There were also a number of programs initiated during the Depression that have become cornerstones of American social insurance. Unemployment insurance (which had previously comprised largely voluntary programs that differed from state to state) became mixed Federal-state programs in which the Federal government mandated uniform standards that the states were primarily responsible for enforcing. Through state law, employers were required to pay premiums for certain levels of unemployment insurance that would provide cushions for people who lost their jobs.
The Social Security program, providing benefits not only for the elderly but also for the disabled, was probably the most important of Roosevelt's innovations in social insurance. Although the program initially excluded agricultural workers and domestics (and thus two-thirds of working African Americans at the time),
23 it has since been significantly expanded. Sold to the public as a pay-as-you go
insurance program, Social Security has nevertheless always been a form of welfare, with payments from younger, working individuals providing benefits for the retired and disabled. Illustrative of Social Security's nature as a welfare program, most beneficiaries have received approximately twice what they would have received if their payments had been simply invested in the same US Treasury bonds.
24 Significantly strengthened during the 1960s, Social Security has been an enormously successful program: the poverty rate in 1997 for the elderly was just over 10%, about half the poverty rate for children. It is estimated that in the absence of Social Security payments, 50% of the elderly would be poor.
The New Deal programs irrevocably tipped the balance between public and private forms of welfare. Prior to Roosevelt's administration, social welfare costs were approximately 1% of government expenses; in 1939 such costs (including Social Security and unemployment insurance as well as more commonly understood forms of relief) were 27.1% of government spending. While welfare in America has always been a combination of public and private, it is now a much greater percentage of government spending than before Roosevelt.
The New Deal also cemented an ultimately untenable distinction between "social insurance" and "public assistance" that has prevented the United States from developing a more comprehensive program of economic security similar to the programs in the countries of Western Europe. In the United States, such programs as Social Security, Medicare, disability pensions, disaster relief, and so on are considered "social insurance," while payments to families with young children, food stamps, general relief, Medicaid, and so forth are considered "public assistance." It is the old distinction between the deserving and undeserving poor. In fact, social insurance and public assistance are both forms of "wealth transfer" wealth from certain groups of people (usually those who are working) to other groups (usually those who aren't working). Historian Michael Katz writes:
The resilient distinction between social insurance and public assistance reflects the long-standing suspicion of … welfare. There remains … a lurking assumption that many of those who ask for help neither need nor deserve it. By contrast, social insurance is acceptable because, so it is believed, it is earned. With their own wages, workers contribute to funds—supplemented by their employers—that will support them in periods of unemployment or in old age. Even though they may take out far more than they contribute, they can argue that they have paid their way. Equally important, social insurance is popular because its benefits cross class lines. Almost everybody is eligible for social security retirement benefits.25
One significant result of this distinction is that programs considered social insurance are generally administered by the Federal government with nationally uniform standards and benefits pegged to inflation, while programs considered public assistance are usually administered by state or local governments with cost-of-living benefits raises dependent on the uncertainties of the legislative process. As a result, of course, "social insurance" programs have substantially better benefits than "public assistance." In the twenty years
before Welfare Reform, for instance, AFDC benefits (adjusted for inflation) had declined by 40%.
Footnotes
23 Social Security was part of the Economic Security Act of 1935. Also in the act was a matching grant program that encouraged the states to assist the elderly who hadn't worked long enough to collect benefits under Social Security. Although administered by the states (meaning that benefits varied greatly from state to state and were usually not sufficient to live on), such old-age assistance did not discriminate as much against blacks. This program was, for the most part, what American knew as "welfare" until the mid-50s.
24 Perhaps the greatest indication of the actual nature of the program is the funds that are in the trust. Any true insurance program should have enough money so that it could stop taking in new business today and have enough money in the trust to meet all of its future obligations. This has never remotely been the case for Social Security, which, at the end of 1996, had $567 billion in its trust fund and liabilities of $8
trillion (or $8,000 billion). Social Security has always been a transfer of income from the working to certain people who were not working, not an insurance program.
25 Katz, Michael,
In the Shadow of the Poorhouse, p. 246
