social insurance can enhance market dynamism and economic freedom in four key ways: By enabling entrepreneurial risk-taking; by easing the adjustment and search costs associated with creative destruction; by detaching social benefits from market structure; and by making the economy more robust to immigration. Together, these point to a set of design principles for reforming existing U.S. social insurance programs in a pro-market way.21
Now, check out the footnote:
Discerning readers may recognize an Austrian School influence in the first of these three defenses of social insurance. Austrian School economics places an emphasis on (1) entrepreneurial discovery in the face of fundamental uncertainty; (2) equilibrium as a dynamic, evolutionary process; and (3) the decomposability of capital, implying particular market structures will often need to liquidate given shifting patterns of specialization and trade. While the Austrian School has become mood-affiliated with small government libertarianism, its basic analytical toolkit turns out to be highly congenial to the “free-market welfare state” perspective. For an introduction to these themes see: Kling, Arnold. 2016. Specialization and Trade: A Re-Introduction to Economics.
One of Hammond’s suggestions is that government-provided benefits are better than employer-provided benefits. One reason for this is that with employer-provided benefits, politicians have a stake in keeping the corporation alive. He uses the example of General Motors getting bailed out in 2008.
In a response to Hammond, Kai Weiss writes,
Instead, advocates of the free market should look to a strengthening of civil society, combined with a job-rich economy, to help those left behind. In the end, responding to skepticism about the role of free markets by arguing for more statism might be an oxymoron after all.
If the Scandinavian countries are such great examples of welfare states, then this shows that a risk pool of 5 or 10 million is sufficient. You do not need 300 million. To me, that suggests that at most we need the Federal government to provide a small universal basic income. Otherwise, smaller units, such as cities, counties, states, private insurance companies, or large voluntary associations could deal with health coverage, retirement savings, unemployment insurance, and aid for households dealing with mental and physical disabilities.
“If the Scandinavian countries are such great examples of welfare states, then this shows that a risk pool of 5 or 10 million is sufficient. You do not need 300 million.”
Right. The idea is to apply insurance only for the medically unpredictable. Consider the opposite, a risk pool of 300 million. My example is the marginal diabetic, many in the middle age suffer this.
In today’s medical world we have simple glucose tests for blood and other diet regimes for the marginal diabetic which give them choices in lifestyle that alter their insulin intake. They can choose a heavy dinner, then suffer the price of extra insulin. The larger risk pool buys the insulin in predicable bulk and their is no supply adjustment, hence the socialist wedge in service costs is an accumulated cost, we eventually pay it.
Food stamps is another where wedge is introduced, and obesity is a result. My corner store clerk keeps his supply of junk food predictably delivered in monthly tune to food stamps, he invariably matches junk food deliveries to his selected food stamp customers. Obesity is a lock in.
So when I see a fat person I can assume they are on food stamps?
No, but if they are on food stamps, you can be pretty sure they are spending of lot of them on “junk food”.
Insulin has a list price which is dramatically higher than the real price insurance companies pay. The companies pocket the difference in the form of rebates which they either keep to themselves or use to buy down premiums to win business. In effect it becomes a kind of reverse insurance, the higher list price is used to jack of cost insurance and the extra cost share the insurance company gets is used as a kind of reverse insurance where the sick subsidize the healthy.
After watching this continue for years with no relief across multiple administrations, Trump became the first person to actually do something about this practice.
What did he do?
Made it illegal for insurance to keep the drug rebates, so you can only continue to have them if they are passed through to the consumer in the form of lower prices. Goes into effect 2020.
Thanks. I guess its not a done deal. Congress needs to move on it.
https://www.bloomberg.com/opinion/articles/2019-03-01/to-lower-drug-prices-trump-hhs-rightly-targets-pbm-rebates
Moo beat me to it. Like so many of Trump’s supposed achievements, they haven’t really come to fruition. It would be much easier to just mandate a lower price.
Steve
“smaller units”
Amen.
Canadian provinces have higher degrees of responsibility relative to the national government than do states in the US, and Canada outperforms the US on the Human Development Index. Indeed, all of the 12 nations that ouperform the US have much smaller populations and tend to be characterized by the presence of subsidiarity, that is, in these countries social and political issues are dealt with at the local level that is consistent with their resolution.
For all the US spends on social and political issues, it gets a lot less bang for the buck than the rest of the advanced world. A good dose of increased subsidiarity would inevitably produce an increase in government efficacy.
Getting there, unfortunately, requires much more revolutionary and fundamental reform.
The dynamism engendered by the social safety nets in Scandinavian countries is likely the reason that so many of the powerhouses of the digital age emerged there rather in risk-averse U.S. and why Nokia was able to maintain its early dominance in the smartphone industry and fend off challenges from Apple and Google which were hamstrung by their need to provide employer benefits. Likewise, Canada’s Scandinavian-style single-payer healthcare and more generous safety net was likely the reason that RIM/Blackberry was able to maintain its solid second-place position behind Nokia.
OK, I guess that’s probably enough snark for a Sunday morning.
Scandinavia works because it’s got a narrow enough bell curve at a high rate of productivity. Its people also tend to be rule followers who don’t cheat the system.
There is a difference between social insurance (people mostly paying money to themselves) and welfare (the permanent transfer to a permanent underclass).
Sweden’s welfare state doesn’t appear any better at handling the influx of low productivity immigrants.
By contrast, Singapore has many of the same “social insurance” mechanisms, with a heavy emphasis on making people fund their own social insurance in a very 401k style way, lower overall taxes, and more state regulation in the economy (but done smartly). Most critically, its immigration policy has explicitly avoided the accumulation of a permanent underclass despite higher levels of overall immigration.
“that suggests that at most we need the Federal government to provide a small universal basic income. Otherwise, smaller units, such as cities, counties, states, private insurance companies, or large voluntary associations could deal with health coverage, retirement savings, unemployment insurance, and aid for households dealing with mental and physical disabilities.”
Wasn’t that Charles Murray’s proposal too?
https://g.co/kgs/8MstwH
I think part of the challenge with smaller units providing benefits is ensuring that they do so in a way which doesn’t impact geographic mobility. At the moment, that’s definitely not the case: certain benefits are managed differently in different states, which effectively sets up a barrier to folks moving from one to another.
That said, it wouldn’t have to be a federal program to actually provide this – just some kind of standardization and portability requirement that ensures people can move to where they’re most productive. Somewhat akin to a standards body in the private sector perhaps.
Encouraging risk taking or entrepreneurial activity is easy. The value of the market isn’t in producing such things it is in producing it with discretion, reigning in excessive risk taking with financial punishments. That is flaw 1 (of many) in this line of thinking.
Flaw #2 is that it is a risk/reward relationship, if you cut down on risk in this way you automatically cut down on reward proportionally.
Wow, I was just talking about this in the next post’s thread.
I really like Kai Weiss’s suggestion: we need an apolitical civil society. Not just safety net activities, but public community activities that aren’t attached to a political agenda. I kind of like the “Makerspace” model – these are privately organized workshops where people buy memberships in a co-op that shares tools. This saves people the expense of buying all their own tools and having to house and store them. The thing is that Makerspaces are not operated as businesses and they have a social aspect to them. They are places people go to meet others who have similar interests. In our highly polarized era, it’s one of the few things happening that is not politically tribalized. What I’d really like to see is people organizing similar apolitical civic groups, first of all, just for the sake of creating community that is not attached to a religious or political ideology, and secondly to step in the role of providing a social safety net in the place of government or religiously/ideologically motivated groups.
AIUI one of the other arguments against leaving social insurance to states and localities is that budgetary balance requirements require procyclical cuts, vs the feds who can just run deficits to keep the transfers flowing during downturns. Would you support relaxing state budgetary balance constraints in return for greater federalism here? Or having federal countercyclical block grants to states and localities? Or something else?
I could agree with a UBI of $200/week ($10,400 / yr), like Murray supposes — if I thought it would stay low.
It won’t, as long as there are any rich folk.
Just as there is a constant push to increase the Min. Wage, there will be a constant push to provide a “decent UBI”.
It’s similar to the argument against a VAT, which might be better than an income tax BUT would not plausibly replace the income tax.
The Feds should offer a Job Guarantee, and even clean-up / care for old / care for young / get paid to get training / shared with company jobs.
The Chile example of folks being required to save for their own retirement has been hugely successful. Yet it’s not so hugely popular there.
Voters want, and will vote for, “free money”, meaning OPM (other people’s money).
“In order to solve real problems of real people”. The key solvable problem for folks with problems is that of getting a job.