J. Douglas Brown - The Idea of Social Security
THE IDEA OF SOCIAL SECURITY
By J. Douglas Brown
Dean of the Faculty Princeton University
Reprinted from the talk he gave before a General St Meeting of the Bureau of Old-Age and Survivors Insurance, November 7, 1957, Baltimore, Md.
This edition of Dean Brown's speech was published in March, 1958. It has been out-of-print for almost 40 years. This version captures not only the original remarks delivered by Dean Brown, but also a Q&A session with the audience. The Q&A session is particularly interesting in that it reflects attitudes and issues from the late 1950s--especially in Dean Brown's resistance to the idea of two-earner families.
INTRODUCTION
In introducing Dr. Brown, who had been his major professor at Princeton, Arthur E. Hess, head of the Division of Disability Operations said:
"I think all of you know Dr. Brown by name and by reputation. He is Dean of the Faculty of Princeton and has been a professor of economics there since 1934. He was for many years, until 1955, director of the famous Industrial Relations Section at Princeton. Some of you know that this section has made quite a unique contribution, both in the field of industry and government, to the knowledge that we have in industrial relations.
Dean Brown, however, is much better known to those of us with the provincial social security outlook in this room as a friend and expert on social security. He was a member of the staff of the original Committee on Economic Security in 1934-35, and he helped develop the old-age security section of the Committee's report. He has been on the several advisory committees or councils to the Senate Finance Committee. In 1937 and 1938, he was chairman of that council. He was also a member of the Finance Committee Advisory Council in 1947 and 1948 and as such, he was connected with and in some ways responsible for, many of the recommendations which have since become social security law.
More recently he has also been a member of the Mobilization Advisory Committee of the Office of Defense Mobilization. I believe he holds that position now.
Dean Brown has been a special consultant to the Secretary of War during the war years, and more recently to the Secretary of Labor.
His latest and continuing association with us will be as a member of the newly-announced committee which Secretary Folsom has just designated, the new Advisory Council on Social Security Financing."
DEAN BROWN'S REMARKS
I feel very much honored to have this opportunity to come down and talk with you informally about what has been throughout my life, one of my deepest and greatest interests. I want to assure you that if you ever have worries about ideas becoming manifest in great actions, take your own field. I can remember when Old-Age Insurance, as it was then, was nothing but a gleam in the eye; when it hung in the balance on the wishes of two or three senators, the famous time when Ed Witte made his remarkable ten-minute address in the executive session of the Senate Finance Committee at a time when the whole business hung in the balance because of a last-minute counterattack by those who did not want to see the act passed.
So the fact that an idea, a grand idea, can start in one decade, skip a decade, then become so important to the people of the United States, so pervasive, reaching into the lives of practically every citizen; accepted almost without question by every citizen; even taken for granted-that this can happen in twenty years is a remarkable development.
So sometimes when we get worried about whether the United States is up on these Sputniks, or what have you, we should remember that the period of development from the idea to the actuality is not so great a time, and that the power of ideas is the thing that is most precious of all.
Now, I would like to talk a little about ideas. I am going to give you the background as I see it of the whole social security legislation, but particularly the Old-Age and Survivors Insurance, and what I think are the basic principles of this whole business.
The depression of 1932 proved once for all, even to the most conservative elements of America, that the forces of economic competition and change were too inherent in our system of political economy to rely upon prevention alone for the protection of our citizens against distress caused by loss of earnings. At long last, they began to realize that the emphasis had to shift, so far as the wage earner was concerned, to a system of benefits payable as a matter of right, regardless of the degree to which the employer or the Government succeeded in eliminating the disastrous effects of the physical hazards of life.
At that time-and many of you remember it clearly there were so many able and willing and thrifty workers facing want and distress that the older concept of personal responsibility or blame for one's dependency was no longer tenable, at least as a general principle.
Now, looking backward in a sort of national introspection, we can see that we came to this concept of individual responsibility honestly.
It was an honest conviction on the part of the great majority of our people at that time because we were a people whose economic virtues had been largely derived from an agricultural economy.
In an agricultural economy, in a farming village, the sources of minimal living were practically ever-present and cheap; thrift was closely related to actual physical action and tangible resources, a well-kept farm, a well-kept house, and a cellar well-stocked with food. If the man was out of work and approached want, he could always trade his labor for enough to eat because food was cheap and labor was scarce. Foresight could be practiced in physical terms and remedies for want lay in direct physical action.
Another fact to remember was that not all of our ideas had come from our farm economy. Some of our economic thinking had come from England where British industrialism after the Industrial Revolution had arrived at sort of an ethical compromise; that is, that six days a week you worked in vigorous competition with your fellow men, but on Sunday you exercised your conscience. On weekdays what was fair was determined by competition, and on Sunday you prayed to the Lord to forgive your sins against your fellow man.
It was left to God to resolve these two conflicting elements and Adam Smith was supposed to help out God. So Adam Smith developed a notion of economic harmonies which salved their consciences. The individual worker became a factor of production and the emphasis was on "worker." "Individual" became a statistical
term.
In America in those days, we had very few economists who had standing enough, or perhaps brains enough, to challenge the authority of those outstanding English economists who said that free competition and the doctrine of economic harmonies was impregnable. Even if we had the economists to attack that position, our business people would have considered the economists impractical "eggheads"-to use modern terminology and would never have listened to them.
Now, it would be satisfying, looking back in history, if one could say-especially an economist-that it was the academic economist, the specialist group in the universities or Government, that brought about the change. But it wasn't. It was the people. It was the people who rebelled in the time of the Great Depression and who felt that individual personal dignity was not being taken care of under the concept of means-test relief; that rights were involved; that a man had a right not to have to be in that situation; and that with the universal franchise, he had a right to do something about it. It was the belated recognition that this was a poor way of taking care of individual dignity, and especially when one had a vote to bring it about.
Fortunately for all of us, the political leaders at that time, particularly Franklin D. Roosevelt, had sense enough to reflect the will of the people quickly and firmly, and through his leadership, to get this legislation on the books.
I know that there were other organized groups in the battle-having lived right through it. Of course labor was in on it, but I can assure you that the American Federation of Labor knew very little about social insurance at that time. Some of us had to explain it to them rather carefully. The farmers, however, had very little interest and felt they were going to be out anyway. As far as many others were concerned, you couldn't organize them to support constructive legislation because they were out for $200 a month. What about insurance? Why bother with that?
So it was a ground-swell interest in protection in a dignified manner, resolved through the leadership of a President and various people working in close cooperation with him, that fought through a constructive concept of Old-Age Insurance. We had Old-Age Assistance and the great question was, "Could Old-Age Insurance, in time, take over the load from Old-Age Assistance?"
It was, then, this resurgence of recognition of individual rights that sparked the American approach to social insurance. That's where it got its start.
We were not a people to be bought off by a Bismarck, like in Germany. Bismarck's interest in social insurance was to preserve empire rather than to protect people. Nor were we a class-divided people, like in England, that sought a sort of leveling kind of wholesale relief. Rather, we wanted our Government to provide a mechanism whereby the individual could prevent--I emphasize the word-the individual could "prevent" dependency through his own efforts.
We wanted to keep the individual in the picture, both as a person and as a statistic, and our idea of social security was a social mechanism for the preservation of individual dignity, not for the insurance of political status quo.
Now twenty years is a fearfully short time to permit the development of a mature historical perspective concerning any significant development in human affairs. We are still too close to the mountain to be able to distinguish between the foothills that are nearest us and the mountain itself. So anything I say is tentative, subject to change without notice.
Furthermore, anyone who has participated in such a development is likely to emphasize aspects that were important in his mind at the time, during the heat of the campaign, rather than those things which were the results, often unconsciously, of general acceptance, and which may have been even more important than the details about which the hot debates arose. But it is an interesting exercise to try to get at the big points in our philosophy of social insurance, particularly, of Old-Age and Survivors Insurance. Like most ideological phenomena, in this country at least, nobody will accept any theory as universal; nobody will take it as "orthodox"including myself. We are a nation of dissenting pragmatists. If it works, it is good theory! We indulge in the inductive process only under the mild compulsion of Academia.
I am going to list five basic elements of the philosophy of social insurance. The first and the foremost element in our philosophy of social insurance I have already suggested. Without that element, social insurance would not exist. It is that the system must provide protection as a matter of right and not as benevolence of a Government, nor of an institution, nor of an employer. It is a matter of right and not of benevolence.
In establishing social insurance, Federal and State governments reversed the previous presumption that the payment of a benefit to an individual is a generous act of mercy. That had always been the concept in olden times, that the sovereign was generous to the individual and held him in his hand. Rather, a benefit was to be a matter of right on the part of the individual, rather than the result of a generous act.
The change in presumption was that such a payment under social insurance was the honest fulfillment of a contract, of a contract between the citizen and the state; that the right of the eligible beneficiary was protected, in general--and this is important--by the conscience of the electorate, and in particular by an established appeals machinery. This is the approach of contract, not of benevolence.
This concept of individual right under social insurance is to my mind peculiarly compatible to the American way of life. We fought for our rights more than once and our ancestors came here, most of them, to preserve them. We are not given to the acceptance of wholesale assurances. We deeply prefer individual rights. We may crowd into great halls for concerts and into stadia for football games, but we prefer to hold our individual tickets.
The second major element in our philosophy of social insurance, I believe, came into our legislation almost without conscious recognition or debate. It was one of those things we weren't fighting for, yet it was mighty important. Sometimes the most important things are the accepted things, not the issues. It is that all citizens, should be eligible to coverage under a system regardless of class or level of income, and that, in principle, exceptions to coverage were to be made only for constitutional or administrative reasons.
Unlike European systems, American programs have arisen in a classless society in which the individual's economic status, with its social position, was in a constant state of flux. The wage earner of yesterday is the manager of today; and if luck falls, the unemployed worker of tomorrow. Why should not the first segment of his earnings be covered, first as a wage earner, then as a manager?
So we had the development of the concept in this country, almost automatically, almost without question, that every individual should if he wanted-and most did-enjoy the advantage of this individual contract of security under a universal system. That is to me another one of the amazing things, to see the way our coverage, which was fought inch by inch at first, has now become almost universal.
This concept of citizen-wide coverage under the Social Security system has been a powerful factor in the expansion of our Old-Age and Survivors Insurance. It has,
of course, been reinforced by the obvious fact that all men grow old or die; even though they may avoid unemployment. The concept has influenced the removal of constitutional obstacles by legal devices in the case of state employees. It has had sufficient vitality to have overcome in large measure the difficulties of administration. A tough and unyielding barrier has been set up by a small but vocal group who have made independence of government in their economic activity a political religion reminiscent of our Victorian grandfathers.
A third element in our philosophy of social insurance again arises out of the essential individualism of the American people. Our approach is that, within limits, the individual worker establishes the level to his protection by his individual contribution to our economy. I want to emphasize the distinction, "to our economy," not "to the system." Not to the Treasury of the United States but to our economy.
The limits to this principle are important, but the concept is simple; benefits by and large in the American system are firmly related to the wage system. Differentials in wages resulting from the efforts of the worker are reflected to a degree in differentials in benefits. The relative continuity of earnings under the wage system is also reflected to some degree in the level of protection.
The simple device of averaging wages over a period in the determination of benefits has important significance in adding a factor related to contribution through time to that of the economic worth of such contribution in a single period of time.
Some of these things look almost obvious, but have basic, theoretical importance. The concept of differential benefits related to wages and the duration of earnings is essentially a conservative element in our social insurance philosophy. We still believe in America that a man should be rewarded according to his own efforts. Established differentials in one's earning and living standards is a precious asset. Don't doubt it for a moment; it is a precious asset not only to the individual himself, but to society in its progress toward a better world.
The motivation of the individual from within himself--from within himself--a primary and essential source of power in a free society. It can be attenuated by external measures only at the cost of accumulated loss of momentum. It should only be set aside as a primary determinant of benefit structures at the outside margins of those structures when other considerations, also stemming, in the last analysis, from the necessity of motivation, become paramount.
The degree to which differential benefits should reflect differential earnings and contribution has been one of the most thoroughly debated issues in our social insurance philosophy. Our Old-Age and Survivors Insurance went through a radical change in this respect early in its existence. It has continued to be an issue in repeated revisions. Our state unemployment systems have also reflected a restless re-thinking of the problem. The issue can be summed up in the expression "equity versus adequacy." To my mind the dangers of shortsighted action are still with us.
As a social mechanism, it is not incumbent upon social insurance to reflect in full proportion the differentials of the wage system, either at the lower limit or at the upper limit, or in the gradations within these limits. Differentials as a factor in motivation--that's what differentials are for--differentials as a factor in motivation must be measured by the response they receive, not by their arithmetic. The response to a thousand dollar differential among university professors is a very different thing from the response it would bring among big league ball players.
Given the principle of differential benefits, the slope of the gradations can be tested in their effect only by the response of those coming under the system. Obviously an inadequate minimum benefit reduces the overall attractiveness of coming under the system and securing its benefits rather than relief. This is a deterrent to motivation.
At the upper limit, there is a zone-too much now--where individual effort, undergirded but not measured by any social mechanism, should be largely responsible for the extra degree of personal security attained by the individual.
Our greatest danger at present, I firmly believe, is that lagging benefit structures will dangerously foreshorten the spread of differentials. Present ceilings are justified only by legislative inertia. To my mind, that's one of the basic issues at present. There should be higher ceilings not just to be generous, but to preserve the basic philosophy of the system.
Fortunately, in America, the differential concept in social insurance has been reinforced by our need, the need of all our systems, to reflect wide geographical differentials in our wage structure. We had two good reasons for doing the same thing and for building our system on this particular foundation: To preserve motivation and to relate earnings and benefits to diverse, widely varying economic conditions.
A fourth element in our philosophy of social insurance is in the process of evolution. It is still debatable as to its pervasiveness in our thinking and as to its desirability in certain areas of protection. This is the concept of protection of the family unit, as such, by social insurance against all hazards which that unit might face.
On the one hand, Old-Age and Survivors Insurance, covering a lifetime risk, has been extended to prevent dependency in old age for both man and wife, also to prevent dependency of the family through premature death, and more recently against permanent and total disability.
That the family is a vital and cherished unit in the American society, is almost an axiom. The farm was operated as family economy, but then came the city-ward drift. This had unfortunate effects on the family unit, but now again we have a returning tide toward Suburbia which I think will again make the family unit more important than it has been. One need but see the covers of magazines, use TV guides, and read the advertisements of airlines and railroads to realize that they think the family unit is pretty important.
But why has the concept of the family unit been slow in entering fully into our philosophy of social insurance? Particularly in unemployment insurance it has come slowly. It seems, again, to be a reflection of the essential individualism in the American tradition. There is still the tradition that a man's family is his own business and not the Government's. So long as he can support himself, it is not the concern of the state how many children-not wives, but children-he has.
Now, it is taken for granted that death and old age terminate a man's ability to support his family, and that the social insurance is welcome in the face of these overwhelming contingencies when he is either dead or too old to do the job. But he is not sure he wants his children counted, in the case of unemployment insurance, during temporary unemployment. He would prefer an adequate differential benefit system so that whatever the benefit was, it would take care of him proportionately while he was unemployed with the five children, just as he was able to support his five children when he was working.
In Old-Age and Survivors Insurance, we have come over pretty fully to family coverage. I can remember vividly-in the Advisory Council in 1937-38-when I had the job of chairman-of telling the newspaper reporters that we were recommending this. We had a crowd of them, almost as many as in this room. We had tried our darndest to think of snappy words to get our ideas into the press. We got over a thousand editorials out of it. The one thing we hit on was the "protection of the family unit." Every five minutes I got around to it and said, "Of course, gentlemen, you have to protect the family unit." Well, in the next two or three days, I got almost weary of seeing "Protection of the family unit," every time I picked up a newspaper.
It was like another time when I came out of a Council meeting and reporters waiting outside wanted to know whether the benefits would be greatly improved. I said, "Yes, but you can't give away the kitchen stove." I don't know where I got that expression, but all I meant was you still had to have the kitchen stove to cook on. No matter how generous you wanted to be, you couldn't give it away. I found that, too, carefully reproduced for the edification of the public.
Now we come to the last element in the American philosophy of social insurance, one which I hope will grow from strength to strength despite many severe limitations put upon it by what I consider shortsighted theoretical and political considerations. This is the concept of joint contributions by both employer and employee.
In the development of our Old-Age and Survivors Insurance, this concept was adopted almost without debate. That's a remarkable thing. Speaking for the AFL, Mr. Green said, "Of course we will go along on the fifty-fifty-contribution in old-age insurance, but this unemployment insurance, no, no, no; the employer ought to pay for that."
In the state-by-state development of unemployment insurance, this concept was introduced in a minority of states but it has been gradually withdrawn even in most of these. The arguments that the employer was primarily responsible for lay-offs was a new concept; therefore, he should pay for benefits-it was too strong to resist, even where the soundness of this argument was questioned. The loss of employee contributions was a price we paid for so-called merit rating. -1 still feel that the price was greater than the gain.
The soundness of the concept of joint contributions in the American system of social insurance does not arise out of economics. It stems out of our political and social traditions. Of course, arguments can be made about shifting and incidence, as with all taxes or costs, but the fact remains that the first incidence of any contribution to Government or to any other recipient, church, family or trade union, is of great psychological importance. Out of such incidence, political influences arise. Loyalty and responsibility are encouraged. Personal satisfaction and dignity are gained. Why does a church prefer contributions from the many to the largesse of the few, if it did not realize the tremendous psychological value of contribution as a stimulus to individual responsibility and dignity?
One of the most interesting things about social insurance is that it runs across several disciplines-that is, pol;.tical science, economics, sociology, social psychology--at least those. At times we are dealing with social psychology because we are dealing with great masses of people, the reactions of individuals and the reactions of great groups.
Social insurance systems, it seems to me, must be within the state but separate from the state; to be strong, responsible and alive, they must have the interest and attention of the citizen not as a voter alone, but as contributor and beneficiary.
In America we have a wholesome suspicion of big government. Now we have given the Government the tremendous task of providing for our individual security. I, for one, would feel more certain that our leaders in Government would continue to respect the sanctity of the trust we have imposed upon them if every potential beneficiary who is gainfully employed were both a voter and a contributor to all our social insurance systems.
I think-, ladies and gentlemen, I have given you enough of my views. I sincerely hope you have some questions. (Applause)
QUESTIONS FROM THE AUDIENCE
MR. HESS: Dean Brown told me before he started, he was going to speak only very briefly and on very basic questions of philosophy and concepts, because he hopes to make this an informal discussion session.
This is a rather large group to run in that way, but I know that he does hope that you will now pick up where he has stopped and ask him questions or make observations that will give him an opportunity to relate his point of view to us. I wish you would feel very free, Dr. Brown-why don't you take the floor and take the questions as they come?
DEAN BROWN: There is one question I knew somebody would ask so I have the answer ready.
This whole business of why does a fellow with six quarters get so much money, or a man with eight quarters', a man with ten or twelve quarters? In fact, some of my colleagues in Princeton say this system gives a lot of benefits to people who are only covered a short time.
Of course I can give you the analogy of the parable in the Bible where Christ talked about the men in the vineyard who started at the beginning of the day, and others started at nine o'clock, others at twelve, and some came at the eleventh hour. Yet they got the exact same pay. The early fellows thought it was terrible to give everyone the same pay.
But there is a far better answer than quoting Scripture. I emphasized contribution to the economy. These older fellows didn't have the opportunity to contribute to the system, but they certainly had been contributing to the economy.
The basic concept of those that were working on the program was to get these older people on the benefit rolls as soon as possible, on a right-determined benefit program. You only cross the bridge once in history. We were entering into a new system. It was far better psychology, far better politics, far better economics to get as many people into the benefit system, on benefits as a matter of right under Old-Age Insurance rather than have many go on assistance. Anyway, they had contributed to the economy even though they hadn't contributed their so-many percent to the system.
MR. BALL: Doug, why couldn't you carry that same argument in case they didn't contribute at all?
DEAN BROWN: Because you had a psychological and political problem, you wanted some tie-up, and six quarters seemed to be the minimum, as you well know.
MR. DAVID: You mentioned these principles, the family unit and the contribution to the economy. I think those worked out under the original program quite well in the case of the family-unit benefit.
Now that we have a larger part of the labor force made up of wives and a larger part of the wives in the labor force, some of the original neatness of the arrangement doesn't seem to work out so well. A lot of wives feel their contribution to the economy is not reflected in the benefits that they are going to get, and that results in some of their resistance in the case of Federal employees, or their lack of interest in coverage.
DEAN BROWN: Yes, I see, and I say it is because you are dealing with one logic over against a "psychologic," let me call it.
The logic of the family unit I think, is far deeper--the family unit is a far deeper institution than the present wave of interest in wifely earnings, let's call them. I think in a showdown I would play the family unit.
What do you get into? If you begin giving a supplementary benefit because the wife had earned so much in her own work--that is, her wife's benefit was so much and her own so much more, say 25 percent, or whatever politically looks good--I think you are on dangerous ground.
My bet would be to stay clean and let the present system continue as is, because I think the minute you begin allowing a supplementary amount for the woman for her own work, you are running counter to a basic concept, a most basic concept of protection of the family unit.
It would add a great deal of complexity to the system and what would it be doing? It would be another encouragement for a dual earnings system in an economy which could support far better than it does the single wage earners in the economy who have families to support. I may be old fashioned, but I still think that a dual wage earning economy--that is man-wife economy--is only a phase. I don't think it is a permanent condition of our society. I hope not!
MR. DAVID: Which is perhaps the reason that your views on that are so different from those of Professor Titmuss. He took quite the opposite point of view and looked at this dual-earner economy as a good thing, and geared his analyses and his proposals to that concept.
DEAN BROWN: Well, we have differences of opinion. I would say that taking the integrity of the American family-I don't mean just having the family, but rather a continuing institution, with the mother and children at home-you are dealing with one of the most complex sociological phenomena I can think of. All I can say is from a social insurance point of view, that I wouldn't encourage its dissipation. I would stick by my guns on that one.
QUESTION FROM THE FLOOR: Could I ask your views on family protection in the disability field?
DEAN BROWN: I am sticking my neck way out here, but I think that if the wage earner is disabled, he should have the same protection, when we get around to it, the same protection for himself and his family as we have in old age. What we did in this case was to take a little step, to enter a new field gradually, especially in the face of opposition. Claims under disability insurance are the hardest to handle. So you don't put the extra burden on the claims procedure by having a fellow not only get his own benefit but a family benefit as well.
MR. LAPP: If, as you indicated, a man's earnings are in general a reflection of his contribution to the economy and if his benefit should be related to the contribution, isn't a little over one hundred dollars rather small for an executive of General Motors?
DEAN BROWN: Well, there are two points. I agree with you heartily that the upper ceiling of contributions and benefits is much too low. I can't tell you the exact ceiling I would argue for at this moment. All I know is that it is too low now to cover the earnings which should be reflected in the benefit structure.
But there is still another point. I have talked about the basic segment. There is a part of earnings above this basic segment which should be undergirded but not
measured. In other words, there is a part of the protection of the General Motors' executive which should be undergirded by social insurance but another part not measured or indemnified by social insurance. So I would agree with you part way that certainly the social insurance part is too little now; it should go up to a certain level. But I would certainly argue also that there should be an uncovered segment for which the higher pal 'd individual can build up his own protection. A differential system doesn't mean you have to go all the way.
I used to use an analogy at Princeton that a carpenter who was either unemployed or retired should not have to move to the slums, but that I wasn't worried about the millionaire up on Biltmore Road moving down to Maple Street because Maple Street is still a pretty good place to live.
QUESTION FROM THE FLOOR: Would you discuss the logic behind the off-set provision?
DEAN BROWN: It is an attempt to provide a graduated zone between working and retirement; we are dealing here with a highly variable condition as to how many people will work after retirement and to what degree they would work.
QUESTION FROM THE FLOOR: Why shouldn't an injured worker receive both a state workmen's compensation benefit and a federal disability benefit?
DEAN BROWN: I think, politically, you would run into a lot of questioning if you had a double benefit, that is both. I wouldn't want to have to argue it on the pure logic. I would argue against it as a practical political matter. You have two basic concepts involved at once. That is your difficulty. Under the old form of Workmen's Compensation, you had a blame concept, a suit concept, that the employer was at fault; therefore you sued. He was making money and you were hurt. That leads us to the conclusion that the injured man ought to be paid, and that he ought to get his other benefit, too.
But I think both systems ought to be on a social insurance basis; that is, the man is hurt, therefore he has lost his earnings; therefore he should be receiving benefit, and the benefit in the long run should be a consolidated one related to the earnings lost. But because we have two systems-not just two systems alone but two philosophies involved, it is an awfully delicate thing to get meshed.
MR. HERMAN: What do you think about the possibility or the feasibility of eliminating the retirement test so that this becomes an annuity at retirement age?
DEAN BROWN: I think that runs counter to the basic concept that this is an indemnity for loss of earnings. The concept of indemnity runs through all of social insurance. That differentiates it from private insurance. Private insurance has the basic notion that I contribute and, by contract, I get money back related to the money I contributed.
It is a matter of the rate of contribution. Social insurance is basically an averaging system. Society cannot afford to use any other system. You cannot build up full reserves; so you insure on a term basis, a current interchange basis, a current self-protection basis balancing income and outgo in the fund.
As far as I can see, social insurance cannot go further than to say that when you lose your earning power, the system will protect you with a benefit. It cannot say that you win at all times-that you win both in the fact that you are continuing to earn and that you receive a benefit; that we will give you a benefit regardless of the fact you are continuing to have earnings. Now, what makes the retirement test so hard is that you are trying to merge those two things together in a graduated way.
MR. SWIFT: It has been relatively easy for the public to accept this program during the last twenty years when the level of contributions has been relatively low,
and the period of participation relatively low. Do you see any dangers that, as we move into a period of long-term contributions at a higher level of contribution, the public will be less enthusiastic about the program?
DEAN BROWN- I am not worried about that at all. Let me use an analogy which I have used before. In nineteen hundred when practically none of you were around, the typical pleasure transportation which the ordinary wage earner's family had was a five-cent trolley ride to the end of the line and five cents back, and that was all they had. They might go down to Coney Island on the trolley. What is the proportion of family income of a typical wage earner now going into pleasure transportation-having a snappy car and going out to the country, and all that? It may be 10 to 15 percent of his income. In the same way, I think the American people want security, as a matter of right. And I think if they get their money's worth, they will be willing to pay a reasonable proportion of their income for it. I think they will continue to be satisfied with the social insurance method.
I don't worry that the proportion may go up. In fact, there for a while I was worried that it was so little that they wouldn't really feel it and therefore wouldn't understand what they were doing. There is experience to show that you have to hurt a guy a little bit before he values what he is getting. I always remember the time when a New Jersey manufacturer decided to take care of all the cost of group insurance himself rather than ask for contributions. On pay night he handed out the contracts of a really liberal group insurance. When the sweeper swept up later, he found half the contracts on the floor on the way out to the door. Nothing paid; can't be much; so what?
MR. SULLIVAN: Do you think benefits should be related to cost-of-living price index?
DEAN BROWN: I think there are, in this business, ideal solutions, what you would like to have if there weren't any other troubles in the business. It would be wonderful to have a last five-year average but the actuarial problems would be tremendous. The practical compromise for some time may be to keep the plan on a life-career average but with the drop out. We are bound to have revisions in scale from time to time to meet the effects of inflation. Certainly inflation takes place rapidly sometimes and then the revisions in scale will come more often. If we don't have such rapid changes in the value of the dollar, they will come less frequently. But certainly Bob Myers and the actuarial department would have a fit, I should think, if you related benefits to the last five years' average. Maybe actuarial science has got to the point where they can estimate average wages twenty-five or forty years ahead. I don't believe it.
MISS SANDERS: I would like to get back to the question that was asked about relating benefits to cost of living.
Some of us have been keeping in touch with developments in England and Germany. In Germany they actually have in operation now a system that relates benefits not to the cost of living, but to increases in wage levels, at least up to the point where the benefit is awarded.
Would you feel that is too much dream stuff for us to think about in this country?
DEAN BROWN: I think we should think about everything but I would say at the present time, it is a complexity that I would hesitate to face. In all this business you have about five factors to balance; you have the factor of adequacy, the factor of the financial security of the system, the factor of equity, the factor of politics, and the factor of practical personal psychology.
It would be nice to have automatic adjustment of benefits to cost of living, but this involves other factors. All I can say is if you put a man on benefit and he is on the same benefit for ten or fifteen years, you would run into a problem again. So you can't be perfect. You are not perfect in relating benefits to past wages; you are not perfect in relating them to the cost of living at retirement. So you do the best you can within the actuarial limitations. But then if you find that inflation has come to be too serious, you revise your scale.
QUESTION FROM THE FLOOR: It seems to me, sir, that your last basic premise of employer and employee contributions is "practical politics."
DEAN BROWN: I wouldn't mind being called a practical politician. I think it is much deeper than that, however. I think it is in line with our traditions and also with sound psychology. I think that it increases the importance of the sense of contract; it adds to the notion of individual dignity; I think it is a part of our makeup that we somehow feel more dignified if we have contributed to something which is to our benefit. It runs all through. I mean it is as deep in human nature as motherhood. So why buck it? Why not work with it? Why not use it? And it is one of the firm things about human nature, that men and women like to contribute as well as to get .
I think the term "contribution" is basic. It is one of the most valuable safeguards we have in keeping a social insurance system. We have been lucky in the good sense of the last few administrations. But suppose we got a Townsend-type of administration in power in Washington, somebody who wanted to change everything. What would be our best protection? The people who had contributed under the old system, because they wouldn't be too sure the new system was going to pay off, especially if we did something foolish.
MR. MARQUIS: In connection with the fourth element that you mentioned, that in time social insurance should protect against all hazards; what are the major hazards remaining to be taken care of and will the American people be willing to pay for protection against these remaining hazards?
DEAN BROWN: Well, I think it is a constant process of education of the people, what they want and what they are willing to pay for; but it is also a constant process of trying to lick the administrative problem.
I would say quite frankly, the American people don't think fifty years of age is any sacred age after which you should be protected against permanent or total disability. But I think administratively, politically, it is a good age at which to break off now. So I would say there is an area there for improvement.
When you come to the other areas, we could be here all afternoon, if we should discuss current health protection and things of that sort. Then you have the whole problem of coordination of the Workmen's Compensation, and the vast area of state systems of Workmen's Compensation. It needs a restudy and revision to the interest of everybody, employers and workers alike.
MR. BALL: I am afraid we are going to have to stop now. Time has just plain run out. I think you can all see why Doug Brown has been considered throughout the history of Old-Age and Survivors Insurance as the outstanding philosopher of the program. The system owes many of its most important and fundamental ideas to him and I, personally, and many of the people who work in this area, many of them out here in front, owe a major part of what they know about the philosophy of the program to you, Doug.
Thanks very much for coming.
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