floated right after WWII, not in 1971 (which might have been for the best, actually).
Aug '10
Re: Franklin Delano Roosevelt, Can You Forgive Me?
This is a very important topic; thanks to Peter for raising it.
I've been living for over 20 years in Hong Kong, where until 2000 there was no social security or mandatory pension plan. The government here finally buckled, and did establish a 'Mandatory Provident Fund' that requires a small percentage of income to be set aside in a retirement savings account. Many people, however, have better plans provided by their employers.
The benefits of avoiding a defined-benefit pension system are hard to overestimate. The government here routinely runs surpluses, and therefore has no cloud of future debt obligation hanging over its operations, unlike the USA and so many other western countries.
Knowing that you're going to be responsible for dealing with your own retirement via your savings also colors the way you think about your lifestyle and spending all through your working years. Again, the economic benefits to this are significant.
I don't know if the USA could ever manage to clear the political and psycho-social hurdles barring the switch from defined-benefit to defined-contribution plans. It certainly is a shame that the wrong choice was made in the mid-20th century.