The Birth Of Social Security

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Almost from the moment it began its work, the large and cumbrous unemployment insurance section was embroiled in fundamental controversy not wholly free of acrimony. Should unemployment insurance be administered by the federal government, or in separate pieces by the forty-eight states? National administration would ensure uniform standards among states, with equal treatment of workers who moved, as workers now increasingly did, from one state to another. It also would be more efficient. It was favored strongly by Rubinow, Douglas, and Epstein, none of whom, however, was called in for direct, formal consultation on the matter. It was also strongly favored by at least one member of the top cabinet committee, Henry Wallace. But to Witte and the Brandeisians of the Wisconsin group, with their vested intellectual interest in the Wisconsin Plan, the national scheme was anathema. They pressed hard for a statefederal scheme in which the ingenious “offset” device of Brandeis’ invention, incorporated in the 1934 Wagner-Lewis Bill, would be used to stimulate state adoptions of implementing legislation. They argued that Congress, because of “state jealousies and aspirations” (Perkins’ words), was more likely to buy it than a purely national scheme; and that the conservatives of the U.S. Supreme Court were less likely to declare it unconstitutional.

The controversy raged unresolved all through the autumn of 1934. “Finally, one day during Christmas week … I issued an ultimatum that the Committee would meet at eight o’clock at my house for the evening … and that we would sit all night, if necessary, until we decided the thorny question once and for all,” wrote Frances Perkins in The Roosevelt I Knew . “We sat until two in the morning, and at the end agreed, reluctantly and with mental reservations, that for the present the wisest thing we could do was to recommend a federal-state system.”

There remained the issue of individual reserves joined with merit rating (as per the Wisconsin Plan), versus a pooled reserve with no merit rating—an issue that the cabinet committee finally resolved by adopting a compromise proposed by Altmeyer. Altmeyer was by this time doubtful of the plan to which he had been initially committed (years later he told a congressional committee that merit rating was a bad idea, that unemployment insurance ought to have been established on a national basis); and his proposal was one that constricted merit rating almost to the point of extinction. The employer, by this proposal, could divide his total contribution between his individual reserve and the pooled reserve, but to the pooled reserve he must contribute a minimum of one per cent of his payroll—and in no state with an unemployment compensation law had the average overall employer contribution been more than one and a half per cent. In the end, however, this arrangement foundered on the conservatism of Congress and President. At a critical point in the subsequent legislative proceedings, Roosevelt backed those members of Congress who wished to restore merit rating, and so it was restored (with segregated reserves) in the final Social Security Bill. The consequences, easily predictable by those best informed on the subject, were in every respect deplorable. “As a result of merit rating,” writes Arthur Schlesinger, Jr., “states with low standards and low tax rates tended to enjoy a competitive advantage over states with higher standards. Moreover … the burden of unemployment compensation [was increasingly placed] on the industries least able to bear it….”

As for the large staff devoted to health insurance, a few of its members professed to believe, with Harry Hopkins, that “with one bold stroke we could carry the American people with us … for sickness and health insurance”; but even these few had to concede the extreme unlikelihood that any such “stroke” now would be attempted. In the end, relatively innocuous recommendations were made by the committee for federal grants-in-aid to state public health services. None were made for national health insurance, this being foredoomed by the implacable hostility of the AMA and Roosevelt’s obvious unwillingness to challenge it. In his one public statement on the matter during the period of committee operation, he spoke of “the problem of economic loss due to sickness” as “a very serious matter for many families … and therefore an unfair burden upon the medical profession [emphasis added],” and said that any proposal ultimately made for health insurance must be such as would “enhance and not hinder the remarkable progress … being made” by the medical profession.

Far happier in process and outcome were the deliberations of the smallest of the three staff sections, that dealing with old-age security—and for this its very smallness was in part responsible. It “proved a great boon,” wrote J. Douglas Brown, a Princeton expert who was one of the four key members of this section, the other three being Barbara Armstrong, a University of California law professor who was section head; Murray W. Latimer, first chairman of the Railroad Retirement Board; and Otto C. Richter, actuarial expert of American Telephone and Telegraph.