Social Security

FDR Would Have Opposed Today's Social Security


Ah, but we were so much younger then

That's the provacative claim by Washington Post econ columnist Robert Samuelson, riffing on a new book by Sylvester Schieber entitled The Predictable Surprise: The Unraveling of the U.S. Retirement System. Excerpt from the Samuelson col:

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. […]

What we have is a vast welfare program grafted onto the rhetoric and psychology of a contributory pension. The result is entitlement. Unsurprisingly, AARP's advertising slogan is "You've earned a say" on Social Security. The trouble is that contributions weren't saved. They went to past beneficiaries.

Whole thing here. Reason on Social Security here. Samuelson in Reason on "Lessons From the Great Inflation."

NEXT: Katherine Mangu-Ward on the Medical Marijuana Business in The Wall Street Journal

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  1. Workers’ payroll taxes (“contributions”) would be saved and used to pay their retirement benefits.

    “Saved” by who? How? What did he have in mind that woud have been different than the “Social Security Trust Fund” with which we have been blessed lo, these many decades?

    1. It would be saved by the government. That is why conservatives in the 40s and 50s objected to the surpluses. As the government saved and invested more and more money it would be a back door way of nationalizing industries.

      1. Isn’t the SocSec Trust Fund “saving” those contributions by “investing” them is Treasuries?

        What would he have done differently?

        Was he really angling to have the federal government actively investing billions (eventually, trillions) of dollars in the private economy?

        1. Sure it is. That is called pay as you go. Eventually, those bonds are going to have to be paid back. Since the money to redeem the t-bills comes right out of the treasury, having them just by T-Bills doesn’t really solve the problem the trust fund is designed to solve

          1. Wouldn’t “pay as you go” mean that you tax just enough to cover that year’s benefits? Which they most certainly did not do, choosing instead to tax more than they needed to pay current benefits.

            I believe we may have just gotten back to pay as you go, in that sense.

            1. Yes, they should have lowered the taxes in years when there was a surplus. Actually, if they would have correctly pegged benefits to inflation and raised the retirement age every time the average lifespan increased, the system would not be going broke right now.

  2. FDR was just covering his ass rhetorically.

    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.

    How did he know the number of retirees would expand? Was he psychic? If he supposedly rejected the pay-as-you-go concept, why did he “let” it come into existence that way in the first place? No, I’m pretty sure SS went exactly as he planned.

    1. Read one paragraph further.

  3. Interestingly, a coalition of liberals and conservatives pushed the change.

    I think he means “unsurprisingly, a coalition of liberals and conservatives pushed the change, as always, collaborating to achieve their political and social ends through government manipulation.”

    1. Not true. The conservatives objected to the surpluses because it created the danger of the government nationalizing the economy via social security investment. If it had not been made pay as you go, what would the government have done with all of that money? If they didn’t put it back in the economy, you would have cratered the money supply and caused deflation. They would have had to have invested it. And no matter how many blue ribbon commissions they created and no matter how many times they crossed their hearts and swore they wouldn’t invest it based on political considerations or used it to nationalize the economy, that would have been exactly what happened.

      1. They could have suggested private accounts instead.

        Typical conservative nonsense — recognize the problem and suggest a solution that makes it worse.

        1. They could have given everyone ponies too. Private accounts were not going to happen politically. The choices were pay as you go or effective nationalization of the economy. They took the lesser of two evils.

          Typical libertarian, living in la la land.

          1. I suggested another choice below: restrict the investments to government bonds.

            That would fly politically. But know, they fucked us all over instead.

            And how do we know private accounts couldnt happen back then? Did they even debate it?

            1. I suggested another choice below: restrict the investments to government bonds.

              That doesn’t solve anything. That is just pay as you go. Who do you think redeems those bonds? Future taxpayers. That is what we have now. A good chunk of the national debt is in the form of T-Bills held in the name of the social security trust fund.

              Try again.

              1. I did. No fucking accounting difference between investing in t-bills and investing in microsoft.

                A contributory pension isnt pay-as-you-go regardless of what kind of assets it is holding. It just has to be set up as a contributory pension.

                1. No fucking accounting difference between investing in t-bills and investing in microsoft.

                  Yes there is. Who pays the bills. And if you really believe that, then what is your bitch. See Bernie Sanders below, the SS trust fund has decades worth of T-Bills it can redeem.

                  1. I have two bitches.

                    1. Obvious, its an antilibertarian concept to begin with.

                    2. It isnt a contributory pension. If it was, the fact that it is being done with t-bills wouldnt matter. The bookkeeping to make it a contributory pension comes close to making them invidivual retirement accounts. Ones that are controlled entirely be the government and without inheritory benefits, but still individual accounts.

          2. living in la la land

            I live in the real world. The politicians live in la la land.

            1. If you think private accounts were a real politically viable option in 1950, you certainly don’t live in the real world.

              1. You miss the point. La la land consists of discussing “political viability” and other bullshit like that.

                The real world doesnt give a fuck about political viability. It just is.

                1. Political viability is reality Rob unless you plan to seize power via a coupe. Sure fuck political viability. That explains why Libertarians get 1% of the vote even though probably 15 or 20% of the electorate at least sympathizes with their ideas.

                  1. You dont fucking understand. I dont want fucking power, so why would I need to throw a coup (a coupe is heavy)?

                    The real world doesnt involve politics at all. All politics is a part of fantasy land.

                    The fact that the fantasy fuckers sometimes screw up the real world is the problem. But they are still living in fantasy land. As are you, if you fail to acknowledge that.

                    Also, Paul got ~10% of the vote this time around. That isnt 1%. libertarians != LP.

                    1. No. In the real world you can’t just wish your solutions to come by divine fiat. In the real world Rob, you have to take the best solution that is available.

                    2. And I make those decision for myself. And huh, it pretty much is by fiat (not divine at all, however).

                  2. You could also seize power in a sedan, it’s easier for the passengers to get out of the backseat.

                    1. SUV, you can carry around more co-conspirators.

                    2. Is it RCz law that misspelling are funnier than the original? Or is that someone else?

                    3. They seem to have it down to a fiat coupe – which means it won’t be going anywhere.

  4. “Conservatives disliked the huge surpluses the government would accumulate under a contributory plan.”

    Well, at least that particular danger is being averted.

    1. True. But would a board appointed by Congress currently owning a large chunk of the economy have been better? I think I will take the debt over that.

      1. See my comment above. How about suggesting the correct fix to the problem?

        You know, the one that lessens government involvement?

        1. I believe there is an iron law applicable to this case.

        2. They would have loved to have had private accounts. But that was never going to happen politically.

          See my comment above about Libertarians refusing to live in the real world.

          1. See my comment above about the real world.

            1. Advocating for a better solution is not living in a fake world. No one is suggesting that the past be changed, but robc is suggesting that better solutions be proposed for everyone’s consideration.

              John is contributing nothing. This is the problem.

  5. Can’t we get rid of SS survivor benefits with a life insurance mandate?

    1. If Obamacare is upheld, I don’t see why not. Other than the moral aspect, it would be good.

      1. If Obamacare is upheld…

        Are you serious?

        1. I don’t think it has a chance, but stranger things have happened.

    2. That would be unconstitutional, right?

      Anyway, interesting to me, if liberals had gone along with W’s plan to reform Social Security and mandate a government-approved savings plan, Obamacare would have sailed through constitutional muster.

      Of course, I rarely hear about conservatives talking about how W’s plan would have been unconstitutional. Mostly because it blew up on the launchpad, but it would have been interesting to hear the debate if SS Reform had made it.

      1. Is mandated savings different than a tax? The SS plan would differ from the mandate in that they don’t force you to buy someone else’ product. I think they could have sold the SS plan under the taxing power instead of the commerce clause.

        That said, I think your point would have limited it somewhat. There probably would have had to have been an opt out clause that allowed people to pay in and get their regular benefits if they chose. That would take away a lot of the coercive aspects.

        1. The case law on SS says that by virtue of being a tax (with no direct connection to benefits) it is constitutional.

          Randian makes an excellent point.

      2. That would be unconstitutional, right?

        Are you serious?

        ~N. Pelosi

  6. Fuck the AARP.

    1. And the horse they rode in on. I cancelled my membership when they endorsed Obamacare.

  7. I am one of the loudest drummers for “Social Security is not an Account Savings Plan” to ensure people understand exactly what they are getting into.

    I would believe FDR’s objections if he intended for the program’s contributions to be heritable/part of an estate that could be passed down. As it is, it still seems that he was against ownership as we know it.

  8. It’s worth wondering what would have happened if SS had stayed as a contributory system and it had led to backdoor pseudo-nationalization like John says. It seems to me that the current funding disaster is probably not nearly as bad as that disaster would have been.

  9. SS suffered the same fate of just about EVERY government “defined benefit” plan. The universal flaw is that politicians could promise benefits TODAY that didn’t have to paid for until many years in the future. That’s a temptation few elected officials can resist.

  10. Why can’t we just let old people starve to death or freeze to death in unheated homes the way god intended. This would also drastically reduce the health maintenance costs that we have to pay on these old codgers as well.

    1. Not to mention dehydration in their un-air conditioned hovels. And why not subsidize their cigarettes to make sure they die sooner and stop collecting Social Security?

      1. Every government check comes with a case of smokes. You don’t get the next check until you smoked the last case.

  11. There’s an interesting lesson, I think, to be found in FDR’s opposition to the dole/welfare/handouts for the unemployed, along with his considerable concerns about deficit spending and a growing debt. Roosevelt pitched most of the New Deal, particularly the entitlement parts, as the government smoothing out the edges of the free market. They weren’t giving out handouts, they were giving men jobs; it’s a pension plan for seniors, not welfare for the elderly; etc etc. This kind of rhetorical approach has actually made the welfare state stronger. Look at the current Social Security debates, where it’s impossible to eliminate a system that people have paid into and believe they have a right to. You can see a similar dynamic in other aspects of government intervention in the economy, like the various agricultural subsidies.

    My point is, trying to avoid a full-on welfare system actually makes that full-on welfare system stronger and more government inevitable. Programs like Social Security, which begin in appearance and sometimes in actuality as a pension or insurance fund or what-have-you (as opposed to straight-up hand-outs, muddy the water about what is and isn’t deserved or earned. It’s difficult for opponents to say clearly “There are too many government handouts” because that government activity is camouflaged, with Social Security being the best example.

    I think we’d be better off, if we’re going to have a welfare system, to just be honest about it.

    1. Insightful comment. Even today we find liberal (LEADING liberals) who claim that there is no funding shortfall in Social Security — that it’s all working as planned. Meanwhile the unfunded liability grows and grows.

  12. The point about back door nationalization is indeed a concern. What percentage of today’s S&P 500 stock is now owned by public pension funds (and what is the rate of growth of such ownership)?

    Perhaps it would not be a problem if such government owned shares could not be voted. But they can, and too often governments and their politically-oriented pension fund overseers cannot resist the temptation to make fundamentally anti-shareholder decisions via proxy voting.

    1. Even if they couldn’t vote they still could effectively control the company via the threat of stock sales. Suppose the SS pension fund owned 20% of Microsoft. The threat of that commission de investing and dumping that number of shares on the market and killing the stock price would be enough to bring Microsoft in line.

      1. Isn’t the SS trust fund restricted to investing in T-bills? I thought that was why the returns on investment are so modest.

        1. Exactly.

          Seems the “conservatives” who changed SS could have suggested that instead — concerned about backdoor nationalization? Limit SS accounts to investing in Fed bonds.

        2. Yes they are. That is called pay as you go Tim. But investing in just T-bills doesn’t solve the problem of shifting the bill to future tax payers since the money to redeem those t-bills will have to come from future tax payers.

          Restricting them to invest in just t-bills was the way they created pay as you go.

          1. From a bookkeeping standpoint, there is no difference from investing in t-bills vs investing in microsoft.

            1. The difference is who pays the investor back, taxpayers or Microsoft. What happens when Microsoft (or another company the gov invested in) goes bankrupt. Is there protection for your investment.

              1. What happens when the US government defaults on its bonds?

                I dont see a difference.

                1. You get screwed. The best thing to do was leave well enough alone. Let people decide for themselves on how to take care of themselves and their families. The government should not have a say in it.

              2. There is a HUGE difference.

                Money invested in Microsoft today will be used to create additional wealth. Wealth that can be drawn on at some point in the future when it is time to redeem the investment.

                Money invested in T-Bills (or any other government investment vehicle) cannot produce future wealth, only more current consumption so that when the time comes to redeem the investment the money has to be extracted from future taxpayers earnings.

                That is the all important difference. There is no wealth backing up T-Bills, only a promise to tax our children. Sure it is theoretically possible that the economy could grow enough during the interim time that the taxes would not prove burdensome, however that would require a stable or growing population and a populace who is largely investing on their own to create sufficient future wealth.

                Problem is we don’t have a growing or stable population, mostly as a result of old people living far longer than they did in the past, and the very mechanism that requires the populace to save (the welfare state) creates incentives for them to not bother.

            2. There is a huge difference. Who redeems those bills.

          2. That is called pay as you go Tim.

            Really? The current scheme seems anything but pay as you go. First, you pay in a lot more than is needed to cover benefits, then, you pay in a lot less than is needed to cover benefits, and you use Treasuries to bridge the difference.

            I’m not saying that is what they meant by “pay as you go”, but if so, they were lying. Again.

            1. First, you pay in a lot more than is needed to cover benefits, then, you pay in a lot less than is needed to cover benefits, and you use Treasuries to bridge the difference.

              Since treasures are redeemed by money out of the treasury, that sentence doesn’t even make any sense. “Use Treasuries to bridge the difference” is just another way of saying “have future tax payers bridge the difference”.

              1. The reference to bridging the difference is that Treasuries have been used to bridge the difference between overfunding (by FICA tax revenues) and underfunding (by FICA tax revenues.)

                If “pay as you go” means “funded by taxes, yo”, then sure, we have had a pay as you go system.

                But the term gives the distinct impression that SocSec bennies will be paid by SocSec taxes, with an implication that those taxes won’t be used for anything else. And that is not what we have had.

                1. Correct.

                  We had a FICA tax on one side and a old people welfare program on the other.

                  It isnt pay-as-you-go because the two are unconnected.

                  The SCOTUS has even said so.

                  And because the two are unconnected, the SS “trust fund” is a myth.

                  A contributory pension program, on the other hand, would connect payments in with future payments out. In that case, a “trust fund” would be a real, legal entity.

        3. Oh yeah. And those bonds are nonnegotiable, and produced from an ordinary laser printer every time SSA lends the general fund another billion in FICA “contributions”. But since they are an “asset” SSA’s books balance.

  13. You know, the text in that SSA advertisement isn’t exactly “Think Small” or “Tastes Great, Less Filling.”

  14. I had the displeasure of listening to Bernie Sanders on Thom Hartman’s radio program last week. He claims that the SS Trust Fund is will be solvent for the next 35 years, that the trust fund lends the surplus funds at a profit, and that the obligations of the trust fund are backed by the ‘full faith in credit’ of the US gov’t.

    Thank goodness we have such honest and caring stewards of our retirement funds!

    1. ‘Full faith in credit of the US gov’t’ are code words for ‘future taxpayers will be ass raped’

    2. Maybe you should explain that to RC and Rob above. They seem to agree with Sanders that the trust fund holding T Bills is somehow different than the government just owing a huge amount of money in future SS benefits.

      1. Then you cant fucking read.

        I said there is no difference between a contributory pension plan holding t bills vs one holding MSFT.

        1. True, from the POV of the pension plan. Not true from the POV of the taxpayer, which is the point.

          1. Also true from the POV of the pensioner, which is the point.

            From the POV of the taxpayer, what we have now is worse than that. In both cases, you have the “trust fund” buying bonds, but at least it would be a contributory pension plan done the other way, instead of the monstrosity we have now.

            1. Under the SS case law, you can’t have a contributory system. Your taxes are collected for general revenue, not as your individual ‘savings’. Likewise, the benefits paid out are not tied to what you paid in. You are trying to make the lie that SS is ‘earned’ a reality.

              1. SS case law for the CURRENT system. You could specifically design a system that creates a contributory system.

                For it to pass muster, the property rights that go with it would probably require a form of inheritance of residuals, and basically we have a forced investment account that buys T bills.

                Which leads back to constitutional mandate issues, if it isnt a tax.

                So maybe you couldnt do it.

                But, then again, apparently the Obamacare mandate wouldnt be facing problems if they had thrown the word tax into the law somewhere.

              2. You are trying to make the lie that SS is ‘earned’ a reality.

                Pretty much.

                I would still oppose it, but it would be a starting point towards working to something goodish.

                1. So you want to expand the reach of the Commerce Clause since you have no other power for Congress to enact this under.

                  Pardon me, but that is just fucking brilliant coming from a libertarian.

      2. They seem to agree with Sanders that the trust fund holding T Bills is somehow different than the government just owing a huge amount of money in future SS benefits.

        Where do you get that idea, John?

        I’ve been trying to point out that this system is the opposite of “pay as you go”.

        I understand perfectly well that the Trust Fund is mechanism for money laundering (first, laundering SocSec revenue into general revenue, and now, laundering general revenue back into SocSec revenue).

        1. I don’t understand how you think the method used to pay current SS benefits is not ‘pay as you go.’ If general funds (current tax receipts) are laundered into SS revenue, how is this not ‘pay as you go?’

          1. True “pay as you go” systems don’t run surpluses by design.

            1. How can you consider t-bills held buy the SS Trust Fund as a ‘surplus’?

              How is the SSTF any different than a Ponzi scheme: current obligations are funded by the either the Treasury incurring additional debt or money from the general fund (taxpayer receipts). The fund will collapse when no one will buy the t-bills and obligations cannot be covered by the general fund. There is no ‘surplus’ from which funds can be withdrawn.

              1. I never equated the Trust Fund with a Surplus. The Trust Fund is simply an accounting mechanism which was used to bury the fact that the surplus FICA taxes were spent.

                Trust Fund or No, SS ran at a surplus for almost it’s entire existence. Because the tax rate wasn’t based on current payables. That is why it cannot be classified as a pay-as-you-go mechanism. PAYG means that inflows and outflows should even out.

                1. What seems to be missing here is the false distinction between “SS” and “the federal government”. Other than an accounting gimmick, all SS recipients are paid by the federal government. The government gets revenue from multiple sources, including FICA and income taxes. It also spends more than the total of all revenue every year.

                  There is no big pile of cash or investments that are drawn down in lean times to make up the difference, whether we are talking about the government as a whole or just social security. There is no “trust fund” – just an IOU the feds made out to themselves. Whether current beneficiaries are being paid from FICA revenue or income tax revenue makes no difference to the fact that they are being paid from current revenues (collected to pay back t-bills in the trust fund).

                  So everything is “pay as you go”… except that they never collect enough revenue to pay for everything. So they either print money to pay for it or they issue debt (with the fictional understanding that they’ll run a functional surplus at some point in the future to pay down the debt – they won’t, they’ll print money).

                  1. For the last 30 years they’ve used the fiction of the trust fund to funnel an extra 13% of everyone’s pay into the general revenue fund, allowing us to pretend that taxes are lower than they are and forestall the impact of massive deficit spending. But now those days are over and we’ll either be paying 70% effective tax rates or we’ll be inflating our way out of the debt. Either way, those of us still working are screwed.

            2. This is obviously an argument of semantics.

              In my mind surplus FICA taxes were spent = there is no surplus. Just because the money was spent on things other than SS benefits doesn’t mean that the fund is operating at a surplus.

              PAYG means that inflows and outflows should even out. At this point, inflows and outflows have evened out – all money has been spent on benefits or transferred to the general fund via the purchase of t-bills. The SHTF when the Treasury and IRS can no longer sustain PAYG when outflows exceed FICA receipts.

              1. In my mind surplus FICA taxes were spent = there is no surplus. Just because the money was spent on things other than SS benefits doesn’t mean that the fund is operating at a surplus.

                This is not a semantic issue.

                You are arguing that the Trust Fund is not a surplus. Fine, no argument from me.

                I am arguing that Social Security was generating a surplus. That is the point you do not appear to grock. That surplus could have been managed in such a way as to not have it disappear into an accounting fiction. The fact that it was not does not mean that it never existed. It was simply never retained.

                1. It is semantic. For your explanation to have merit you must believe that social security spending is separate from spending from the general fund and that FICA witholdings are different from income taxes. Since the Supreme Court ruled that FICA witholdings can be rolled into the general fund and because taxes will be levied to cover the t-bills ‘purchased’ with the SSTF ‘surplus’, there is essentially no difference between these revenue streams or payment obligations.

                  Politicians maintain the facade that there is a difference between these revenues and expenditures. But in practice there is no difference.

          2. If general funds (current tax receipts) are laundered into SS revenue, how is this not ‘pay as you go?’

            If “pay as you go” means “benefits are paid, regardless of the source of revenue”, sure.

            But that makes “pay as you go” pretty meaningless. You might as well just say “pay”.

            1. Agreed. Also, the idea that t-bills held by the SSTF represent a surplus is pretty meaningless. As is the idea that FICA contributions are any different that income taxes, as pointed out by Cyto.

            2. The difference is the difference between an IOU that Cyto issues to RC Dean and an IOU that RC Dean makes out to himself.

              Regardless of our respective abilities to pay, one is an actual asset, the other is a piece of paper and nothing more.

              The distinction between FICA and income taxes and the trust fund is the equivalent of saying “I’m only going to use the money in my left pocket for gas money. The money in my right pocket is for other expenses. If I have any extra gas money I’ll put the cash in my right pocket and an IOU in my left pocket to remind me to pay back my right pocket. I’ll always spend every nickle in my right pocket each day.” It is all mental masturbation that only serves to distract the proles from what is really happening.

              As a group, we American voters are brilliant!

    1. Who uses the Internet anyhow?

  15. FDR would have supported whatever would have helped him get elected…just like every craven asshole who occupied the WH after him.

    1. “FDR would have supported whatever would have helped him get elected…just like every craven asshole who occupied the WH”.

      Fixed it for you

  16. I dont know what to think abotu all that.

  17. Politicians are notoriously shortsighted. FDR got what he wanted at the time.

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