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More on Social Insurance and Conservatism

Re: Beware “Social Insurance” Salesmen

In his latest contribution to our ongoing debate over social insurance and conservatism, Oren Cass clarifies some of our points of disagreement. One of them concerns the meaning and nature of “social insurance” itself. Another is whether certain proposals are sufficiently “conservative.”

To Cass, social insurance, or at least the kind of social insurance acceptable to a conservative like himself, would be “something paid for and earned by its recipients, and claimed when needed.” As examples he suggests unemployment insurance system or programs of retraining for displaced workers.

Social insurance, in that sense, does not differ greatly from an ordinary product like fire insurance for one’s home, except that government intervention could be justified by market failures that make certain risks commercially uninsurable. For example, a commercial insurer might be reluctant to offer unemployment coverage because of the moral hazard arising from the fact that it is often hard, ex post,  to distinguish among quits, layoffs, and dismissals.

At first glance, Cass’s definition seems not too different from that offered by Theodore R. Marmor, who, in a Niskanen Center commentary, writes that social insurance

is “insurance” in the sense that people contribute to a fund to protect themselves against unpredictable financial risks. These include outliving one’s savings in old age, the early death of a breadwinner, the onset of a disability that makes work difficult if not impossible, the high costs of acute illness, involuntary unemployment, and work-related injury.

But Marmor sees social insurance a little more broadly than Cass appears to. In the same paragraph, he goes on to point out that unlike the commercial case, the contributions paid for coverage by social insurance do not depend on the insured’s risk profile, but rather, on ability to pay. Although Marmor does not say so explicitly, there are some instances in which the covered party will have no ability to pay at all. Cases of congenital disability that make some people incapable from birth of ever participating in the labor market are an obvious example. Current U.S. policy recognizes this in offering Supplemental Social Insurance (SSI) to people who, unlike those who participate in Social Security Disability or Retirement programs, never contribute to the insurance fund.

In fact, (I am speaking for myself here, not Marmor), there is no logical or practical necessity why contributions to social insurance should take the form of a special payments into some earmarked fund. For example, as is well known, the U.S. Social Security Trust Fund is purely fictive, since its holdings consist of government bonds, that is, loans made by the government to itself. Social Security is, de facto, a pay-as-you-go scheme that might as well be funded from general tax revenue. The same goes for any other form of social insurance – tax revenues go in, benefits go out, the accounting details don’t much matter.

Yet another way in which I view social insurance more broadly than does Cass, lies in the range of risks to be covered. Illness, unemployment, and injury are not the only misfortunes that can befall a person. For example, Cass sees a great role for family and community in protecting their members against the hazards of life. That is all well and good, but what of the risk of being born into an impoverished family, or born to irresponsible parents, or born into a dysfunctional or disadvantaged community? Shouldn’t such risks be socially insurable as well?

Finally, there is the delicate issue of whether social insurance should cover the hazard of making bad choices. Should social insurance extend to rehabilitation of substance abusers? Should it offer a helping hand to people reentering society after a period of incarceration? As an advocate of truly universal social insurance, I say it should.

Cass wants to call my “Integrated Cash Assistance (ICA)” proposal “redistribution,” not social insurance, since it is “a universal grant, of cash, funded from general revenue, received whether you have ever worked a day, for the express purpose of guaranteeing ‘income security.’” His description of my proposal is accurate. But I don’t see why an ICA is different, in those respects, from a program like SSI.

I understand that Cass thinks my ICA scheme is too generous. That is a legitimate point for discussion. I would be happy to get into the pros and cons of cutting out any particular group of beneficiaries. But whether ICA is overly generous or overly stingy is a practical issue that should not disqualify it from being social insurance. It is “redistribution” only in the sense that fire insurance “redistributes” income to people whose houses burn from those whose houses do not.

Cass also thinks my ideas for social insurance, and the related “Free Market Welfare State” proposal of my colleague Sam Hammond, are insufficiently conservative. Here, for once, we are in full agreement. In that regard, Cass’s family- and community-based approach calls to mind two points that Friedrich Hayek made in his essay, “Why I am Not a Conservative.”

Hayek’s first point concerned attitudes toward the speed and direction of social change. In Hayek’s view, conservatism cannot, by its very nature

offer an alternative to the direction in which we are moving. It may succeed by its resistance to current tendencies in slowing down undesirable developments, but, since it does not indicate another direction, it cannot prevent their continuance. It has, for this reason, invariably been the fate of conservatism to be dragged along a path not of its own choosing. The tug of war between conservatives and progressives can only affect the speed, not the direction, of contemporary developments.

Cass’s view that “families, communities, and mediating institutions” should bear the primary responsibility as “the provider for all citizens” is a case in point. He quotes Robert Nisbet to argue that “community thrives on self-help (and also a little disorder), either corporate or individual, and everything that removes a group from the performance of or involvement in its own government can hardly help but weaken the sense of community.” Cass also asks, rhetorically, “Can the father say that he is working to put food on his family’s table, if Uncle Sam has already dropped off the groceries? What role does the elder fulfill by taking care of the grandchildren, if free daycare is available down the block?”

Certainly, we can find examples in which communities and families have provided adequately for those of their members who are unable to provide for themselves, or who stumble along the way and need a helping hand to get back on their feet. But there is no doubt that the world is not moving toward stronger families and communities, and for the most part, due to forces that are irreversible. Consider the following trends:

  • Fewer children per family, in almost every society in the world. That means fewer children to support each parent in old age and fewer brothers, sisters, and cousins – often none – to call on for aid in time of trouble.
  • Longer lifespans, further increasing the burden on each younger member of a family and community in providing for their elders beyond their working careers.
  • A higher cost of medical care. Family- or community-based mutual help in paying medical bills is no longer a realistic as it was even as recently as the 1930s in America, when health insurance was a rarity. Although this tendency is unnecessarily intensified by inept policy in the United States, it can be observed even in the world’s best-run healthcare systems, driven by changes in technology and by the inevitable rise in the relative price of services as countries get richer.
  • More mobility, meaning that more people live farther from their relatives and that communities contain more newcomers. This trend is not purely cultural, but is driven by increased education and improvements in transportation and communication. Greater mobility also means greater diversity of cultures, religions, and ethnicities within communities. To be sure, diversity is in many ways a virtue, but can, along the way, weaken traditional community ties.

Can we blame all these trends on the state? I think not. Can we stop them? I think not. Is any feasible set of interventions likely to return us to a world of small, culturally homogeneous communities pervaded by strong, complex family ties? I think not.

The second point that Hayek makes about conservatism, beyond its often-futile opposition to change, its preference for authority. “Order,” he writes, “appears to the conservative as the result of the continuous attention of authority, which, for this purpose, must be allowed to do what is required by the particular circumstances and not be tied to rigid rule.” “In general,” he goes on, “it can probably be said that the conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes.”

Cass’s views certainly seem authentically conservative in this regard.  Cass wants to ensure

that when the State does step in, as a provider of last resort, it distinguishes clearly between categories of recipients, makes assistance temporary, and gives benefits in-kind. That cash is “better” and “more efficient” is precisely why it should not be part of the package provided by the State to those who could work but do not.

To put it bluntly, Cass appears to think that those incapable of providing for themselves, and those who have suffered misfortune, whether of their own making or not, have a significantly reduced claim to freedom, in the Hayekian sense of not being subject to the arbitrary will of others. The kind of welfare policies favored by conservatives keep the needy on a short leash and require them constantly to demonstrate that they are among the “deserving poor.” In so doing, they amount to a demand that, as the price of aid, the unfortunate continually bow to the arbitrary authority of a welfare bureaucracy.

It is worth noting that a submission to authority as the price of aid is not unique to societies in which the state is the source of that aid is. The same bargain prevails in the traditional family- and community-based societies that predated the modern state. Mark S. Weiner explains this clearly in his treatise, “The Rule of the Clan: What an Ancient Form of Social Organization Reveals About the Future of Individual Freedom.” A Publisher’s Weekly review summarizes his view of the matter as follows:

Whether a barbarian dystopia or a libertarian paradise, clan-based societies, Weiner argues, provide security and social stability while subsuming the identity of the individual into the larger order. But is security worth the sacrifice of individual freedoms? Ultimately, Weiner’s argument is a full-throated defense of the modern centralized state, which he sees as necessary to protect human rights.

Weiner’s book, full of detailed examples from both historical and modern times, offers sobering food for thought to any conservative who idealizes the unconditional embrace of family and community.

Looking back over what I have written, I see that a lot of it is about words. But I’m not sure debates over terminology like “social insurance” and “conservatism” are worth quite so much attention. The important thing is not what we call some policy or the ideology that underpins it, but rather, whether that policy can be justified. And how to that? There are two main approaches.

One is to view the policy in question from behind a veil of ignorance – a situation in which we know how the world works in terms of economics, psychology, and so on, but do not know our particular station, whether rich or poor, able or disabled.

The other approach, a more pragmatic one recommended by Cass himself in a passage that I cited in my preceding contribution to this debate, is whether the policy at issue is an improvement over what we have now.

If any readers would like to set terminology aside and continue the discussion of policy from either or both of those perspectives, I would be pleased to participate.

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Ed Dolan

Ed Dolan is a Senior Fellow for Fiscal and Monetary Policy at the Niskanen Center.