"When the Going gets Tough, the Tough Run to the Government"

Uwe Reinhardt notes that social insurance is much more pervasive than many people realize, and that many of the most vocal opponents of extending social insurance to health care are heavily dependent upon social insurance themselves:

Lehman’s Last Contribution to Society: A Lesson on Social Insurance, by Uwe E. Reinhardt, Commentary, Economix: A year ago, century-old Lehman Brothers lapsed into bankruptcy... [T]he oligarchy that runs our nation’s financial sector. ... had fully expected to see Lehman bailed out by the federal government that serves them, especially after the government had dutifully bailed out Bear Stearns earlier in the year. When Lehman was not so served, panic set in, unleashing global economic turmoil and pain. ...

In the end, like teenagers who hate Mother’s strictures when all is well, but run to Mommy whenever they get in trouble, the swashbuckling oligarchs of the financial sector ran to government for cover, owning up once again to the time-honored mantra of this country’s legendary rugged individualists:

When the going gets tough, the tough run to the government. ...

It is a social contract with government that Americans quietly love, but ... so often profess to hate — as when they cry for government to stay out of Medicare, or when they sit on their beachfronts in the Hamptons waxing worried about government intrusion in the economy, all the while basking in the security of federal flood insurance.

After seeing the evaporation of so much of the wealth they had imagined to reside in their 401(k) plans, mutual-fund accounts and private pension plans,... millions of middle-class Americans surely must have gained a renewed appreciation for ... Social Security ... along with two other popular social insurance programs: Medicare and Medicaid.

Social insurance is routinely called to the rescue also whenever governors of all political stripes ask the federal government for help after a natural disaster... Along with direct financial relief, the Federal Emergency Management Agency is an instrument of social insurance.

It can be asked, of course, why that form of social insurance generally is judged highly desirable — even by the most staunchly conservative politicians — when so often they mistakenly decry as “socialism” proposals that government come to the assistance of an individual ... struck by a natural disaster called “illness,” like cancer. ... Why is it the American way ... to give financial help to a family whose beach house in Mississippi was blown down by a hurricane, but it is socialist and un-American to help a Mississippi woman struck by breast cancer?

One of the most thoughtful recent books on the topic of government risk-management is “When All Else Fails: Government as the Ultimate Risk Manager” (2004), by David A. Moss, a Harvard Business School professor. ... Professor Moss explains that the first application of social insurance in our latitudes actually was aimed ... at ... supporting the growth of modern capitalism. Its main instrument to that end was the legal sanction of the principle of limited liability of the owners of corporations.

Prior to this form of social insurance, the owners of a business were legally liable with their personal wealth for damages the business might have inflicted on others. With limited liability, the corporation’s shareholders are liable only up to their equity stake in the company. ... Beyond that, someone else in society — often the taxpayer — bears the financial risk for damages attributable to the corporation.

One wonders how many business executives and members of chambers of commerce ... realize that the limited liability of shareholders is social insurance.

The most pervasive form of social insurance for the business sector in recent times, of course, has been the massive government bailout of the financial sector following the Lehman Brothers bankruptcy. Without the huge array of public assistance ... the financial sector would have collapsed...

One would hope that by now this lesson on the beneficial role of government in risk management in our society has sunk into the minds of the American public. One must also hope that eventually it will penetrate even the minds of economic theorists...