Friday, September 11, 2009

Social Insurance

One of the big roles for government in the economy is the provision of social insurance. Approximately 50% of spending by the federal government goes toward social insurance programs -- like Social Security and Medicare. Government provided social insurance is frequently controversial, in this post, Uwe Reinhardt uses last year's Lehman collapse in an attempt to get Americans to appreciate social insurance:

A year ago, century-old Lehman Brothers lapsed into bankruptcy, completely spooking the oligarchy that runs our nation’s financial sector.

The oligarchs had fully expected to see Lehman bailed out by the federal government that serves them, especially after the government had dutifully bailed out Bear Stearns earlier in the year. When Lehman was not so served, panic set in, unleashing global economic turmoil and pain.

Devastating as this calamity has been to many individuals and institutions, it should have served Americans also as a great teaching moment, reminding them of the important and highly productive role government risk management plays in their daily lives.


In the end, like teenagers who hate Mother’s strictures when all is well, but run to Mommy whenever they get in trouble, the swashbuckling oligarchs of the financial sector ran to government for cover, owning up once again to the time-honored mantra of this country’s legendary rugged individualists:

When the going gets tough, the tough run to the government.

Another term for “government risk management,” of course, is “social insurance.”

It is a social contract with government that Americans quietly love, but in the shouting matches that now pass for our “national conversation” on public policy so often profess to hate — as when they cry for government to stay out of Medicare, or when they sit on their beachfronts in the Hamptons waxing worried about government intrusion in the economy, all the while basking in the security of federal flood insurance.

In the rest of the post, Reinhardt reminds readers that social insurance does more than simply help those who find themselves poor or sick (which is apparently a very controversial idea). Social insurance extends to government supported flood insurance and the limited liability corporation (oddly, you seldom hear people complain about these -- although, some of the flood insurance stuff stupidly allows/encourages people to build big expensive houses that are fairly likely to be destroyed by floods or hurricanes).

With so many people switching between Wall Street and Washington, it is no wonder that the financial "oligarchy" was able to go unregulated for so long. With the financial sector falling apart, how is the government who allowed it to become so unregulated going to put is back together?
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