Tuesday, March 23, 2010

The Voice of Experience


History Lesson for Obama:  The1935 Congressional Debates on the Social Security Act


What would you do if you had just pissed off approximately 150 to 180 million people?  Some pretty serious damage control, that's what.  Hence, His Majesty, King Hussein Obama the First will deliver a speech in Iowa this Thursday to kick off the Democratic effort to avoid a crushing loss in this November's Congressional mid-term elections.


Who knows what tortured arguments His Majesty and his minions will try to employ in this seemingly impossible task but I think the Congressional debate from Sunday gives us some idea of how they will try to defend this disastrous reform.  More specifically, several Democrats dismissively brushed aside Republican objections to the healthcare monstrosity by noting that opponents of Social Security and Medicare had similarly made predications of doom and gloom and those predications had not come true.  With disgusting smirks on their faces, these sniveling weasels smugly pointed out that the United States did not descend into socialism or communism, as some opponents predicted, because of the enactment of these programs.  This Democratic argument may or may not be true but it's worth noting that this general argument was hardly the only one offered against the enactment of these programs.


I realize His Majesty's knowledge of American history is fairly limited but I don't hold this fault against him since I don't know a whole lot about the history of His Majesty's native land of Kenya either.  So before You try to brush off the Republican arguments by lumping them with the rhetoric of the past, I offer the following prescient objections to the enactment of the Social Security Act in 1935, which are as true today as they were nearly 75 years ago.  The complete record of the debate in the House and the Senate can be found at http://www.ssa.gov/history/law.html




On the floor of the Senate on June 17, 1935, Republican Daniel Hastings of Delaware hit the Democrats with one of my favorite tactics, the use of mathematics.  Using projected earnings and actuarial data developed by the committees charged with writing the Social Security Act, Senator Hastings offered a series of illustrations that proved that the initial enrollees in the plan who were older, generally over 50 years of age would receive more money in benefits from Social Security than the money they and their employer had contributed.  So where would the money come from to pay these enrollees?


Senator Hastings continued to offer illustrations and proved that younger workers and people who would start working after the enactment of Social Security would end up covering this deficit since they would receive less in benefits than they and their employer had contributed.  Then he took this argument, which he referred to as a discrimination against the young, to another level:


Mr. President, I call attention to the discrimination in this bill not so much for the purpose of emphasizing the argument which will be made by those who shall participate in this fund, who pay the taxes, and who are entitled ultimately to some return from it, but I call attention to it for the purpose of emphasizing that, after all, this is a democratic form of government and what we do here may be changed and will be changed upon the demand of people who have been discriminated against. 


Senator Hastings wondered what future Congressman would say when their constituents would come to them and point out that they had paid more into the fund than they would probably receive.  He did not see how the future Congress could deny these claims for relief:


We will have no defense at all, because he will not have gone into this plan voluntarily.  We will have forced him into this plan. We will have forced him to contribute to the Federal Treasury 3 percent of his salary and will have forced his employer to do likewise.


Bear in mind that Senator Hastings is not just talking about a particular individual but a whole class of citizens.  On the floor of the House on April 19, 1935, Republican James Wadsworth Jr. of New York pointed out the power these citizens might weld:


Pensions and annuities are never abandoned; nor are they ever reduced. The recipients ever clamor for more.  To gain their ends they organize politically. They may not constitute a majority of the electorate, but their power will be immense.


As predicted by Senator Hastings and welding the political power envisioned by Representative Wadsworth, senior citizens used exactly this argument in the early 1970's when they demanded cost of living increases.  They pointed out that they had paid more into the system than they would ever receive so the Congress should be able to enact these automatic raises.  (As a brief aside, when the dummies in the Congress set down the formula to provide these increases they screwed it up and retirees received double the increase in the cost of living.  This mistake pushed the financially unstable Social Security Trust Fund to the brink of insolvency.  It took the government three years to fix the formula.  And tell me again that you want these fools in charge of your healthcare!)




As many Republicans in the current debate on healthcare pointed out, Representative Wadsworth tried to point out that once we started down the road of providing these benefits, there would be no turning back.  Once again, here are his comments from April 19th:


It launches the Federal Government into an immense undertaking which in the aggregate will reach dimensions none of us can really visualize and which in the last analysis, you will admit, affects millions and millions of individuals. Remember, once we pay pensions and supervise annuities, we cannot withdraw from the undertaking no matter how demoralizing and subversive it may become. .


Could you imagine the chaos that would ensure if we suddenly stopped paying Social Security benefits today?  Tens of millions of people have planned for their retirements based in part on receiving these benefits.  How many of these people would be reduced to the poverty level?  And consider the people who are currently planning for their retirements, who are in their forties and fifties.  There simply isn't time for these people to increase their retirement savings such that they could replace the income they except to receive from Social Security.  No matter how much damage Social Security inflicts on our fiscal health, we're stuck with it.  It would take decades to unwind the program. 




Representative Wadsworth was the type of Republican modern day liberals would hate.  Born into a wealthy, distinguished family (his grandfather was a General in the Union Army who was killed in action during the Battle of the Wilderness), Wadsworth believed in limited government and individual rights.  While serving in the Senate in 1917 (That's not a misprint.  Wadsworth is one of handful of persons who served in the Senate first and then the House), these beliefs led him to oppose the Eighteenth Amendment and become a vocal opponent of Prohibition, which was not a popular stance in the Republican Party during the 1920's.  Perhaps these beliefs also motivated his arguments against the financing of Social Security on the floor of the House on April 19th.  Wadsworth's objection was to the investment of the Social Security Trust Fund in government bonds, which is still the practice of the Fund today.


Now, that may seem an effective and adequate way to finance the Government's financial activities in all the Years to come. I am trying to look to the future. Heretofore the Government has financed its undertakings primarily and fundamentally as the result of the confidence of the individual citizen in the soundness of the Government's under-taking, but from this point on we are apparently going to abandon that philosophy of public confidence and resort to a very different practice. The Government is to impose a pay-roll tax through one of its agencies, collect the money into the Treasury Department, then the Treasury Department with its left hand on the proceeds of these taxes is to turn around and buy bonds of the United States Government issued by the right hand of the Treasury Department.  Thus the Government of the United States, after this thing gets going, is no longer to be financed directly by its citizens, confident in the soundness of the Government, but it is to be financed instead by arrangements made within the bureaucracy-an undemocratic and dangerous proceeding.


Like most people, I've always had a problem with Social Security Trust Fund lending money to the general fund of the government because the only way this general fund can pay back the money to the Trust Fund is to either raise taxes or issue debt to the general public.  In short, my objection is that this method doesn't work because the money isn't invested.  It's just gone.  Wadsworth, however, raises a point that I have never considered.


Basically, he's saying that ordinarily, people are free to buy government bonds or not buy government bonds.  If enough people lacked confidence in the operations of the government, which is exactly what is slowly happening in our time, the government wouldn't be able to raise money through selling bonds.  If you adopt this line of reasoning, then all of the money used to finance the government, whether through taxes or the proceeds of bonds, has been provided to the government with the approval of the public, albeit with taxes indirectly having been approved by people through their representatives, who must periodically stand before the public for elections that could be influenced by the tax burden they impose on the public.


The money lent by the Social Security Trust Fund to the government, however, doesn't bear this stamp of approval.  The decision to lend the money rests not with the public but instead with unaccountable bureaucrats.  The Congress can spend this money without having to seek its approval, i.e. it doesn't have to raise taxes or sell bonds to the public.  Take a moment and look at the latest financial statements of the Social Security Administration.  http://www.ssa.gov/finance/2009/Financial%20Statements.pdf  On page 92 you'll see that as of September 30, 2009, the Social Security Administration had approximately 2.5 trillion dollars in investments.  Skip ahead to page 102 and you'll find out that these investments consist of bonds issued by the Treasury.  Since our government is already in debt, this means that the federal government, to use Wadsworth's language, has taken 2.5 trillion dollars with the left hand and given it to the right hand to spend as it pleases.  It's also worth noting that this 2.5 trillion dollars exceeds the equity of the fund, called the net position.  Just think of all the earmarks, the pork, and the pet projects our politicians financed over the years with this money without having to raise taxes or seek money in the bond markets at market rates of interest. 



I'm sure most of the proponents of Social Security dismissed Wadsworth arguments but I don't know how they could have dismissed this argument from Senator Hastings.  On June 17th, the Senator pointed out that the raiding of the Social Security Trust Fund could happen because... a similar raid had already happened!


It must be borne in mind that in order to create this fund there must be annual appropriations by Congress. It is contemplated that those annual appropriations shall be the amount of money collected from the employer and the employee: but does anyone doubt that when the Congress comes to these appropriations there would be manipulations so that the fund would not be accumulated but would he used for current expenses of the Government?


Mr. President, we have a fine example of that-very slight, indeed, because of the amount involved-in the case of the civil-service retirement fund. I wonder if Senators realize that, while there is supposed to be something like a billion dollars accumulated in that fund and that the actuaries say there ought to be about a billion dollars accumulated in it, there has been practically nothing accumulated in that fund? I blame no particular person for it; I know when the Government needs money for some purpose the question may readily be asked why should not the Government, when it needs money for other purposes. take out of its till and put in some other place a certain sum of money that is necessary for some retirement fund? There is nothing in the civil-service retirement fund except an I O U.




I agree with all the arguments being offered by conservatives that the new healthcare reform will lead us down the road to a European style socialist state but to be frank, I don't think these arguments are going to work.  Instead, we should focus our arguments, as these two men did years ago, on the specific weaknesses in the law, which are legion.  Under the original Social Security Act, the first payroll deductions were scheduled to start on January 1, 1937, which meant there was only about a year and a half before the passage of the bill and its operation.  We have approximately twice that amount of time to stop this law from taking effect.  We should take advantage of that.  The Democrats seem intent on selling this law to the public.  We should force them to explain it, warts and all.

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