Catalyst for change: The Townsend Plan

Before Social Security.

Before the GI Bill. Before Medicare. Before Medicaid. Before the Child Care Tax Credit. Before talk of Universal Basic Income:

There was the Townsend Plan.

Multiple problems converged during the Great Depression. There was widespread poverty among the elderly. Americans got income from working, and when people were too old to work their income stopped. The second problem was the widespread collapse in demand and overall economic activity. Money wasn't circulating. The third was unemployment among able-bodied men who wanted to work and couldn't find jobs.

In 1933, California physician Francis Townsend proposed a solution to those problems. He presented the "Townsend Plan" in a letter to the editor of a Long Beach, California newspaper. The idea caught fire. It had four primary elements:

1. Every American age 60 or over would receive $200/month. There was no means-testing. Everybody except "habitual criminals" was eligible.

2. The recipient needed to be retired -- i.e. not taking a job wanted by some younger job seeker.

3. The income had to be spent in its entirety that month. That money went right back into circulation.

4. The plan would be paid for by a two percent sales tax.

Townsend Clubs sprang up across the country urging the government to enact this plan.

Townsend Club meetings, reported in the Rocky Mountain News, December 18, 1935

A close look at the plan's finances in congressional hearings revealed that the plan wasn't financially sustainable. The average wage at the time was $100 a month, so the payments were an enormous transfer of wealth. The two percent sales tax was far from sufficient to pay the benefits.

Excitement about the Townsend Plan flagged, but it established some expectations that persisted and became law in the Social Security Act in 1935. One expectation is that seniors have a responsibility to get out of the way, and not take jobs sought by younger people, an idea that persists in the earnings limit on people who take Social Security at age 62. That norm runs counter to another norm that has emerged in recent decades, the prohibition on ageism and age discrimination. The Townsend norm lost that battle.

The Townsend Plan norm of seniors spending their wealth to put it back into circulation is also a lost battle. It runs counter to the reality of the switch from pension-based retirement into 401-(k)/IRA-based plans. Defined-benefit pension plans spend down stored wealth to a zero balance at a pensioner's death. Contribution plans incentivize the opposite. A cautious retiree dare not spend down an IRA, since that nest egg needs to persist for an unknown length of time.

The dominant idea in America now is that it is an absolute right of seniors to live, work, and spend however they choose. I agree with this, but there are problems with this ethic and norm. One problem is government gerontocracy. The seniority system rewards staying in place, and officeholder do so.

A change will require a change of mind, so I suspect it won't happen quickly, but President Biden's debate with Donald Trump was a warning about elderly leaders. California Senator Dianne Feinstein, a Democrat, was another warning. So was Texas U.S. Representative Kay Granger, described as "one of the most powerful GOP members of Congress." Then came dementia, and she landed up in a memory care facility.

The demographic trends guarantee that in future decades there will be more seniors with more private wealth and more voting power. What is not certain is how those seniors think about their obligations to their country and future generations. Young Americans revolted in the 2024 election. They switched from strong support for Democrats to support for Trump -- the first time in decades that young people preferred a Republican. They wanted change. Trump represented the manly bull in a china shop. Democrats made their choice and found out that the public would rather have a vigorous grifting demagogue than a party that cosseted a weak and apparently-addled leader who ignored unregulated immigration.

That is an incentive to project a different attitude, one that recognizes an obligation to future generations. Perhaps Democrats will find a leader who can voice the value of passing the torch to a new generation. Democrats did that in 1960. President John Kennedy's appeal to sacrifice and patriotism on behalf of the public good seems quaint in this era of Trump: "Ask not what your country can do for you. Ask what you can do for your country."

Does a generation willing to sacrifice for the future seem hopeless and naive? It does, but it isn't impossible. Norms change. People used to think it was okay to smoke anywhere and everywhere. People use to have sexual harassment practices in offices that are unthinkable now. Attitudes toward inter-racial marriage and same-sex marriage have changed. Attitudes can drift, if there is leadership and the right incentives.

Young people are getting squeezed, and they vote. That is the incentive. Something needs to change. So it will.

You can't always get what you want
But if you try sometime you'll find
You get what you need