South By North Strategies, Ltd.

Why Social Insurance Matters

Mark Thoma makes the case for why social insurance matters and why it doesn’t necessarily undercut economic efficiency.

Insurance markets are plagued by market failures such as adverse selection and moral hazard, and when these problems are severe enough the private sector will provide much too little of the insurance. In such cases, there is a role for government to play in resolving the problem. Efficiency is defined, in part, as the economy providing the goods and services that people want and are willing to pay for. Hence, when the government intervenes and makes up for the failure of private markets to provide these goods and services in sufficient quantity, it doesn’t reduce efficiency, it increases it.
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We cannot fully insulate people from every inequity or run of bad luck, and it is possible for governments to provide more than the optimal amount of insurance against life’s ups and downs. But even if social insurance programs are not executed perfectly by government, the important question is whether the benefits exceed the costs. One only has to look at our history – what happened to the elderly, the sick, and the unemployed before we had such insurance – to see its great value. We were much worse off, on net, before social insurance existed, and we would certainly be worse off without it today.

Do As I Say, Not As I Do

The Baseline Scenario analyzes congressional votes on major tax and spending issues and unearths surprising patterns in “hawkopcrisy.”

The bottom line: As a party, the Republicans who will be railing against fiscal irresponsibility and threatening to block a raise in the debt limit are the irresponsible ones themselves who created the need to raise that debt limit. The Democrats can claim to be somewhat less irresponsible; more to the point, perhaps, insofar as they did vote to raise the debt, at least their current behavior (assuming that most support the administration and vote to raise the debt limit) is at least consistent with their past votes.

The post goes on to look at the voting records of individual members of the House and Senate.

Of course, it’s more fun looking at an individual level. And the only people who can claim not to be responsible for the national debt — at least not via any of these five bills — are the newly elected members (except Rob Portman and Pat Toomey, who voted down the line to increase the debt as Congressmen) and Tom Coburn, who joined the Senate in 2005 and voted against both the stimulus and the 2010 tax cut.
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By contrast, Republican leaders Mitch McConnell and Jon Kyl each voted for $2.3 trillion of debt (75 percent), yet will somehow try to argue that the need to raise the debt ceiling is not their fault.
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On the flip side, the only people who voted for all $3.1 trillion of debt are Ben Nelson (D-NE) and Susan Collins (R-ME), generally considered moderates. (Liberals think Nelson is a closet Republican, and conservatives think Collins is a closet Democrat.) Following Nelson and Collins, at $2.8 trillion, are Max Baucus (D-MT), Dianne Feinstein (D-CA), Mary Landrieu (D-LA), and Olympia Snowe (R-ME) — also generally considered centrists. One inference you could draw is that bipartisan centrists are the last thing we need, since they vote for both tax cuts and spending increases. Of course, the December tax cut is Exhibit A in the problem with bipartisan compromise, at least from the perspective of the deficit.

Editor’s Note

In honor of the Martin Luther King Jr. holiday,  Policy Points will not be published today. Regular posting will resume tomorrow.

Thank you for your interest in the blog.

Around The Dial – Jan. 14

Economic policy reports, blog postings, and media stories of interest:

• The New Republic points out that business isn’t always right.
• Economix asks just how efficient private charity is.
• The Huffington Post shows why Citigroup should thank the taxpayers.
• Free Exchange joins the debate over educational policy in Raleigh, NC.
• Paul Krugman tells “a tale of two moralities.”

A National Train Wreck?

Marshall Auerback of The Roosevelt Institute despairs over the “American train wreck” being caused by the failure of the political system.

The “two Americas” theme will continue. Stock market participants won’t be particularly disturbed by growing anger and hopelessness in the country because, by and large, all they care about are the markets and their bonus checks. The electorate’s increasing dissatisfaction will be a side show. They voted (at least some of them did) and now have to live with the consequences of that vote.
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Meanwhile, Obama will try to govern via more Clinton-style “triangulation” and “compromise” (although “compromise” is actually a charitable way of looking at it, since he has already capitulated to Wall Street). He wants to bring big business into his administration. Why? Business profits are sky-high. Contrary to the rhetoric, this has not been an administration that has been particularly “anti-business”. The administration’s instinct for solving a problem of fraud or criminality is to wish the problem away or “move forward” without any consequences for bad behavior.  But it is also a manifestation of our political system’s impotence to respond to the problems of long-term unemployment and a general hopelessness about the system’s ability to craft sensible long-term solutions to our longstanding structural problems.