Why Oh Why Can't We Have a Better Press Corps? (Insurance-Ain't-Welfare Department)

Writing from Oregon, Mark Thoma laments that Newsweek's Robert Samuelson doesn't know the difference between welfare and social insurance, and thinks Social Security is welfare. Thoma's right. You would think--Roosevelt thought--that a program in which you only got substantial benefits if you paid in substantial contributions could not be mistaken for a giveaway-handout. But Roosevelt misoverestimated Robert Samuelson:

Economist's View: No it isn’t. Social Security is mainly a means of insuring against economic risk. It is fundamentally an insurance program, not a saving program, and as such it is not welfare. Just because an economic activity transfers income from one person or group to another does not make it welfare. Fire insurance transfers income. Some people pay premiums for their whole lives and collect nothing. Others, the unlucky few who suffer a fire, collect far more than they contribute. Does that make it welfare? Of course not.

Social Security is no different, it is an insurance program against economic risk.... There is an important distinction between needing insurance ex-ante and needing it ex-post. Insurance does redistribute income ex-post, but that doesn't imply that it was a bad deal ex-ante (i.e., when people start their work lives)....

The main feature of Social Security is... insurance against economic risks and as such it makes us collectively better off. Calling it welfare when it isn’t is misleading... ignores and obscures the important role Social Security plays...

Comments

[elizabeth_a]

The key difference between a democrat and a republican is how they define ex-ante.

A democrat considers ex-ante to be before you are even born -- not knowing which generation, which state, which parents you will have.

A republican considers ex-ante to be on April 14 when you have calculated your income.

[a different chris]

Mark Thoma is well worth reading. Despite the abundance of professional number-crunching there , you can hardly classify somebody as a "dry economist" who delivers lines like:

>It wasn’t the poor jumping out of windows on Wall street [in 1929]

[Lee A. Arnold]

Mark Thoma's blog is surprising, informative, and useful. He's also a good writer.

[Movie Guy]

I'm waiting for Robert Samuelson's article on Highway Junkies. He might as well attack the other 200 plus trust funds while he is at it.

[masaccio]

Robert Samuelson is an economist in name only: Paul Samuelson's name.

[CalculatedRisk]

Jim, you have hit on the solution to SS. Make it even MORE like insurance by putting in a stronger means test (we currently tax 85% of the benefits). Then someone like Buffett would not receive any money from SS.

SS would be exactly like fire insurance. If, through the vagaries of life, you retire poor (no person's goal), then you would receive SS benefits. If you retire wealthy, you don't receive SS. This would be just like health care, if you never get sick, or fire insurance, if your house doesn't catches fire.

This is a solution everyone can agree on. Get rid of any semblance of a "retirement plan" and make it truly insurance. It is called Social Insurance for a reason. Let's make it INSURANCE!

[ken melvin]

A good article by in Harpers' April by Michael Hudson, "The $4.7 Trillion Pyramid" wherein he makes the connection betwixt the debt, stock market, pensions, baloons,. . .

[Lee A. Arnold]

Fire insurance is insurance in case of fire. Retirement insurance is insurance in case of retirement.

Some systematic thinking is in order:

Social Security gives a small payout to EVERYBODY, thereby helping-out the neediest in an incidental, and discreet, way.

By including everybody, we keep it simple, keep management and transactions costs low, and minimize gaming the system. The fact that you once paid into it, gives you a right and an expectation, like a social agreement. Since it is paid out late in the summer of life, moral hazard is at a minimum.

Indeed Social Security is enjoyed and relied-upon by many conservatives who obsess fetishistically about other welfare costs and psychologies.

Without Social Security, about 50% of retirees would be below the poverty line. They would not be in better shape if they'd gambled the money in the markets. Go ask them.

It's hard to think of a better system. If the President succeeds in ruining it, we will have to reinvent it.

[Peter H.]

Link to Economist's View:

http://economistsview.blogspot.com/

[Lee A. Arnold]

Fire insurance is insurance in case of fire. Retirement insurance is insurance in case of retirement.

Some systematic thinking is in order:

Social Security gives a small payout to EVERYBODY, thereby helping-out the neediest in an incidental, and discreet, way.

By including everybody, we keep it simple, keep management and transactions costs low, and minimize gaming the system. The fact that you once paid into it, gives you a right and an expectation, like a social agreement. Since it is paid out late in the summer of life, moral hazard is at a minimum.

Indeed Social Security is enjoyed and relied-upon by many conservatives who obsess fetishistically about other welfare costs and psychologies.

Without Social Security, about 50% of retirees would be below the poverty line. They would not be in better shape if they'd gambled the money in the markets. Go ask them.

It's hard to think of a better system. If the President succeeds in ruining it, we will have to reinvent it.

[buddyshaker]

How about calling it a "pension plan"?

That's what it's called in Canada.

Neither "insurance" nor "welfare".

[Bruce Webb]

The fundamental difference between Social Security and European Welfare State systems is funding. Social Security always has been, and given current numbers always will be, 100% funded by Workers. Welfare is paid through taxes levied across the whole society/nation, heirs to great wealth who know to a certainly that they will never be standing in line at the welfare office still have to pay in. Social Security is different, if you emerge from college with a big trust fund that allows you to leverage that inheritence into billions (the Trump model - he started with a substantial real estate stake from his father) then great. You never pay a penny in to Social Security, you never take a nickel out.

And that really is the issue here. Capital's only moral claim to control the outcome of Social Security was the almost universal belief that it would be called to bail out Social Security at some point in the future. Well as it turns out Workers don't need Capital on this one, the Trust Fund is not going to run out and privatizers can get the hell of our lawn.

It's not welfare and it isn't broke.

[obscure]

Why all the fuss over the word "insurance?" This isn't a clinical question.

Warren Buffet's "event" was reaching the retirement age, which not everyone does.

Jim Glass is just thrashing about to see if he can knock over some--any--pins. There's a bloody good reason for NOT imposing "hard" means tests on SS. It's the political reason. JG is fully aware of it, but to acknowledge it would be to expose his retrograde act.

[anne]

Means testing for Social Security turns the program to a welfare program, and will effectively end the profound support by middle and upper income households. Means testing will end Social Security.

[anne]

Of course, as need be repeated, there is no Social Security problem other than the perception problem casued by deceptive claims of crisis.

[a]

Posted by: Jim Glass: "Social Security is ... is fundamentally an insurance program" So why is Warren Buffett collecting it? Right out of the paychecks of his Dairy Queen employees. What was his insurable event that happened?

Because it is an annuity, silly. Insurable event is survival of certain age.

[enfant terrible]

Both sides are wrong. The fire insurance analogy is bad, as Jim Glass pointed out, and the ex ante/ex post distinction does not make SS look more like fire insurance than like welfare.

SS is clearly not just welfare, because it does not provide any benefit to those who spend most of their lives unemployed. It would be a strange welfare program that would omit the neediest. However, SS clearly has a welfare component, as it is designed to redistribute income from high earners to low earners, regardless of unfortunate events in their individual lives.

It also has an insurance component, which is overall more important, but it comes in the forms of disability insurance, survivor benefits (death insurance, a.k.a. life insurance), and annuitization (insurance against living too long, or what should be called "life insurance"). A small part of it also comes from redistribution, insofar as it mitigates the lifetime effects of short unemployment spells or unfortunate demotions.

How the program is financed hardly helps distinguish insurance from welfare.

[kharris]

Oh, pity our poor, political language. "Liberal" did not mean the same think as "degenerate" until very recently. Some time ago, "welfare" meant "the state of doing well especially in respect to good fortune, happiness, well-being, or prosperity" (M-W Online).

Then we went and shortened the expression we use to discuss agencies or programs that support welfare to just "welfare". That shortening has allows people like Samuelson (and Reagan) to imply that "welfare" is a bad thing. A big problem with Samuelson's stupid article is his stupid use of words. He uses "welfare" in a perjorative sense, apparently intending to imply that there is something very wrong with Social Security, insisting we are all weak-headed for not admitting Social Security is welfare.

Until Samuelson can tell us why a very cheaply run, efficient annuity system is a bad thing, he doesn't deserve the space he writes in.

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