... How long will it be before the likes of Veronique de Rugy stop
denouncing Social Security, Medicare, Unemployment Insurance, etc. as
programs that have turned us into "a nation of takers", and stop denouncing
these programs beneficiaries as "moochers"?
It is in some ways very odd. It used to be that critics of the welfare state
pointed to high net marginal tax rates and argued that they had high
deadweight losses. Sometimes they had a point. Then, after bipartisan
reforms, we got to a point where there were few high net marginal tax rates
large enough to induce large deadweight losses.
And then, in the blink of an eye, the problem became not public-finance
deadweight losses but, rather, the moocher class, the nation of takers, etc.
Paul Krugman on Paul Ryan's (ahem) defense of Social Security and Medicare:
...everyone has noted Ryan’s raw dishonesty here, let’s not let the
cowardice pass unmentioned. If you’re a Randian conservative, as Ryan claims
to be, then you should consider Social Security and Medicare every bit as
much a part of the moocher conspiracy as Medicaid and food stamps. And don’t
say that you pay for what you get: Social Security benefits aren’t
proportional to payment, so that the system is somewhat redistributionist,
and Medicare benefits don’t depend at all on how much you pay in, so that
the system is strongly redistributionist. (You might even say that Medicare
takes from each according to his ability, and gives to each according to his
All of this is fine with me, but it should be anathema to Ryan. But he knows
that Social Security and Medicare are popular, so he pretends that his
radical philosophy has nothing bad to say about these programs, and that we
can massively downsize government on the backs of the undeserving poor.
But remember, he’s a Brave, Honest Conservative. Everyone says so.
Speaking of social insurance, here's
...Unsurprisingly, most Americans are split between various misconceptions
of what Social Security and Medicare are. Many, particularly right-wing
politicians and their media mouthpieces, see them as pure tax-and-transfer
programs: they gather money from one set of people and give it to another
set of people. This feeds easily into the makers-vs.-takers line, with
payroll taxes on workers going to fund benefits for non-workers. From this
point of view, they are bad bad bad bad bad and should be cut.
Many others, particularly beneficiaries and people who hope to see
beneficiaries, see them as earned benefits. The common conception is that
you pay in while you’re working, so you earned the benefits you get in
retirement..., you’re just getting back “your” money that you set aside
during your career.
Both of these perspectives are wrong, the latter more obviously so. Most
people, during their working careers, do not pay nearly enough in payroll
taxes to pay for their expected benefits. This is most obvious for
The problem with the tax-and-transfer argument is only slightly more subtle.
Sure, at any given moment some people pay taxes and others collect benefits
(and many do both, since Medicare is funded by general revenues). But most
of us will both pay and receive at different points in our lives. So both
programs are really more like income-shifting arrangements...
In the inaugural address, I think the president got it basically right. They
are risk-spreading programs. You don’t get back exactly what you put in:
they have a certain degree of progressivity (although less for Social
Security than is commonly imagined). Their main function is to protect
people against extreme outcomes by pooling a limited share of our resources.
Yes, rich people end up paying payroll taxes for insurance they end up not
needing. But that’s how insurance always works: you pay the premiums hoping
you won’t need it. And the key fact is that most young people, whey they
start paying payroll taxes, don’t know what their own personal outcomes will
be. ... Like any insurance scheme, you can make everyone better off simply
by moving money around between different states of the world.
These particular insurance schemes, as the president said, have a moral
element to them. They are a way of expressing out solidarity with each other
as Americans, people united, however loosely, in a common endeavor. They
also have an economic element to them. People protected against bad outcomes
are more willing to take the risks needed for a vibrant and prosperous
society. They are something to celebrate, not something to be embarrassed
about whenever the Republicans come after them.
I've written quite a bit about the insurance aspect as well, e.g. see
The Need for Social Insurance:
systems differ in their ability to provide goods and services and in
the level of economic risk faced by a typical household. Socialism is a
low mean, low variance economic system. With a planned economy, cycles
in unemployment do not occur unless mandated by planners. Worker
income, though low, is not subject to substantial variation over time.
Other economic risks, such as access to housing and risks related to
healthcare are also very low since these services are provided by the
state. Economic risks for workers are low in such a system, but so is
Under capitalism the average level of income is
much higher, but economic risk is higher as well. In a capitalist
system, workers can be involuntarily displaced as new products are
invented, new production techniques are implemented, production moves
outside the country, or inevitable business cycle variation occurs.
These are shocks that affect workers independent of their own behavior.
A worker who has shown up to work every day and worked hard to support
a family can be suddenly unemployed for reasons unrelated to anything
connected to his or her own behavior.
As the U.S. entered the
20th century, important social changes arising from industrialization
were becoming increasingly evident, and these changes exposed the high degree of
economic risk under a capitalist system. Migration to cities and the
resulting breakup of the extended family, reliance on wage income as a
primary means of support, and increasing life expectancy resulted in
increased economic risk for the typical worker relative to the more
agrarian economy that existed prior to industrialization.
agrarian economy, economic security is provided by extended family
relationships coupled with the largely self-sufficient nature of farms.
On a farm, a recession is a bad harvest, but it generally does not mean
a total lack of income. Times can be tough, food can be very scarce and
there can be hunger, but generating a subsistence level of income from
the farm is usually possible even in the worst of years. For a worker
dependent solely upon wage income, the consequences of a recession are
much more severe. A recession means a total lack of income, not just
hard times. Without the help of others or the existence of some type of
social insurance program, abject poverty is a real possibility (see Life After the Great Depression for descriptions of the misery that followed the Great Depression).
also takes on a different character. On the farm, retirement meant
gradually, if often reluctantly, letting the children take over
responsibility for the farm, but it did not mean a total loss of
income. Children provided for parents. But an aging worker in a city,
perhaps disconnected geographically from their children, faces a
different circumstance upon retirement. Such a worker may face a
complete loss of income, and disability from age is not always an event
that occurs according to plan. Even a worker who has diligently saved
for retirement can suddenly become impoverished due to events such
unexpected health costs, or even a much longer life than expected.
industrialization progressed, 1920 marks a benchmark year where, for
the first time, more than half of the population lived in cities. When
the Great Depression hit around a decade later, the social
changes the U.S. was experiencing and the need for new ideas regarding
the government’s responsibility for the economic security of its
citizens became clear. The Great Depression made it evident that in a
capitalist system, where the whimsies of the marketplace can wreak
havoc on people’s lives, the government has an obligation to provide
economic security. It was also evident that the private sector did not
provide the needed level of insurance and that government intervention
was required to overcome this problem (due to both moral hazard and
asymmetric information problems in the private insurance market).
is important that the economy be allowed to change with new technology
and changing preferences, but the consequences for innocent workers
affected by such changes is a social responsibility that needs to be
addressed. In addition, as extended family relationships are hindered
by geography and the social contract between parents and children
breaks down, the elderly need a way to avoid poverty. Programs such as
Unemployment Compensation, Medicare, and Social Security arose as a
means to mitigate these economic risks under capitalism using the least
amount of society’s valuable resources.
Drawing a rough analogy,
socialism is like investing in T-Bills. Low risk, but low return.
Capitalism is like the stock market. There is a higher average return
accompanied by higher risk. Financial theory tells how to insure
against such risks and there is no reason why this cannot be applied in
the social insurance arena to smooth variations in income.
There is a need for social insurance under capitalism.