6-3-2016 by Henry Hazlitt
In the United States, Federal programs to relieve poverty and unemployment first went into effect on a large scale in the Great Depression. The argument was that they were needed only during the emergency. Since then the nation has enjoyed a return of prosperity, an enormous growth in national income, a fall of unemployment to record low levels, and a sharp decline (by any consistent definition) in the number and proportion of the poor. Yet relief, unemployment insurance, Social Security, and scores of other welfare programs have expanded at an accelerative rate.
In a 1935 message to Congress, President Franklin D. Roosevelt declared: “The Federal Government must and shall quit this business of relief…Continued dependence upon relief induces a spiritual and moral disintegration, fundamentally destructive to the national fiber.”
The contention then made was that, if unemployment and old-age insurance programs were put into effect, poverty and distress would be relieved by contributory programs that did not destroy the incentives and self-respect of the recipients, and that relief could gradually be tapered off to negligible levels.
Let us look first at what has happened to Social Security itself. Since the original act of 1935 there have been constant additions and expansions of benefits. As early as 1939, both the benefit and tax provisions of the basic act were overhauled. The 1939 package added survivors’ benefits.
In 1950, coverage was broadened substantially to include about 90 per cent of the employed labor force. (Initially it had been only about 60 per cent.) The length of working time required to qualify for coverage was sharply reduced.
In 1954 and 1956 there were further liberalization of coverage. Disability benefits were added. The 1956 amendment dropped the minimum retirement age required for women from 65 to 62.
In 1958, benefits for dependents of disabled workers were added. In 1961 the retirement age for men was also reduced to 62, though with a lower level of benefits than was payable at 65.
The 1965 legislation added Medicare for some 20 million Americans over 65. It made a host of other expensive changes. To the traditional Social Security program it added a 7 per cent across-the-board increase in cash benefits to retired workers.
In addition to other changes, the scale of benefits was increased in 1952, 1954, 1958, and 1965.
The 1967 Social Security amendments increased payments to the 24 million beneficiaries by an average of 13 per cent, raised minimum benefits 25 per cent, increased benefits to non-insured persons over 72, and also increased survivor and disability insurance benefits.
The original Social Security payroll tax was 1 per cent of wages up to $3,000, to be paid both by workers and employers. The combined rate of tax is now 9.6 per cent of wages up to $7,800.
But nobody can seriously expect even these greatly increased payroll taxes to pay for the liabilities that the government has already undertaken. W. Rulon Williamson, the actuary for the Social Security Board from 1936 to 1947, estimated even before the latest increases that it would take $150 billion more just to take care of those who were already on the benefit rolls, and that it would probably take at least $1 trillion to take care of the families of those who are already paying Social Security taxes, but have not yet retired. That estimate doesn’t cover Medicare.
What, meanwhile, has happened to the relief programs that unemployment insurance and Social Security were designed to make unnecessary?
In 1937, the first full year in which the initial Federal public assistance programs were in operation, $316 million was paid out to relief clients under the federally aided programs. In i960 the comparable total had increased more than tenfold, to $3.3 billion.
Though the Federal contribution has been mounting steadily during the years, the burden borne by the States and localities has been mounting at an almost equal rate. The amount of public aid alone paid out by the States and localities increased from $624 million in 1935 to $3 billion in 1966. The total of all social welfare expenditures borne by the States and localities alone has grown from $3.3 billion in 1935 to $40.8 billion in 1966, and for 1968 was probably about $46 billion.
The Federal budget lists the total cost of “Federal Aid to the Poor” in 1960 at $9.5 billion. For 1969 the cost is listed at $27.7 billion, nearly three times as much.
These figures include the cost of aid to education, work and training, health, cash benefit payments, and other social welfare services. In the 1969 fiscal year, the Federal Government placed the number of persons on direct relief at 8.8 million. This was an increase of 60 per cent compared with the number twelve years before, though the rate of unemployment is lower than it was then.
The Federal Government estimated that there are still about 29 million “poor” by official definition ( a family of four with an annual income under $3,335).
Not only do the individual programs to “assist” them become more costly year by year, but new programs are constantly being added, though they overlap and duplicate each other. Upward of 70 agencies have been counted operating some 300 programs for uplifting people. A detailed account of the waste and scandals that have accompanied these proliferating programs can be found in Shirley Scheibla’s recent book, Poverty Is Where the Money Is.
In addition to specific antipoverty programs, the Federal Government’s total welfare outlays—including agricultural subsidies, housing and community development, health, labor and welfare, education, and veterans’ benefits—come to a staggering total for the single 1969 fiscal year of more than $68 billion.
Even so we have not finished yet. We must add the $46 billion annual welfare cost that falls on the States and localities, making a grand total of more than $114 billion.
Yet nearly all the “reforms” that are being proposed, even under the new Republican Administration, are changes that would still further increase the Social Security and direct relief burden, not reduce it.
One of these proposals, which may even be enacted into law before this book appears, is that all welfare be placed in the hands of the Federal Government, with a uniform level of relief payments throughout the nation.
The practical effect of this would be to reduce the present high relief payments in the big cities hardly at all, but to increase enormously the relief paid in the poorer States and in the country districts.
The relief recipients in the poorer States and country districts would not only, because of their comparatively much lower living costs, be much better off than the relief recipients in the big cities, but their relief payments would be so much higher in comparison with the local wage rates in their districts that hundreds of thousands more would prefer going on relief to staying at work.
As the relief system would probably be administered by the city and county governments, while the Federal taxpayers were footing the bill, all incentives to economy and the elimination of malingerers and chiselers from the relief rolls would fall to the vanishing point.
The country would slide easily toward guaranteed income plans, and the waste and corruption in relief payments would make present waste and corruption seem trivial in comparison.
[Excerpted from Man vs. The Welfare State, originally published as “Runaway Relief and Social Insecurity.”]