Why Social Security Matters To ALL of Us

(bumped up from early Sunday night)

Editor’s Note: Yes! This essay is written by “bert,” who you all know from her regular comments here. She submitted this superb article for publication, and we are so pleased to share this fine writing and excellent research with you. Below, you’ll see that “bert” also found a shocking historic photograph and a video of Franklin Roosevelt signing the bill into law. Thank you, bert!

This post is a follow-up to Susan’s excellent post last Friday regarding Social Security remaining this country’s core safety net, for that is truly what it is.  

During the Bush administration there was a move afoot to privatize Social Security. There are rumors and signals from the Obama administration that politicians will again try to “save” Social Security by privatizing it. 

It is amazing that while most, if not all of us, pay into the system and will some day be eligible to receive benefits, most of us know very little about how the program came about and how it operates. There is a lot of misinformation out there and many people labor under some pretty big myths about the program. 

When I was a child I loved Friday nights. Since it was not a school night I could stay up late and watch one of my favorite TV shows, Dragnet, a classic police drama. The lead character, Sergeant Joe Friday, was played by actor Jack Webb as a serious, no-nonsense, slightly droll officer. When interviewing victims or witnesses all he wanted was “the facts,” no emotional fluff for this detective. 

In fact, the phrase, “Just the facts, ma’am,” became his trademark line. (Piece of trivia – Sergeant Friday never uttered those exact words. That phrase was uttered by Stan Freberg in a parody of Dragnet. But that is a different story all together.) 

However, a “just the facts, ma’am” mentality is exactly what we will need if we are to save this vital core social safety net from politicians who for some reason want to do away with this program. That is the purpose of this post and future ones if necessary. I want to give you, I want to arm you with facts about our – your – Social Security program. 

I had initially hoped to write one comprehensive post. But when I began to do the research I found out there was just so much great information out there I could not get it all into one post. So I have decided to break it down into more manageable pieces. In this post I will deal with how and why Social Security came into existence. In subsequent posts I will deal with the changes that have been made to the program over the years, and last of all try to answer the question: is the Social Security program bankrupt? 

So let’s start at the beginning. How and why did Social Security begin? 

Everyone knows that Social Security was created by Franklin Delano Roosevelt during the Great Depression. But why? What were the conditions that made helping senior citizens and children so imperative? 

We all tend to think Social Security was only in response to the Great Depression. But the Great depression had roots in many places, not the least of which was the Industrial Revolution. 

If you remember your American history classes you know that there was a shift from an agricultural society to an industrialized society in the mid to late 1800’s. The Industrial Revolution and the resulting urbanization of America led to the disappearance of the "extended" family and the safety net it provided young and old alike. 

This also meant that more people were dependent on wages to buy food. Prior to the Industrial Revolution most families could at least grow enough food to feed their immediate family.  

All of that changed in the decades before the Great Depression. When economic income is primarily from wages then your economic security can be threatened by factors outside of your control. Recessions, bank failures, layoffs, failed business can all adversely affect you. And none of those things are your fault. You can still work hard but that will not protect you from the vagaries of the market. 

The upshot of all this is that the old ways of providing for economic security for children and the elderly were crumbling prior to and during the depression. Keep that in the back of your minds as you read about the Great Depression and what happened to ordinary folks like yourselves.   

Most historians agree that the Great Depression began on Black Friday, the day the Stock market crashed, October 27, 1929.  Herbert Hoover was President. Most people believed the economy would correct itself as the nation had survived worse recessions. But this belief soon proved untrue. 

According to the Eleanor Roosevelt Papers, by the time FDR took the oath of office in January, 1933 unemployment had grown from 8 million at the start of the recession to 15 million people. This was roughly one-third of the non-farmer work force. The GNP had fallen from $103.8 billion to 55.7 billion.  

When the depression began about 18 million elderly, disabled, and single mothers with children lived at bare subsistence levels. [Emphasis mine] By 1933 another 13 million Americans had lost their jobs. States, which had been caring for the elderly, disabled, and mothers with children, were over-whelmed and could no longer provide even minimum help. Poorhouses and orphanages were created to help, but often conditions in these institutions were extremely harsh and only the most destitute would apply. 

Food riots broke out, men deserting their families began to rise, and the homeless were living in public parks and in shanty towns. The effect of the Depression on poor children was devastating. 

Most of the elderly did not have personal savings or retirement pensions to even provide for bare minimum support during good economic times, let alone during an economic crisis. For those that did those savings and investments were wiped out by the crash.  

Americans had always taken pride in their rugged individualism and self-reliance. But these kinds of harsh realities and conditions made many Americans begin to question that assumption.  

From the Eleanor Roosevelt Papers: 

“…… Although the depression was world wide, no other country except Germany reached so high a percentage of unemployed. The poor were hit the hardest. By 1932, Harlem had an unemployment rate of 50 percent and property owned or managed by blacks fell from 30 percent to 5 percent in 1935. Farmers in the Midwest were doubly hit by economic downturns and the Dust Bowl. Schools, with budgets shrinking, shortened both the school day and the school year. 

The breadth and depth of the crisis made it the Great Depression. 

No one knew how best to respond to the crisis. President Hoover believed the dole would do more harm than good and that local governments and private charities should provide relief to the unemployed and homeless. By 1931, some states began to offer aid to local communities. FDR, then governor of New York, worked with Harry Hopkins and Frances Perkins to begin a direct work relief program. This helped only a very few. By 1932, only 1/4 of unemployed families received any relief. In 1932, only 1.5 percent of all government funds were spent on relief and averaged about $1.67 per citizen. [Emphasis mine]  

Cities, which had to bear the brunt of the relief efforts, teetered on the edge of bankruptcy. By 1932, Cook County (Chicago) was firing firemen, police, and teachers (who had not been paid in 8 months). Breadlines and Hoovervilles (homeless encampments) appeared across the nation.”   [See photo below] 

Citation: The Eleanor Roosevelt Papers."The Great Depression." Teaching Eleanor Roosevelt, ed. by Allida Black, June Hopkins, et. al. (Hyde Park, New York: Eleanor Roosevelt National Historic Site, 2003). http://www.nps.gov/archive/elro/glossary/great-depression.htm 

This picture haunts my heart and my soul. This is America circa 1932. It looks like a third world country.  

For more depression era photos click link below: 

http://www.english.illinois.edu/maps/depression/photoessay.htm 

In America prior to Social Security there were Civil War veteran’s pensions and some company pensions. I will not delve into that history except to note there is some precedent to Social Security in America 

Some states provided aid for the elderly and retirees. But these state programs were basically just welfare programs and eligibility was based on financial need. Then, as now, most Americans opposed welfare type programs. Furthermore, these plans were woefully inadequate, most providing less than $1 a day. And when the depression came there were just too many in need for them to be effective. 

Throughout 1934 Roosevelt talked about ‘national economic insecurity’ and a ‘social insurance’ plan during many of his fireside chats. On June 8, 1934, Roosevelt announced his intention to provide for a Social Security program. By executive order he initiated a commission composed of five of his top cabinet-level officials to find a way to achieve this goal. The committee was instructed to study the entire problem and to make recommendations that would serve as the basis for legislation. 

What Roosevelt did that was so innovative was to introduce an alternative to welfare and called it “social insurance.” He changed the debate. He created a work-related, contributory system in which workers would provide for their own future economic security through personal and company paid contributions, or taxes, paid while they are still employed. 

“Security,” Roosevelt said, “was attained in the earlier days through the interdependence of members of families upon each other and of the families within a small community upon each other. The complexities of great communities and of organized industry make less real these simple means of security. Therefore, we are compelled to employ the active interest of the Nation as a whole through government in order to encourage a greater security for each individual who composes it . . . This seeking for a greater measure of welfare and happiness does not indicate a change in values. It is rather a return to values lost in the course of our economic development and expansion . . .”  [All emphasis mine] 

In January 1935 the commission made its report to the President and on January 17, 1935 Roosevelt sent the report to both houses of Congress for simultaneous consideration.  

The final bill was passed into law by voice vote on August 8, 1935 in the House (372 Yes, 33 no, 25 not voting) and on August 9th in the Senate (77 yes, 6 no, 12 not voting). 
 
On August 14, 1935 President Roosevelt signed the bill into law at a ceremony in the White House Cabinet Room. 

President Roosevelt’s remarks on this video, posted by politicalhack28, say it all:  

"We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age." 

From the Social Security – History website: “The two major provisions relating to the elderly were Title I- Grants to States for Old-Age Assistance, which supported state welfare programs for the aged, and Title II-Federal Old-Age Benefits. It was Title II that was the new social insurance program we now think of as Social Security. The new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.” 

The original bill provided benefits only to the worker. In 1939 an amendment added two new categories of benefits – payment to a spouse and minor children of a retired worker (dependents benefit) and survivors benefits in case of a premature death of a covered worker. This changed Social Security from a workers only retirement program to a family based economic security program. 

From the Report of the Social Security Board which recommended those changes: 

"It is impossible under any social insurance system to provide ideal security for every individual. The practical objective is to pay benefits that provide a minimum degree of social security—as a basis upon which the worker, through his own efforts, will have a better chance to provide adequately for his individual security."  

Now how does all of this affect me here and now?  

According to the National Center for Policy Analysis that is really quite simple. 

“SOCIAL SECURITY IMPORTANT FOR RETIREMENT OF POOR AND RICH” 

“Even the wealthy depend upon Social Security for much of their consumption after they quit working, according to a new report from the National Center for Policy Analysis (NCPA). 

Consider:

Social Security accounts for virtually all of the discretionary consumption of households with pre-retirement incomes of less than $50,000 a year or $25,000 for singles.  

Social Security accounts for about one-third of all discretionary consumption for the highest-income households — couples earning $500,000 or singles earning $250,000 prior to retirement.   

A primary goal of financial planning is to maintain a consistent standard of living during a person's lifetime.  If Social Security were abolished tomorrow, all retirees would experience an immediate reduction in their consumption.   

If younger workers were notified in advance, they could adjust their saving and spending habits today to avoid abrupt changes in their standard of living upon retirement.   

Yet only the highest income workers have the ability to adjust so as to completely smooth their consumption across their lifetime.  Because low- and middle-income workers are constrained by current obligations they cannot completely adjust.  

For example, if Social Security benefits were eliminated for workers age 35 or younger:

A couple with an annual income of $500,000 could level their consumption across their lifetime by reducing their current consumption by almost 18 percent in each succeeding year.  

Yet a couple with an annual income of $200,000 that reduced their current consumption by almost 24 percent, would experience approximately another 15 percentage point reduction in consumption upon retirement.  

A couple with an annual income of $50,000 that reduced their current consumption by more than 21 percent would experience another 26 percentage point reduction upon retirement.” 

Source: Laurence J. Kotlikoff, Ben Marx and Pietro Rizza, "How Much Do Americans Depend on Social Security?" National Center for Policy Analysis, Policy Report No. 301, August 2007. 

So on Friday last, Susan was one-hundred percent correct: Social Security is this nation’s CORE safety net in good and bad times; but especially in the bad times.  

Don’t let anyone, especially politicians take your safety net away and give it to Wall Street types.