Tuesday, April 10, 2012

It is ever thus with government programs

Robert Samuelson explains that Franklin Roosevelt never intended Social Security to be an entitlement.
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 proposal 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.
The fact that it has so changed from his original vision is an example of what happens all the time with government programs. They often extend way beyond what those who originally crafted the programs never wanted. Think of the example of Hubert Humphrey promising to eat his hat if affirmative action ever became a program of preferences or quotas for minorities. Think of how Medicaid has been expanded way beyond its original parameters. Think of how price and wage controls imposed in WWII led to our employer-based health insurance system today. The list goes on and on.

This is why policymakers must be very humble in crafting programs because they never can predict where those policies will eventually end up.