It’s Not Insurance

One of the many stories attributed to Abraham Lincoln was his telling the story of a boy who, when asked how many legs his calf would have if he called its tail a leg, replied, ‘Five,’ to which the prompt response was made that calling the tail a leg would not make it a leg.

There are so many things I find frustrating about Dr. Lawrence Summers’s latest Washington Post op-ed I hardly know where to start. Let’s start at the beginning:

Few economic virtues are more universally applauded than thrift.

Going back at least to Ben Franklin, Americans have equated greater thriftiness with greater worthiness. Progressives decry the limited saving and wealth accumulation of middle-income families and express alarm over the widely reported “fact” that 40 percent of Americans cannot come up with $400 in an emergency. Conservatives applaud thrift as an aspect of self-reliance and propose ideas such as health-savings accounts to help families prepare for emergencies. Moderates believe universal social insurance programs such as Social Security and Medicare, which they label as entitlements, should be modest or even curtailed out of fiscal prudence.

Who are these fiscal conservatives, conservative or moderate, of whom he writes? At the very least they are an endangered species. In the House precisely ONE Republican voted against the 2017 tax cut for reasons of fiscal prudence. As far as I can tell fiscal conservatives exist primarily in the minds of economists and politicians who want the federal government to spend more for whatever reason. They make useful whipping boys.

Onwards to the next passage:

In the current economic context of extremely low interest rates, however, these views are more wrong than right. The federal government should provide more, not less, social insurance. If it did, the result would be reduced inequality, a more secure middle class and a stronger economy.

The real challenges that keep middle-class families up at night are retirement, economic dislocation and supporting their children as they go to college and then buy a first home.

That sounds a lot more like the upper middle class to me. And what does he mean by “economic dislocation”? Presumably not literally. I’m guessing he means job security. The only people with job security these days are academics with tenure, civil servants, politicians, and the top management of big companies. I’m still at a loss for how increasing the payouts from our system of social insurance as presently structured reduces income inequality. If major restructuring were on the table, I could be persuaded.

Quite to the contrary I think what keeps more middle class people up at night are paying the bills and wondering whether they’ll have a job tomorrow, next week, next month, next year. I also think that’s a major reason that wages aren’t increasing. I think the main sources of income inequality are financialization of the economy, subsidization of the upper middle class, and immigration for the rich, middle class, and poor, respectively.

And who are these children of the lower middle class who are buying new homes? Has he looked at the statistics on home ownership by Millennials and Gen Z lately?

I found this perplexing:

Rather, a generous and well-functioning society in which Social Security meets retirement needs, appropriate unemployment and wage insurance programs cushion economic shocks, adequate public funding holds down college costs, and health insurance has generous coverage would greatly reduce the need for most households to save.

The emphasis is mine. I’d like to see some evidence of that bolded passage. IMO the preponderance of the evidence suggests that public funding increases costs in education. Does he mean out-of-pocket? He’s smarter than that.

This is the passage I liked least:

Genuinely preparing for such contingencies would involve building up a large nest egg at a substantial cost in terms of current consumption. Meanwhile, the feared contingencies never arise for most people. That’s why pooling risk through insurance is the best strategy.

I wish he would call things what they are. We don’t have either a system of social insurance or health care insurance. We have a welfare system. Among the qualities of our systems which makes them not insurance are that in an insurance system premiums should be proportional to risks and some risks are not deemed insurable. That’s not the case for either our social “insurance” or health care “insurance”. A tail is still not a leg.

The only thing I can conclude from reading that piece is that it’s a writing sample for a job application with a presumed progressive Democratic administration.