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Safety nets
From the loyal:
Safety nets, what kind (if any) is desirable.
Yes, we should have a safety net. This is a huge topic, but here are a few select points:
1. The more time a person has spent working in private philanthropy, the less likely he or she is to think that private charity can substitute for the government's safety net.
2. It remains a puzzle why we don't have more insurance for long-term risks to health and income, but we don't. In the meantime we have to assume institutional failure.
3. I am a fan of David Beito's Tocquevillean work on workingman's societies and private club insurance in early 20th century America. But it is a tale of how insurance institutions changed over the course of a century, and not a new recipe for how market completeness was on its way until government botched it.
4. Some societies, such as in East Asia, use the family to pick up a greater share of income and health risks. I doubt if the highly mobile United States could do the same, but even so this option is costly. Most of all, the welfare state liberates the productive and the creative from their sometimes burdensome family ties. The welfare state is the Randian's secret dream, and that is what clinches the case for a government safety net.
5. I'll invoke an argument from authority for my libertarian readers and note that both Hayek and Friedman favored a governmental safety net.
6. A safety net (strict Asian families aside) is probably a prerequisite for a well-functioning capitalist democracy, even if its curative powers are sometimes overrated.
But on the other side of the debate, we are all going to die. Nasty outcomes await us, no matter how much is spent on a safety net. The "You can't let that happen to a human being" posturing isn't especially helpful. We cannot rely on a safety net to remedy every human tragedy, but if society is rich enough, let's do some safety net.
#34 in a series of 50.
Posted by Tyler Cowen on March 26, 2007 at 06:14 AM in Economics | Permalink
Comments
I'm all for safety nets, as long as I'm not /forced/ to provide one for someone else.
Posted by: speedmaster at Mar 26, 2007 7:17:23 AM
Where are we going and why am I in this basket?
More FEMA and less Salvation Army?
More regressive taxes (SSN) and less private giving?
Women with children depending on government to be their husband?
Would disagree strongly with your point 1 above.
Posted by: Huggy at Mar 26, 2007 7:42:33 AM
"Women with children depending on government to be their husband?"
Well of course Huggy, obviously women will be less free with the government as their "husband."
Generous state financed paternity leave, and subsidised day-care dramatically improves women’s career opportunities, their position in the labour market, and the way employers related to employees that are also parents. It also means that women are not forced to choose between no children and a career or dependence on a male source of income. The welfare state means more freedom for middle class women.
Hej, I just thought of something. Maybe, just maybe, that is why women are more positive to the welfare state. Maybe they are not irrational, but like freedom and choice and are driven by incentives.
Hmmm…nah that is crazy talk…women and Swedes driven by incentives…no chance!
“the welfare state liberates the productive and the creative from their sometimes burdensome family ties.”
Best comment in two weeks
Posted by: aaron_m at Mar 26, 2007 8:19:13 AM
I wonder if the problem with #2 is precisely the fear of government intervention after policies are written. Politicians are not exactly
rushing to support the exclusion of flood damage in pre-Katrina insurance contracts in Mississippi and Louisiana. Longer-term or more comprehensive insurance is more likely to be compelled to cover situations they didn't expect to cover.
Posted by: DK at Mar 26, 2007 8:41:24 AM
Was the U.S not a well functioning capitalist democracy before F.D.R?
Posted by: TGGP at Mar 26, 2007 9:19:07 AM
Was the U.S not a well functioning capitalist democracy before F.D.R?
NO.
Do you think a 25% unemployment rate was a well functioning system?
Posted by: spencer at Mar 26, 2007 9:26:54 AM
Am I hopelessly utopian?
Posted by: waiting, wondering at Mar 26, 2007 9:45:49 AM
Tyler,
I wish I had something consequential to say here, but the best I can come up with is: Very well said.
also aaron_m: on the mark.
Posted by: Dave McDougall at Mar 26, 2007 9:52:31 AM
Dr. Cowen,
You are a libertarian contrarian. You answer this question with what SHOULD be, but when you talk about school vouchers you talk about what we will actually get. Not a criticism, I'm just pointing it out.
Posted by: josh at Mar 26, 2007 9:59:43 AM
"the welfare state liberates the productive and the creative from their sometimes burdensome family ties."
...or, on the flipside, allows the “productive and the creative” to toss their most knowledgeable, and in some ways most valuable, family members aside, so they can live the last years of their life in miserable isolation. Mmmmmmmm, now that’s some good welfare.
Posted by: cmyers at Mar 26, 2007 10:08:46 AM
List my wife Amy and I as examples contra the first point in your post re: safety nets. We both have worked our entire lives in the non-profit world (and academia for me), and we are convinced that the non-profit sector can do a much better job (albeit it with some folks slipping through) than government. To me the point is obvious - Detroit, Chicago, Washington, DC during the Great Society programs. The non-profit sector does not create the unintended consequences of government policies (breaking up families and forced segregation) that occurred with welfare and public housing. When the state intervenes in large scale projects it gets messy, very messy. The non-profit sector will have folks who'll slip through, but it won't hurt many more indirectly.
Your interest and sympathies lie in the right place, but look at the U.S. example of the safety net in the 1960's in large urban areas and tell me how welfare and public housing made things better?
Posted by: Pat Lynch at Mar 26, 2007 10:10:42 AM
Surely the key question isn't whether we should have a safety net, but who should provide it -- the individual, family members, civil society, the state, and which mixture of functions each should be responsible for.
Posted by: Chris at Mar 26, 2007 10:29:34 AM
I'm usually pleasantly vexed by your opinions, but here we agree. The discussion is really about designing effective and morally satisfying safety nets. Libertarians should take note that the Swedish model offers more individual choice for larger strata of the population than the US model. Any libertarian who argue the supremacy of the US model must provide an account on why some individual's freedom are more important than others.
Posted by: Dan Karreman at Mar 26, 2007 10:39:09 AM
I think one of my remarks above was misunderstood. It's my belief that the average husband is more helpful in raising kids than the average government program.
Posted by: Huggy at Mar 26, 2007 10:39:52 AM
Today's New York Times has a feature article claiming that insurance companies who've written long-term care policies are denying claims at a high rate and often for nitpicky reasons.
Posted by: Peter at Mar 26, 2007 10:56:12 AM
It's my belief that the average husband is more helpful in raising kids than the average government program.
And the average government program is more helpful than the worst husband...
Posted by: Barbar at Mar 26, 2007 11:06:36 AM
What's not addressed is how easy the different options are in countries with diverse, heterogeneous populations. Moreover, how much abuse of the system are we willing to tolerate? In many cases, debates about alternate systems are debates about which worst case scenarios are more acceptable. Those in favor of more limited welfare states would argue for more open immigration and more reliance on family. They are willing to see more extreme cases of people falling through the cracks. They are more tolerant of diversity if there is less of a handout from government. The Scandinavian alternative relies on homogeneous populations, restricted immigration (note the strain Muslims are placing on Scandinavian attitudes towards the safety net) and a willingness to let government encourage weakening family ties. Relative to the Asian standard, it practically rewards atomistic individualism. The US does as well, but it makes individuals bear more of the costs. I think, however, a generous safety net, with high illegal immigration, low assimilation, high mobility, low tolerance for regulation of lifestyle choice, and a desire for a mobile entrepreneurial population is just not a sustainable, nor credible equilibrium. Which is the problem with advocating a partial adoption of the Euro model for the US.
Posted by: notarobot at Mar 26, 2007 12:38:57 PM
Why are you so sure we are all going to die? Living indefinitely is a matter of having the right technology, and we will clearly get there this century, likely in the next 20-40 years.
Posted by: Tim Lundeen at Mar 26, 2007 1:11:50 PM
You know, if the government gave me a million bucks a year so I could smoke pot, fornicate, and sit on the beach, my relatives would be freed from having to take responsibility for me.
Unfortunately, right now I'm being forced to take responsibility for myself.
Hong Kong has close to zero social safety net - and consistently outperforms other economies.
Posted by: secret asian man at Mar 26, 2007 2:44:52 PM
List my wife Amy and I as examples contra the first point in your post re: safety nets. We both have worked our entire lives in the non-profit world (and academia for me), and we are convinced that the non-profit sector can do a much better job (albeit it with some folks slipping through) than government.
C'mon, now, Pat. You can't get away with making this argument by complaining about the Great Society failures without also acknowledging the inability of the "non-profit world" to handle the Great Depression. Too time-bound an argument. :-)
Local charitable organizations (such as churches) and local governments have a pretty hard time dealing with 25 percent unemployment.
Wallis and Benjamin (J. Econ. History 41: 97-102) argued that New Deal relief programs did not depress private-sector employment; Roberts's model of private charity seems to suggest that the New Deal relief programs didn't deter charitable donations so much as induce charities to re-direct expenditures.
Designing and maintaining an effective and reasonably efficient social safety net is no trivial public policy problem, to be sure.
Posted by: brianS at Mar 26, 2007 6:57:41 PM
The welfare state and the family are substitutes. But the welfare state doesn't provide a safety net for free any more than a family does. In freedom terms, it's a lot easier to move away from your family than from the state.
Further, it isn't clear that the welfare state, Euroversion, is sustainable. Both the welfare state and the family can provide for the elderly, but only one of them can make new taxpayers. Falling fertility rates in the developed world, especially Europe, will surely hinder the welfare state's viability.
Posted by: anonomono at Mar 26, 2007 7:25:37 PM
The welfare state and the family are substitutes. But the welfare state doesn't provide a safety net for free any more than a family does. In freedom terms, it's a lot easier to move away from your family than from the state.
Further, it isn't clear that the welfare state, Euroversion, is sustainable. Both the welfare state and the family can provide for the elderly, but only one of them can make new taxpayers. Falling fertility rates in the developed world, especially Europe, will surely hinder the welfare state's viability.
Posted by: anonomono at Mar 26, 2007 7:26:54 PM
Yeah. Let's just look at the (speculative) advantages of welfare, but not look at any of the costs. That's what REAL economists do, right?
Posted by: abc@gmail.com at Mar 27, 2007 10:25:05 AM
"Any libertarian who argue the supremacy of the US model must provide an account on why some individual's freedom are more important than others."
And the European model is not trading some people's freedom for others? Giving me endless maternity leave is costing someone else their money and employment flexibility.
Posted by: LisaMarie at Mar 27, 2007 3:08:06 PM
The "secret dream of the Randians" was over my head. Can someone explain that to me?
Thanks.
Posted by: Hector Garza at Mar 27, 2007 3:26:36 PM
