Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

My Thoughts

What a 1930s Basic Income Crusader can Teach Us about Andrew Yang’s Freedom Dividend and Social Security

Maverick presidential candidate Andrew Yang (D-New York) is not the first outsider to disrupt American politics with a grassroots crusade for a basic income.

During the Great Depression, an even more unlikely crusader changed America and helped create Social Security. The crusader was Dr. Francis E. Townsend and he forced the federal government to pay senior citizens a basic income.

In the 1930s, Townsend was even more of a political outsider than Yang is today. To elaborate, Townsend was a retired doctor turned real estate agent with no political experience. Yet Townsend shook up politics and disrupted President Franklin D. Roosevelt’s (D-New York) New Deal plans with one letter. 

The Letter to the Editor that Changed America

Senior citizens living in terrible poverty was a common sight in the 1930s. Poltifact estimates that 50% of older Americans were living in poverty in 1935.

Many seniors were poor in the 1930s because there was no Social Security. Instead, older people with no pensions, savings, or annuities, worked until they died or depended on their families.

That system broke down during the Depression because of 14% to 24.9% unemployment. Many people had to choose between feeding the kids or feeding their parents.

The sight of the hungry woman inspired Townsend to write a letter to the editor offering a solution. His solution was the Old Age Revolving Pension Plan, which became known as the Townsend Plan.

The 1930s Basic Income Crusade that Scared FDR

Townsend’s plan was simple yet appealing. He wanted the federal government to pay every American over 65, $200 a month.

Townsend’s plan was a basic income because it distributed cash to large numbers of people with no strings attached. The Townsend Plan was generous; Edwin Amenta estimates Townsend’s monthly payment’s value at $3,700 in 2019 money. Amenta, a Professor of Sociology at the University of California, at Irvine wrote a book about the Townsend Plan. 

Like Yang, Townsend claimed his plan could create prosperity by giving average Americans hundreds of millions of dollars to spend on Main Street. Townsend believed his plan could stimulate the economy by increasing consumer spending.

The Townsend Plan went viral as a pamphlet that was distributed across America. To capitalize on his fame, Townsend began organizing Townsend clubs whose members paid him a dime a month.

By 1936, there were 8,000 Townsend Clubs with two million members, Amenta estimates. To keep his members informed Townsend published a newsletter called The Modern Crusader

Roosevelt or FDR; who was facing reelection in 1936, got scared because the Townsend Plan was far more generous than his Social Security scheme. They intended the original Social Security plan to only pay pensions to people in certain industries, Amenta claims.

Townsend added to FDR’s fears by allying himself with anti-establishment radicals; including, U.S. Senator Huey Long (D-Louisiana), the Reverend Gerald K. Smith, and Father Charles Coughlin, ThoughtCo. notes. In 1937, FDR even commuted Townsend’s 30-day sentence for contempt of Congress. A court convicted Townsend after he refused to answer U.S. Senate questions. 

How the Townsend Plan Changed Social Security and American Politics 

In response to Townsend, the Democrats changed Social Security to cover most Americans and start paying earlier. 

However, the Democrats did not follow Townsend’s proposal of a flat payment. Instead, Social Security calculates payments based on income. Notably, eligibility for Social Security retirement benefits still begins at age 65, an echo of Townsend.

Townsend remained a national figure until his death in 1960. For instance, Townsend met with presidents Harry S. Truman (D-Missouri) and Dwight D. Eisenhower (R-Kansas). Importantly, Townsend made senior citizens into the largest lobby in America and Social Security the nation’s most important political issue. 

Thanks, in part, to Townsend, Social Security became part of American life. In fact, the Social Security Administration (SSA) estimates that 68.785 million Americans were receiving Social Security payments in September 2019.

Tellingly, most of those people; 47.915 million, were receiving retirement benefits.

The Right to Income 

In the final analysis, Townsend made the concept of social rights a mainstream political issue in America. To clarify, social rights is the doctrine that all humans have basic needs that governments are obligated to fulfill.

For instance, the Universal Declaration of Human Rights recognizes four social rights: food, work, health, housing, and education. Townsend added a fifth social right: income to the list. Hence, Townsend’s crusade was a battle for social rights. 

Yang and Sanders, like Townsend, are fighting for a paradigm shift in American political philosophy. They want a society that meets the basic needs of all citizens.

The Townsend Plan vs. Andrew Yang’s Freedom Dividend

Amenta correctly notes the strong similarities between Andrew Yang and Dr. Frances E. Townsend.

Like Townsend, Yang is a political novice, a former businessman who calls himself an entrepreneur and philanthropist. In addition, Yang is promoting a generous Basic Income scheme; the $1,000-a-month Freedom Dividend for all Americans over 18.

Similarly, both crusaders rejected the basic income label as too controversial. To elaborate, Townsend called his basic income a “pension;” while Yang labels his scheme a “dividend.” 

Predictably, establishment politicians and economists ridiculed the Townsend Plan in the 1930s. Today, many pundits are mocking Yang and websites attacking the Freedom Dividend are proliferating. 

The Dysfunctional Economy and Basic Income 

The dysfunctional economy of the 1930s drove the Townsend Plan’s popularity. Today’s dysfunctional economy makes Yang’s Freedom Dividend attractive to ordinary people.

The Federal Reserve estimates 39% of Americans admit they cannot cover an emergency expense of $400, ABC News reports. In addition, 12% of Americans admit they have no way to raise an extra $400 in an emergency.*

Therefore, income; not employment, is the biggest problem facing modern America. There are plenty of “jobs” in modern America; Trading Economics estimates the U.S. unemployment rate was 3.5% in September 2019. However, the Fed’s data shows many of those jobs do not pay enough.

In addition, a growing percentage of Americans are not employed. To explain, the U.S. Workforce Participation rate was 63.2% in July 2019, Trading Economics estimates. In 2000, the U.S. Workforce Participation rate was 67.10.%. 

Consequently, large numbers of Americans are either unemployed or underpaid. Not surprisingly, Yang’s Freedom Dividend is very popular in that environment.

Social Security for Everybody?

An interesting way to think of the Freedom Dividend is as “Security Security for everybody.”

Currently, Social Security offers incomes to specific groups of people. Senior citizens, the disabled, and some widows, widowers, and orphans, for example. In addition, some analysts call Social Security “wage insurance.” To explain, wage insurance replaces your job income if you cannot work. 

Yang proposes to expand the Social Security safety net to all Americans and change the way we pay for it. Essentially, Yang offers wage insurance to both unemployed and employed Americans.

In addition, Yang proposes a new method of financing basic income through a Value-Added Tax (VAT). To explain, a VAT is a sales tax on all wholesale and retail transactions. 

Presently, America finances Social Security with a payroll tax they call the FICA (Federal Insurance Contributions Act). A major criticism of the FICA is that the Social Security tax does affect incomes over $132,900 a year. Effectively, most millionaires’ and billionaires’ income is exempt from FICA.

Finally, Yang proposes the radical concept of paying Americans who work outside jobs. Stay-at-home moms, artists, entrepreneurs, students, volunteers, and people caring for elderly friends or loved ones, for instance. Like Townsend, Yang is proposing a radical restructuring of America’s government and economy.

Yang vs. Townsend

There are some key differences between Yang and Townsend. For example, Townsend did not seek political office.

However, Yang is running for President and attracting support in the Democratic presidential primary. Moreover, Yang is working through the established political system and pledges support to whoever the Democrats nominate for president in 2020.

In particular, Yang says he will not run as a third-party candidate, The Hill reports. Instead, Yang promises to campaign for the Democratic nominee.

 In contrast, Townsend stayed outside the established political structure but remained a potent force in U.S. politics until his death. The Townsend Clubs, in particular, scared established politicians like FDR because they offered a grassroots infrastructure challengers could use.

Therefore, unconventional figures and grassroots movements can trigger paradigm shifts in national policy. However, history shows the establishment will reject such change and downplay the role outsiders play. 

They have written Townsend written out of American history, for example. Meanwhile, history books glorify FDR as the “father of Social Security.” 

Why Democrats will Embrace the Freedom Dividend

Yet history shows the establishment will embrace radical notions to keep its power. For instance, the Democratic Party rejected the Townsend Plan but wrote its most popular provisions into Social Security. 

Therefore, today’s Democrats; or Republicans, are likely to reject the Freedom Dividend but write its popular features into Social Security or some other program. Notably, Yang’s presidential rival U.S. Senator Elizabeth Warren (D-Massachusetts) proposes a $200-a-month increase in all Social Security payments.

Yang is building a grassroots movement and popularizing a radical idea just as Townsend did. If Yang is successful Democrats will absorb his movement and its ideas. 

Only time will tell if Andrew Yang’s influence will be as great as Francis E. Townsend’s. However, Yang is already disrupting American politics. 


a homescontents