Why Social Insurance Is a Necessary Part of Capitalism

Why Social Insurance Is a Necessary Part of Capitalism


In the last presidential election, Republicans went to war against the safety net. Led by Mitt Romney, conservatives argued that programs such as Medicare, food stamps, unemployment compensation, free school lunches, low income housing, and child care assistance create a dependency on government that blunts or eliminates the incentive to work.

Cutting these programs would do the poor a favor by ending this unhealthy reliance on government aid. Since losing the election Republicans have been less strident, even casting themselves as defenders of Medicare and Social Security at times. But this is an issue that strikes at the heart or Republican politics and it will undoubtedly return as the campaigns for the next presidential election begin to take shape.

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What is this really about? The true nature of the Republican’s objection to social insurance programs is betrayed by a sign that appears regularly at Tea Party gatherings. It says “You Are Not Entitled to What I Earn.” Many Republicans believe that their hard-earned money is being taken away through taxation and given to lazy, unmotivated “others” who do not deserve the help.

They recognize that there are some truly deserving poor, people who cannot help themselves no matter how hard the try, but a large part of the money the government collects – money they worked hard to earn – is, in their view, wasted on the undeserving. Thus, we hear

“It would be a ‘disservice’ to further extend unemployment assistance to those who’ve been out of work for some time, said Senator Rand Paul, Republican of Kentucky. It encourages them to sit at home and do nothing.”

“’People who are perfectly capable of working are buying things like beer,’ said Senator James Inhofe, Republican of Oklahoma, on those getting food assistance in his state.”

Related: Brookings Study Downplays Income Inequality

But this mischaracterizes both the nature of the recipients and the nature of social insurance programs. There are always exceptions, but most of the poor are hard-working families who do their very best, often working multiple jobs, but have trouble making ends meet. As Washington University professor Mark Rank explains, “the notion that poverty affects a relatively small number of Americans, that the poor are impoverished for years at a time, that most of those in poverty live in inner cities, that too much welfare assistance is provided and that poverty is ultimately a result of not working hard enough.

Although pervasive, each assumption is flat-out wrong.” He goes on to point out that “nearly 40 percent of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line…, and 54 percent will spend a year in poverty or near poverty… Even more astounding, if we add in related conditions like welfare use, near-poverty and unemployment, four out of five Americans will encounter one or more of these events. In addition, half of all American children will at some point during their childhood reside in a household that uses food stamps for a period of time. Put simply, poverty is a mainstream event experienced by a majority of Americans. For most of us, the question is not whether we will experience poverty, but when.”

This is what social insurance is designed for, and an understanding of how the insurance works undercuts the idea that hard-working Americans have income taken from them and given to others – that they get nothing in return. Capitalism is much better than other economic systems such as socialism at providing goods and services, but it also comes with risks that do not occur in these systems.

Business cycles, and the unemployment, homelessness, lack of adequate food, and so on that come with them can all be mostly eliminated under socialism, but in a capitalist system a worker who does everything right to provide for his or her family – show up every day, works hard, etc. – can suddenly find themselves out of work and struggling to make ends meet. Business cycles are an inherent feature of a capitalist system, and globalization and technological change add to the insecurity that workers feel.

Related: How Social Insurance Narrows the “Opportunity Gap” 

Social insurance spreads these risks across the population much as fire insurance spreads the risk of losing a home. Without fire insurance, some people would lose everything if they were unlucky enough to have their house burn down. To prevent this, large groups of people put some money into a collective pot each month, a much, much smaller amount than the value of their house, and the unlucky few who experience a fire draw from this pot and rebuild what was lost, or most of it anyway. Everybody loses a little bit through their monthly contributions instead of a few people losing everything. 

To say that those who do not collect get nothing would be wrong. They are purchasing a service, insurance, and that insurance has value whether or not they experience a fire. The same is true for social insurance. During, for example, downturns in the economy instead of some people losing everything, we protect those who are unlucky and become unemployed through unemployment compensation, food stamps, and so on.

As the numbers above make clear, there’s a good chance that most Americans will need this insurance someday, and there is value in being protected whether you use the insurance or not. The money that is contributed to the collective pot is not wasted on the lazy and undeserving, it is providing valuable protection against the risks that come with a capitalist system, risks that could hit any one of us suddenly with little warning (very few people saw the Great Recession coming).

Related: CBO Warns Unchecked Entitlement Spending is “Unsustainable”

The rich might object by asking why they should be forced to purchase insurance they will never need. But fortunes are sometimes lost and, in any case, the rich have their own forms of social insurance. During the Great Recession, who benefitted the most from bank bailouts and quantitative easing that propped up asset values? It was the people who hold most of the financial assets, the wealthy. Yes, Main Street was helped too, and helping Main Street, not Wall Street, was the main goal according to policymakers. But there is no doubt that the wealthy were insured against large losses.

Social insurance that protects us from the inevitable downturns that capitalist systems experience, and also insulates us from the rising insecurity due to globalization and technological change should not be limited to the wealthy, it should be available to us all. We need more social insurance, not less, and it’s shameful to see those who have the most and are protected themselves – the wealthy such as Romney – leading the charge to reduce or eliminate the social insurance that protects those who are aren’t so fortunate.

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