Wednesday, August 25, 2010

Social Insurance Is a Good Idea

The current flap over Alan Simpson’s idiotic emails is above all about what kind of guy he is and whether he should be co-leading a high-profile commission for Obama, but behind it is a basic philosophical debate over the concept of social insurance.

The neoliberal caucus, which includes the Pete Petersons, Alan Simpsons and Paul Ryans of this world, believe in incentives. Each one of us, at every moment, should have an unmistakable incentive to work as much as possible, save as much as possible, and do everything else to promote economic growth. Marginal tax rates should be rock-bottom, and no government program should shield us from the consequences of our failure to accumulate wealth. It is pure social darwinism.

Their sworn enemy is social insurance, the idea that the members of a society would want to pool their risks and achieve a bedrock of security. This means opposition to any form of national health insurance, which pools our medical expense risk, Social Security, which pools retirement risk, and unemployment insurance, which pools labor market risk. We should be prepared, they say, to sink or swim on our own and not look to the “nanny state” to take care of us.

I think it’s time for the other side, a.k.a. the forces of civilization and progress, to defend social insurance. It is an enormous advance for a society provide economic security to all its citizens. It gives us peace of mind, and it expresses a humane concern for the well-being of all members of the community, something we should not be ashamed to embrace as a moral principle.

Sure, insurance always comes bundled with moral hazard issues. Some people will react by doing things that increase the risks we insure against. But this is not a reason to abandon insurance, just to design programs carefully so that moral hazard doesn’t get out of hand. If you think Social Security has generated disincentives that need to be fixed, indicate what they are and help come up with solutions. Don’t reject insurance itself; it’s one of the highest achievements of the last thousand years of human development.

17 comments:

kevin quinn said...

Well said. I tried to make this point myself much more crudely way back when:

http://econospeak.blogspot.com/search?q=moral+hazard+fundamentalism

Rdan said...

Peter,

May I use this at Angry Bear?

Thanks,

Dan

Peter Dorman said...

Dan, be my guest. Regards to the Bear.

Don Levit said...

Social Security is a great idea.
Indeed, we cannot succeed alone, but, together, as a community.
It would have been better to form non-profit insurers, in my opinion, than rely on the government.
At least the insurers would accumulate reserves, rather than spend them, and then, hope, somehow, to be paid back on faith, years later.
Don Levit

Jack said...

Don,
That is the least offensive of your many comments regarding Social Security, but it still evidences your failure to unerstand the intent of the program. Simply put, what if the insurer had been AIG? What guaranty does an insurance policy give against loss? Yes, insurers are genrally conservative, but they don't have a crystal ball and are subject to risk. Social Security is risk averse though there is the risk of foul play being enacted by those who shill for the right wing ideology of private capital for all purposes. Try thinking of the Trust Fund as invested in America and protected by the full faith and credit of the USA. That is if thieving hands can be kept off of the Fund.

Don Levit said...

Jack:
An insurance company would invest the contributions (taxes), not spend them on other insurer general expenses, and offer bonds as paybacks.
The principal would have remained intact, assuming the investments grew over time.
With Social Security, the principal was spent and borrowed.
The interest paid to the trust fund was loan interest, not investment interest.
And, the principal was gone, although we hope it was spent effectively years ago.
Don Levit

Jack said...

Don,
We've been over this road before and you're still coughing up the same gruel, rehashed. Of course the government spends the procedes of its notes. That's why a government, or any entity for that matter, issues such notes. Does a bank lend money expecting the borrower to put the funds into another bank? Stop already with the Made in China analogies. When was the last time the the US Treasury refused to honor its notes? Have you any E Bonds tucked away? Better cash them quick or the Treasury may run out of money and not pay them at maturity, according to your scenarios. The principal is and interest on all T-Bills are backed by the "full faith and credit" of the US government. Are you saying that that faith and credit need not apply to some Treasury debt? Why Trust Fund notes and not your E
Bonds? Or why not the Treasuries held by Citibank and Goldman Sachs?
How might Japan and China react to hearing that the US full faith and credit meme is no more than a promise subject to change?

Don, You and Alan Simpson are making a joke out of this country's committment to its own citizens. It's a joke that we will all be the butts of. Get real and stop propagating distortions of the facts.

Bruce Webb said...

Don you have been ensnared by a legalism that is not generally true and is specifically not true in the case of the federal government. And the result is just you chasing your tail while trying to persuade those around you that your argument is making progress. No that is just you spinning in circles convincing yourself that you will just catch up on the next rotation.

This was initially amusing just like it is when you have a new puppy discover the game for the first time. But if that puppy starts growing up and this behavior just becomes habitual then at some point you become concerned about obsession.

You are not the first person in history to fall in love with their own theory. But rational people test them against other people familiar with the subject and see if the argument is convincing. If it fails time and again amongst multiple interlocutors there are only a few possible conclusions. One the people you are trying to convince are simply locked in their own belief system. At which point you are in the position of the Protestant missionary preaching in Vatican Square, maybe you want to start with smaller bites. Two it might be that the audience is open to being convinced but need to have the ultimately valid argument put in terms of their own reference. That is you might want to start by really studying the Analytical Perspectives section on Budget Concepts and Processes rather than cherry picking sentences that in isolation seem to support your argument. Third it might be that an argument that seems perfectly valid to you is indeed simply flawed and that others have recognized those flaws and just were unsuccessful explaining them. At which point you might want to make a good faith effort examining counterarguments and trying to grasp what Jack and Dale and I have been trying to say. Or fourth it maybe that YOU are the one locked in your own belief system and desperately seeking to justify your faith in the face of the doubters. Well bad things happen to people who go too far down that road.

The oddest thing to me is that you seem to think these arguments you deploy are shiny and new and that opposition will at some point fall away in a "Oh now I get it moment". Well no all of these are old and tired and will never be convincing in their current form. You can just laugh us off, or try to reformat your arguments in a novel and more convincing way, but your current practice of economist shopping is not likely to yield the results you want.

Try the Glibertarians, preach to the right minded and polish up your skills, you just are not ready for prime time here.

And a suggestion. Read Andrew Biggs at Notes on Social Security Reform. He broadly speaking shares the same project with you, he just has a hundred times the knowledge and ten times your skill. Maybe by studying and learning from him you can maybe in the future be able to come back and fight on more even ground. But as it is you are just wasting your time.

Don Levit said...

Bruce:
All the characteristics you described about me are true - to some extent.
I would also say they are true for you - to some extent, as well as to everyone.
No one is purely objective, and everyone wants to believe he is right.
I have been careful to post quotes from reliable third party sources on material I believe to be controversial. I hope that lends some credibility and objectivity to my opinions.
I am open to the truth, and I am searching for it.
It is difficult to find with all the conflicting information out there.
Instead of atacking my way of thinking, why don't you spend more time on the specific facts i am gettimg wrong.
a good place to start would be the Analytical Perspectives section I cited.
What specifically am I misinterpreting?
Oh, by the way, the Treasuries are a liability to the Social Security trust fund.
The government is obligated to pay Social Security back.
Would you classify that obligation as a funded obligation or unfunded obligation?
Don Levit

Jack said...

"I have been careful to post quotes from reliable third party sources on material I believe to be controversial." Don Levit

you don't get it. Reliability is a necessary, but insufficient characteristic of any reference or data collection. It is only the beginning of an resopectable contribution to a discussion. Your contributions need to be supported by the validity of your references and sources. The significance of what you offer is not measured by the repetition of an idea, but by the accuracy of its content, by the truth of what is repeated. Reliability is, otherwise, no more informative than the skip of a broken record. Think of it this way. Glenn Beck is reliable in his presentation of the absurd. That doesn't make his absurdities any more based upon the facts of a matter. Reliable data does not necessarily support an invalid conclusion.

Don Levit said...

Jack:
I appreciate your wanting sources that are reliable.
That's why many of my quotes cone from the GAO, Treasury Department, CBO, etc.
That's more than I can say for you, Bruce, and Coberly, who supply very few quotes and an abundance of opinions and personal attacks on my thinking and values.
Take your gripes to my sources, including the Social Security Administration itself.
And, when you disagree with me, cite what in particular from the quote you find inaccurate
Don Levit

Jack said...

Jeezuz Don, Can't you even read a plain English text? I didn't ask for reliability. "Reliability is necessary but insufficient." Does that sentence ring a bell. It's validity that goes to the truth of a matter. Conclusions drawn from reliable and valid data needs to be supported by that data. You've not provided any indication of the validity of your sources nor the validity of your conclusions. In fact, those of us who are familiar with the issue have repeatedly shown your conclusions not to be valid. Take the hint. I hope you had a good time with Beck in DC.

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