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A History of Social Security – Part II
The Day It All Changed
Any lingering doubts about the need for Social Security were eliminated by one of the country’s darkest times: the Great Depression. Beginning with the catastrophic crash of the stock market on October 29, 1929 (often called “Black Tuesday”), America’s economic health began to look much more bleak. It was now clear that private businesses and banks could not provide financial stability for everybody. Men and women who had been living the high life of the “Roaring Twenties” were suddenly thrust into a harsh life of homelessness and joblessness. Shanty towns, often called “Hoovervilles,” sprang up around the country. The government that so many Americans wanted to keep out of their lives just a few years earlier was now seen as the only hope.
Responding to this, many states began to pass old-age pension laws, which were crafted to give some assurances to retirees. California, Wyoming, New York and Massachusetts were first, but by 1934, more than half of the states had such laws on the books. While these state laws were well intentioned, they did not pack a lot of punch. The Depression had hit the states hard as well, and they could not afford to pay more than minimal pensions. On average, beneficiaries received only about 16 dollars per month.
Still, no national program existed. While some Americans believed in waiting for the economy to turn around on its own, newly elected president Franklin Delano Roosevelt was a man of action. He rejected the idea that so-called “social insurance” – the type of program that had existed in Germany for almost 50 years—was un-American. Instead, FDR pointed out that our very own Constitution’s promise to “promote the welfare” not only justified, but in fact required the institution of Social Security. Even if it required a forced payroll tax, such a program was totally democratic because it provided equal opportunity for everyone. The time when self-interest made all the rules was over.
Roosevelt also recognized the sensible economics of his plan. With unemployment at an incredibly high level (25 percent at the heart of the Depression), an old-age security system might encourage some of the aging workers to retire and give an opportunity to the younger generation. This would do two things. It would give disposable income to younger workers, and it would give pension money to retirees – both of which would create more consumers who would buy goods and energize the economy.