Clip From ‘Brave, Honest Conservatives’ and Social Insurance
Mark Thoma: Social Insurance: “Socialism is a low mean, low variance economic system…. 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…. Under capitalism the average level of income is much higher, but economic risk is higher as well…. 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…. In an agrarian economy, economic security is provided by extended family relationships coupled with the largely self-sufficient nature of farms…. For a worker dependent solely upon wage income, the consequences of a recession are much more severe…. 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).”
The entire post by Thoma (an economist) is well worth the time spent reading it.