March 28, 1936 - Editorial - Politics and Pensions, by George Lorimer
Beginning more than a year ago, this magazine began to call attention, both in its editorial columns and in special articles, to the nature of so-called pension plans which even then were rapidly gaining popularity in certain sections of the population. More recently, many other publications, organizations or individuals have set forth the fallacies in these schemes, which, indeed, have come under close congressional scrutiny. Thus it is timely to emphasize not only the defects of any one visionary scheme as the fundamental facts of pension experience. One authority on the subject says that the promotion of pensions in likely to be, for the next quarter of a century, a constant temptation to politicians. If this be so, a wide understanding of the facts is imperative, and they can be stated in brief, concise form.
European experience shows that any pension system that provides a sum out of all proportion to the earnings of the individual will sooner or later break down. An adequate system should provide something like half of the average wage or salary of the pensioner, and this can be supported only by reserves accumulated by moderately weekly or monthly payments over a long period of years.
In the second place, any adequate pension system paid for wholly by the Government is ruled out by the lessons of experience, not only as being too costly but as subject to dangerous political pressure. If American history, from the Civil War up to them present moment, means anything, there is likely to be no end of abuses and demoralization. As stated in the last report of the Carnegie Foundation for the Advancement of Teaching, which is said to have studied pensions and pension systems longer, perhaps, than any other agency in this country: "There will be strong political temptation to accept pension schemes that are not only inadequate but are sure to break down and disappoint the hopes of those who put their faith in them."
The most successful governmental pensions which have been carried out as yet were the industrial pensions begun by the German Government before the World War. In this case, employer and employee made equal monthly contributions to the fund. The fact must never be lost sight of that a somewhat similar system has been set up in this country under the Social Security Act of last August. Next January, both employers and employees will begin to make contributions, in the form of taxes, to the fund, and the first benefits will be payable in 1942. No fewer than 25,000,000 employees are affected, and the ultimate benefits are expected to run from a minimum of $10 a month to a maximum of $85, depending upon the average wages received and the number of years employed.
It must be kept in mind that no government has ever attempted anything so colossal as the Federal old-age-benefits plan. Any child will realize that to maintain the solvency not only of the reserve account but of the United States Treasury, it is necessary to accumulate ample reserves for a term of years and pay only moderate sums in the way of pensions.
These are sober facts, backed up by long experience not only in this but in European countries. For, after all, history is filled with the wrecks of well-intended pension systems. Thus the fact that several million people appear to believe the Government, by a stroke of a pen, can immediately give them benefits or pensions out of all proportion to their earnings of the individual is merely one tragic reminder that human enlightenment proceeds very slowly. (pg. 26)