Tag Archives: social insurance

What Is Social Insurance? Take Two

By James Kwak

More than a year ago I wrote a post titled “What Is Social Insurance?” about a passage in President Obama’s second inaugural address defending “the commitments we make to each other – through Medicare, and Medicaid, and Social Security.” In that post, I more or less took the mainstream progressive view: programs like Social Security are risk-spreading programs that provide insurance against common risks like disability, living too long, poor health in old age, and so on.

Since then, I undertook to write a chapter on social insurance for a forthcoming Research Handbook in the Law and Economics of Insurance, edited by Dan Schwarcz and Peter Siegelman. In writing the chapter, I decided that things were somewhat more complicated.

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There’s No Substitute for the Government

By James Kwak

Mike Konczal wrote an excellent article for Democracy about the problems with a voluntary safety net and the superiority of government social insurance. The article draws on serious historical research (by other people) to prove two main points: first, there never was a Golden Age of purely voluntary charity; second, and more important, what charitable support mechanisms existed were not up to the challenges of the Second Industrial Revolution of the late nineteenth century and completely collapsed with the onset of the Great Depression.

This shouldn’t come as a surprise. There are basic economic reasons why public social insurance is superior to voluntary charity. The goal here is to protect people against risk: of unemployment, of health emergency, of outliving one’s savings, and so on. For a risk-mitigation scheme to work, there are a few things that are necessary. One is that people actually be covered. This is something you can never have with a private system (unless it’s regulated to the point of being essentially public), since charities get to pick and choose whom they want to help. As Konczal says of private agencies before the Depression,

“They were also concerned they’d lose their ability to stigmatize—or to protect—various populations; by playing a role in determining who wasn’t deserving of assistance, they could shield those they felt worthy of their support.”

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Want To Reduce the National Debt? Find More Workers

By James Kwak

Why do some people oppose immigration reform? One conservative objection is that we should follow rules and punish lawbreakers (not to mention all the other arguments that have to do with protecting a white, Protestant, English-speaking nation). That fits nicely with the Strict Father worldview identified by George Lakoff. Another common conservative objection is that we can’t afford more immigration because it would increase deficits and the national debt; that also fits with the tough-minded, austerity-loving ethos of modern conservatism. The little problem is that more immigrants, and more legal immigrants, are unambiguously good for the economy and for the federal budget deficit.

This is the conclusion of two reports put out by the Congressional Budget Office this week: one a cost estimate of the bill currently in the Senate, the other an expanded estimate incorporating additional economic impacts of the bill. The bottom line is that the bill would make the economy 5.4 percent bigger in 2033 than it would be otherwise; per capita GNP would be 0.2 percent higher and wages would be 0.5 percent higher in 2033. Finally, immigration reform would reduce aggregate deficits by about $200 billion* over the first decade and about $1 trillion in the second decade.

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Gee Whiz, Incentives Matter

By James Kwak

Back in the heady days of the financial crisis, I used to recommend Planet Money as a good way for non-specialists to learn about some of the basic economic and financial issues involved. Over the years, I’ve become less thrilled with the show, for reasons that will become obvious below. In particular, whenever Ira Glass dedicates a full This American Life episode to a Planet Money story, I cringe nervously, but I listen to it anyway, since, well, I’ve listened to just about every TAL episode ever, and I’m not about to stop now.

But I can’t let this weekend’s episode, on Social Security disability benefits, pass without comment. In it, Chana Joffe-Walt “investigates” the Social Security disability program, first by visiting Hale County in Alabama, where 25% of all working age adults are receiving disability benefits, and then by talking to different types of people (lawyers and public sector contractors) who help people apply for benefits.

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What Is Social Insurance?

By James Kwak

“We do not believe that in this country, freedom is reserved for the lucky, or happiness for the few. We recognize that no matter how responsibly we live our lives, any one of us, at any time, may face a job loss, or a sudden illness, or a home swept away in a terrible storm. The commitments we make to each other – through Medicare, and Medicaid, and Social Security – these things do not sap our initiative; they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great.”

Many liberals have been heartened by these words, spoken by President Obama during Monday’s inaugural address. Indeed, they represent one of the few times when anyone, including the president, has even attempted to defend our major social insurance and safety net programs. The usual posture among the type of centrist Democrats who make it into the administration is some combination of (a) simply attacking, as self-evidently evil, anyone who proposes benefit cuts and (b) saying in serious tones that we will have to cut spending one way or another.

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If Only

By James Kwak

Paul Krugman describes the battle lines this way:

“Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy.”

I think he’s right about the Republicans. But I don’t think he’s right about the Democrats.

If you want to preserve Social Security, Medicare, and Medicaid, in a world where the population is aging and health care costs are going up, then it’s obvious that your top priority should be higher tax revenues. Without a reasonable level of federal tax revenues, there’s no way we’ll be able to pay for those programs in the future.

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If Entitlement Programs Are Your Top Priority, the Fiscal Cliff Is Your Friend

By James Kwak

There is a lot of low-grade confusion in reporting on the fiscal cliff, primarily because most articles discuss two distinct problems: (a) the contractionary impact of automatic tax increases and spending cuts that go into effect on January 1 and (b) the large and growing national debt—often without clearly distinguishing between them. In fact, (a) and (b) go in opposite directions. Any deal that solves (a) will only make (b) worse; if you really only care about (b), you should be happy about (a). (Instead, Republicans who claim to care only about (b) are squawking about (a) because they want to preserve the Bush tax cuts.) Most reporters understand this and don’t make the obvious mistake of equating the fiscal cliff to the debt problem, but the two are juxtaposed so often they risk blurring into each other.

So, for example, the Washington Post published an article titled “Liberal groups mobilize for ‘fiscal cliff’ fight over Social Security, Medicare.” (As an aside, when did capitalization in titles become optional?) The facts in the article are fine, but you still could get the impression that the fiscal cliff poses a threat to Social Security and Medicare.

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