Compromise 4: Whittling Down The New Deal

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Not long after Franklin D. Roosevelt was sworn in on March 4, 1933, he began work on his “big bill.” It embraced several of his highest aspirations: universal health care, old-age pensions, unemployment insurance, and more, including a provision to make the federal government the employer of last resort in what many economists considered a “mature” economy whose private-sector employment component was destined to be chronically deficient.

“I see no reason why every child, from the day he is born, shouldn’t be a member of the social security system,” he told Frances Perkins, his secretary of labor. “When he begins to grow up, he should know he will have old-age benefits. . . . If he is out of work, he gets a benefit. If he is sick or crippled, he gets a benefit. . . . And there is no reason why just the industrial workers should get the benefit of this. Everybody ought to be in on it—the farmer and his wife, and his family. . . . Cradle to the grave—from the cradle to the grave they ought to be in a social insurance system.”

But in the first of many concessions to legislative realities, as well as to anxiety about constitutional challenges—not to mention apprehension about perceived legitimacy in the eyes of the people—FDR carved the jobs provision out of the big bill. It eventually passed as the Emergency Relief Appropriation Act of 1935. Among other things, it created the Works Progress Administration (WPA), an agency that employed millions in the Depression era but would disappear within less than a decade. More such concessions soon followed.

Compromise after compromise whittled FDR’s grand vision for a comprehensive system of social provision down to what Perkins later glumly appraised as but a few “practical, flat-footed first steps.” Yet those first steps have proved hugely consequential for generations of Americans—and their consequentiality may well be attributable to the very compromises that so dispirited Perkins. FDR’s shortfall explains much about the limits of reform in the New Deal era, as well as the enduring contours of American socioeconomics.

Perhaps the most notable compromise, in light of recent history, concerned health care. “Powerful elements of the medical profession were up in arms over the idea of any kind of government-endorsed system,” noted Perkins. Sticking with the health provisions threatened to jeopardize the entire bill, so FDR reluctantly let them go. The dream of universal health care lingered over an unreachable horizon for the remainder of the century and beyond. But as Perkins recognized, to get anything accomplished at all, FDR had to take account of “the prejudices of our people, and our legislative habits.”

That left unemployment insurance and old-age pensions. On grounds of administrative simplicity, uniformity of standards, and portability within a national labor market, the President’s Committee on Economic Security (CES), tasked with drafting the legislation, favored making the federal government responsible for both. But Roosevelt balked. “We’ve got to leave all we can to the states,” he argued. “All the power shouldn’t be in the hands of the federal government. Look—just think what would happen if all the power was concentrated here, and Huey Long became president!” So against their better judgment, the CES experts left unemployment relief largely to the states. If the Supreme Court should declare the federal law to be unconstitutional—an acute worry in the judicial atmosphere of 1934–35—at least the state laws would remain on the books. The final act thus spawned a profligately disparate set of 50 separate bureaucracies running 50 separate unemployment compensation plans. Benefits were neither uniform nor portable, but Perkins consoled herself that this was better than nothing.

Old-age pensions, even today the most celebrated and controversial part of the Social Security Act, remained to be dealt with. Three complicated and devilishly interconnected considerations proved especially challenging: how to fund the pensions; when the initial payments should begin; and who should be covered.

Roosevelt and the CES planners agreed from the outset that employers and employees alike should contribute to the pension system. But the experts, noting that countries with such systems already in place typically financed them out of general revenues, envisioned a modest employee contribution and a substantial subvention from general Treasury funds. To proceed otherwise would necessitate a steeply regressive tax on workers, which, not incidentally, would have mischievously deflationary effects in the midst of the ongoing Depression. Roosevelt nonetheless demurred. “No dole,” he said. “No money out of the Treasury.”

The planners persisted. If they were to honor the president’s wish to begin payments to the first beneficiaries within the next five years, the earliest retirees’ benefits would far exceed their contributions, creating an accrued liability that by 1980 would need to be covered out of general revenues. Nothing doing, said Roosevelt. “This is the same old dole under another name. It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can’t do that.” FDR later claimed that he fully understood the fiscal rationale for the planners’ recommendations. “But those taxes were never a problem of economics,” he said. “They are politics all the way through. We put those taxes in there so as to give the contributors a legal, moral, and political right to collect their pensions. . . . With those taxes in there, no damn politician can ever scrap my social security program.”

Treasury Secretary Henry Morgenthau broke the impasse with a proposal to limit future liabilities by excluding certain categories of employees from any coverage whatsoever —some 10 million farm laborers, domestic servants, and workers in establishments with fewer than 10 employees.

“This was a blow,” Perkins wrote afterward. “But there were enough people afraid of the deflationary effects . . . enough people afraid of too large a system, and enough people confused about the desirability of social legislation by the Federal Government,” that Morgenthau’s solution was adopted.

Perkins shared Roosevelt’s regret that his big bill “had been chiseled down to a conservative pattern.” His separately enacted full-employment proposals proved short-lived. Universal health care had disappeared. Unemployment insurance constituted no kind of consistent national plan. And all but uniquely in the developed world, contributory taxes for old-age insurance defined America’s old-age pension system as a property right, not a civil right. Meanwhile, millions of the least secure and neediest workers—a disproportionate number of them black farmworkers and black female domestics—had been denied coverage.

And yet Perkins ultimately affirmed Roosevelt’s conclusion that the Social Security Act was the “cornerstone of his administration.” It may not have conformed to his highest aspirations, but it has benefited hundreds of millions of Americans—retirees and the unemployed alike—for three-quarters of a century. It laid the foundation on which Medicare, Medicaid, and the Health Care and Education Reconciliation Act of 2010 were later erected. It’s not too much to say that it rewrote the American social contract. As Roosevelt envisioned, it made life more secure for generations to come. And were it not for the abundant compromises that attended the Social Security Act’s enactment, none of those things might have come to pass.