FDR's Greatest Legacy — Social Security

Keynote Address for Ottawa County Democrats Third Annual FDR Day Luncheon, May 14, 2005

By Paul Murphy, Department of History, Grand Valley State University

It is a pleasure to be with you today to celebrate FDR Day, and I thank you for the great honor of speaking to you here in Holland, Michigan, about one of our most illustrious Dutch-American presidents, Franklin Roosevelt. Today, many feel the Democratic Party is in disarray--lacking power, out of ideas, and unable to fashion a message that appeals to large parts of the American working and middle classes. The latte liberalism of the Democratic Party is unappealing to “Red” America, so conservative pundits claim, and many Democrats feel forlorn, shocked at the conservative policies being enacted in Washington and across the nation. Who would have thought—eighty years after the Scopes anti-evolution trial—that state school boards would challenge the teaching of evolution? And, who would have thought that Social Security, one of the most efficient and successful national social insurance programs ever and the crown jewel of the social welfare system created by President Roosevelt in the 1930s, would be seriously endangered?

This afternoon, I would like to make two points. First, security in general and economic security in particular was at the very heart of the New Deal and of the way in which the Democratic Party restored pride and honor to millions of Americans during the Great Depression. And, second, remembering this will help Democrats realize what it is they have to say.

In 1970, the great Chicago radio journalist Studs Terkel published a book called Hard Times: An Oral History of the Great Depression. Terkel interviewed dozens of people who had lived through the depression, but he also inserted into the book interviews with much younger Americans, who had been born after the Depression. They only knew it secondhand, but their perceptions were revealing. One fourteen-year-old boy whose mother had died and father lived out-of-state and who spent his days on the streets of Chicago told Terkel he did not know what the word “Depression” meant. When pressed about whether he had ever heard of the time in the 1930s when many were out of work, the young boy acknowledged that he had, but the lack of food and money he was told about in the past seemed no different from the experiences of his own family in the 1960s. “It’s so damn hard,” he told Terkel. “Seems like everybody’s takin’ advantage of you. See, I never heard that word ‘depression’ before. They would all just say ‘hard times’ to me. It is still.” Hard times are hard times, Terkel’s point seems to be. The experience of poverty always brings hunger, cold, humiliation, and fear. What distinguished the 1930s was that more people experienced hard times than ever before, many who never thought they would, and the experience was searing. Throughout his book, Terkel records evidence of the shame that the unemployed—particularly able-bodied men—felt at being out of a job and unable to support their families. Not all could arrive at the conclusion of Peggy Terry, a poor southern white woman, who believed that the Depression “wasn’t our fault. It was something that had happened to the machinery.” A nineteen-year-old boy from an upper-middle-class Chicago suburb told Terkel of the unusual reaction he received from his father to his own somewhat foolhardy plan to float down the Mississippi River on a raft. His father teared up, urging his son to save his money and go to Europe, an ambition he was never able to achieve, as he had had to work his way through college and scrimp and save during his early married years. “It wasn’t as if it was a memory,” the young man told Terkel, “but an open wound.”

Before understanding the passage of the Social Security Act in 1935, seventy years ago this year, we must understand the emotion of this young man’s father: The Depression was an “open wound,” a time of nationwide economic distress and insecurity that had made his youthful years—in contrast to those of his 1960s-generation son—a time of anxiety and distress. He was lucky, in a sense, for the Depression only ruined his youthful aspiration for world travel and adventure. For others, the costs of the Depression were malnutrition, alcoholism, broken families, premature death and other such social pathologies. At the height of the Depression in 1933, the unemployment rate was 25%. Many others were underemployed, unable to work all of the hours they needed. Over the course of the decade, more than 46 million Americans—over one-third of the population— received public assistance or social insurance at one time or another. For many, the humiliation of receiving public aid was as painful as their deprivation. Fathers repeatedly left their families rather than face the shame of failing to provide their family food and clothing. Poverty attacks the soul as much as it does the body, as exemplified by this report of a social worker in Massachusetts in 1934:

About the unemployed themselves: this picture is so grim that whatever words I use will seem hysterical and exaggerated. And I find them all in the same shape—fear, fear driving them into a state of semi-collapse; cracking nerves; and an overpowering terror of the future…I haven’t been in one home that hasn’t offered me the spectacle of a human being driven beyond his or her powers of endurance and sanity.

In 1937, President Roosevelt declared “one-third” of the nation to be “ill-housed, ill-clad, ill-nourished.” In actuality, the figure was probably higher.

It was in this context—one in which fear had become a constant and nagging companion for millions of Americans—that Franklin Roosevelt won the presidency. The causes of the Great Depression perplexed most all Americans, probably including Roosevelt himself. The Depression was not the product of war or pestilence, of famine or plague. At any time during the 1930s, there was enough food to feed all who were hungry, timber and natural resources to build homes and factories, to process steel and make automobiles. There were enough men with the will to work, seeking gainful employment. And yet there was no work; there was poverty amidst abundance. The Depression was not an act of God or a product of natural disaster. As Peggy Terry said, something had happened to the machinery. It was a crisis in the man-made system of industrial capitalism and finance. At various points, revolutionaries predicted the collapse of the republic, and demagogues proposed dictatorship. As his critics like to observe, Roosevelt never ended the Depression. What he did, instead, was reform capitalism and safeguard democracy.

What Roosevelt provided was compassion, a belief in using the power of the federal government to help all Americans, and the willingness to experiment. Roosevelt exuded optimism and a preternatural self-confidence, qualities some attribute to his heroic and successful struggle to overcome the polio he contracted in 1921 at the age of thirty-nine and which left him paralyzed, but that more likely was the result of his cosseted upbringing as the treasured child of privileged parents. Above all, Roosevelt, through his “New Deal” programs, promised freedom from fear.

To do this, Roosevelt realized that the economic security of all Americans must be guaranteed. “We have come to a clear realization,” Roosevelt declared in 1944, “that true individual freedom cannot exist without economic security and independence.” The system of Social Security was only part of a broader program of economic security. This fact is reflected in the name of the committee Roosevelt established to develop a proposal for unemployment insurance and old-age pensions in 1934, the Committee on Economic Security. At this time, almost 8% of the population was 65 years or older. Most elderly Americans in the 1930s and before worked as long as they were able and then hoped to retire on their savings or, just as likely, depend on their families or charity to survive. Almost half of elderly Americans in 1935 were on relief. In fact, part of Roosevelt’s aim in proposing old-age pensions was to open up jobs, shifting labor to younger and more able-bodied workers. Throughout the Depression, Roosevelt remained committed to working within the capitalist system. Realizing that the American economy was not producing enough jobs for all, he envisioned a broad program of economic reform based on work relief, unemployment insurance (Roosevelt believed employer-funded unemployment insurance would discourage firms from laying off workers as well as enable workers to feel more secure), and old-age pensions. Together, these elements comprised a unified program for economic security and social stability.

Thus, the Social Security Act, introduced on Jan. 17, 1935, and enacted on August 14 of that same year was part of a broad program designed to provide economic security to all Americans. The Social Security Act, it must be remembered, included more than just the old-age pension system. The act also created a system of unemployment compensation, funded by payroll taxes structured in such a way as to be levied and administered by the states. Furthermore, the act provided federal dollars for immediate aid to the elderly as well as to the poor, blind, and children in families headed by a single mother—“welfare” as it came to be known over the years. While intense political pressure existed for an old-age pension system—represented by the dangerously popular but somewhat crackpot plan of retired California physician Francis Townsend to pay $200 per month to all old folks, provided they spend this princely sum (equal to twice the average wage) within the month—there were many obstacles and formidable barriers, including from business-oriented conservatives, who then and ever since have wished Social Security to go away. Indeed, congressional support for old-age pensions was so minimal, they were almost eliminated from the final Social Security bill.

The political realities of America in the 1930s, a period in which much popular and elite opinion still resisted, on principle, federal intervention in the economy, dictated the unique and peculiar features of the Social Security old-age pension system. Roosevelt insisted that the federal pension program mimic private insurance and that funds for it come from individual contributions not general tax revenues so that workers would come to see their old-age pensions as a property right. Social Security began paying pensions to workers in 1940, and the first beneficiaries received far more than they had put into the program. Because of this, actuaries predicted that the Social Security system would not be solvent by 1965; learning of this, Roosevelt and his Treasury Secretary increased payroll taxes so that the system would be solvent through 1980.

From the beginning, critics on Roosevelt’s Left attacked the Social Security Act as too timid and critics on the Right, as socialistic. The flat Social Security tax, assessed on all workers, rich or poor, up to a specified cap, is, indeed, regressive: those with less pay a larger proportion of their total income than the wealthy and the lost income is more necessary, even as the structure of Social Security is mildly progressive, returning lower-income workers relatively more in proportion to their earnings than better off workers. Moreover, under political pressure, Roosevelt and his advisors initially excluded some of the most vulnerable of workers from the program, including agricultural laborers, domestic servants, and employees in small businesses. (These groups were not covered until the 1950s). Finally, the immediate impact of the Social Security taxes—taking money out of consumers’ pockets—hurt the economy in the short term. Roosevelt’s response to his critics is memorable and represents a lesson in political pragmatism: When confronted with the issue of Social Security’s regressive tax structure by an advisor, he responded, “I guess you’re right on the economics, but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”

We shall see!

Today, about 47 million Americans receive social security checks every month, not only retired workers but also disabled workers, surviving spouses, wives and husbands, and children. For two-thirds of the elderly, social security provides a majority of their day-to-day income; for about 7 million, Social Security is all that they have. In 2000, 8% of the elderly were poor, but one study found that without Social Security, a remarkable 48% of the elderly live in poverty. In 2003, about 1.7 million Michigan residents received benefits. In Michigan’s second congressional district alone, over 120,000 men, women, and children receive security from this program (representing over 23% of the voting-age population, I might add).

Now, as never before, conservatives in power feel it within their grasp to weaken Roosevelt’s Social Security legacy. It is clear that they believe that eliminating this popular program associated with the Democrats will eliminate a source of support for liberalism and the Democratic Party. The current president has proposed private accounts, which, if enacted, would undercut the “social” aims of Social Security, by encouraging workers to think of their individual interests above the needs of the whole, and the intended “security” by introducing the market value of risk into the program. The president’s most recent “progressive indexing” proposal to cut future benefits for those earning over $20,000 and increase those for the lowest-income recipients undercuts the political logic of Social Security by making it resemble a welfare program and thus increasing its future political vulnerability. A chorus of conservatives has been proclaiming since the mid-1990s that Social Security is in crisis. Conservatives claim that Americans live longer than they did in the 1930s, but the actuaries involved in planning Social Security in 1934 anticipated this problem. In 1934, they predicted that the proportion of Americans over age 65 in 1990 would rise to 12.65% of the population. The actual figure was 12.49%. They overestimated by 16/100ths of a percentage point! Conservatives claim that now only 3.3 workers pay into Social Security per beneficiary, as compared to a much larger number in the past. But, since the mid-1980s, workers have been paying increased payroll taxes to build a trust fund to compensate for this reality. Conservatives charge that this trust fund is imaginary, but the excess revenue is, in fact, invested in the most secure financial investment imaginable, U.S. Treasury Bonds, which the Social Security Administration has redeemed 11 different times in the past without incident. Conservatives declare that the trust fund will be bankrupt in 2042 and, by projecting Social Security costs into infinity, throw up figures in the trillions of dollars to suggest future commitments that cannot be met. More objective economists project much lower dollar amounts, point out that small adjustments to the system could cover such future shortfalls, and observe that demographic shifts will eventually return the Social Security system to surplus. Indeed, given the incredible unreliability of long-term projections, some economists even question whether the system as structured will ever actually experience a crisis.

We shall see, indeed, if these damned politicians scrap Franklin Roosevelt’s Social Security program!

What Roosevelt created, it is up to our generation to defend. We must not only defend the Social Security old-age pension system but also his larger and even greater legacy, our nation’s guarantee of economic security to all Americans. In fighting for Social Security, Democrats stand to regain the power and message many think they have lost in the last thirty years. It is instructive to remember that in the 1920s, Democrats were also out of power, seemingly irrelevant and devoid of fresh ideas. I would argue that the fashionable declarations of Democratic exhaustion then were greatly exaggerated as they are now. In fact, Democrats in the 1920s had values that are still held dear: compassion and empathy for the poor, dispossessed and marginalized; a faith in democracy as the basis for a fair economy and just government; and a spirit of mutual cooperation to achieve the common good. To remember this, Democrats need only re-read the speeches of Franklin Roosevelt.

Roosevelt saw that freedom cannot exist when Americans live in shame and fear. Men and women need work, and they need hope, even when they sometimes have to rely on others to provide it. As Studs Terkel showed, for those experiencing hard times, life becomes a complex contest fought between honor and humiliation. There is nothing romantic about hard times, and we must not lose our empathy, as some in power have of late, for the poor and vulnerable. Roosevelt understood the long history of individualism and self-reliance in America, but he also saw that these virtues always existed alongside values of community and cooperation. “In the early days of colonization and through the long years following,” Roosevelt declared upon the third anniversary of the Social Security Act, “the worker, the farmer, the merchant, the man of property, the preacher and the idealist came here to build, each for himself, a stronghold for the things he loved. The stronghold was his home; the things he loved and wished to protect were his family, his material and spiritual possessions.” As always, Roosevelt declared, a person’s security was “bound to that of his friends and his neighbors.” What Americans came to realize in modern times, Roosevelt argued, was that in the complex interdependence of a modern capitalist economy, in which the machinery can create poverty even amidst abundance for unknown and perhaps unknowable reasons, individuals must sometimes rely on their fellow citizens for help. Industrialists and merchants always knew this, Roosevelt observed, as the long history of nineteenth-century protective legislation for business, such as tariffs and railroad subsidies, attests. “Government must now step in and help [individuals] lay the foundation stones, just as Government in the past has helped lay the foundation of business and industry,” Roosevelt declared. Now, he argued, workers are demanding the same protections businessmen long received. Democrats from Roosevelt to Bill Clinton have espoused this key principle—that the economic success of every American is the concern of the nation as a whole. We the people, through our government, must provide everyone the security they need to pursue their dreams and ambitions. “The millions of today want,” Roosevelt declared, “and have a right to, the same security their forefathers sought—the assurance that with health and the willingness to work they will find a place for themselves in the social and economic system of the time.”

The only fitting way for Democrats to celebrate FDR Day is, I think, to do what he did, cast off the gloom, the despair, and, yes, the fear that we too easily indulge and to uphold the values for which FDR and Democrats have always stood. The only fitting way to remember FDR is to proclaim his deep belief that individual freedom is only truly safe when all Americans collectively pursue economic security and independence. And, the only fitting way to honor FDR is to struggle to defend his legacy to the Democratic Party and to the nation and to advance his cause of providing jobs, shelter, food, health care, security, and dignity for all Americans.