In defense of social insurance

oldmanyellsatcloud_thumbOn Twitter I said: “The basic income movement is an attack on the strongest political pillar of social-democracy: social insurance.” I’ve inveighed against the Universal Basic Income in the past, so here I go again. Another edition of old man yelling at clouds.

Throughout history, in certain communal settings some variant of the Marxian “From each according to his abilities, to each according to his needs,” has applied. In a naive sense, the UBI is not far off from that ideal. What economists call a demogrant* — a fixed, unrestricted, unconditional transfer payment to every individual (to each according to his needs**) — would presumably be financed by some kind of progressive tax (from each according to his abilities). I have no quarrel with the ideal. The problem is that it’s an utter fantasy that beclouds thinking about more plausible social policies. It’s a distraction from the need to defend really-existing social insurance and to attack the devolution of the safety net (about which a bit more below).

The most tenable model to which we could aspire for a step forward in social progress is some version of social-democracy on display in Western Europe. By a variety of measures of inequality, poverty, and other indicators of human well-being, this model offers hope of improvement. Social-democracies are certainly far from perfect, but if we want to be ambitious but also practical, it’s the direction in which to head. The foundation of these systems is extensive programs of social insurance. (Incidentally, these programs are not as a rule funded with highly progressive tax systems.)

Now it’s appealing to imagine the  from-each/to-each model as a type of social insurance. We all pitch in and we take care of each other. The difficulty is that this pushes the concept beyond the breaking point. Actual social insurance is more bloody-minded: what you get depends by some specific formula and set of rules on what you pay. It accords with common notions, whether we like them or not, of fairness. This contributory backbone of the system is what has solved the problem of gaining political consent for massive tax-and-transfer programs. There is no modern precedent for a UBI of comparable scope. (In the Alaskan bonus payment system, there is no visible Peter who is paying Paul. It’s like manna from heaven.)

Social insurance offers more than just a pay-in/pay-out mechanism. As insurance, it protects ordinary people from risks they face. Insurance is more efficient than mere saving. Individual saving can be inadequate in a number of respects. Take the case of Disability Insurance. After some limited work history, the worker is protected against loss of earnings in the event of disability. It would take a lifetime to save enough to substitute for earnings in the event of disability. In the meantime you accept a reduced standard of living, for decades, to provide for a possibility that may never come to pass. That’s inefficient. Or suppose you become disabled before you have saved enough? Suppose you invest your savings in uncertain ventures. In general people don’t know if they will become disabled. Pooling risk — insurance — solves the problem.

The social part of social insurance permits the basic market-like insurance arrangement of you-pay/you-get to be shaped according to social values. Both the tax side and the benefit side can be somewhat progressive. There is room for some flexibility, but it is not limitless. Go too far in the from-each/to-each direction and you lose the political support available under an insurance rubric.

Much as been written about why the U.S. has such a retrograde system of social provision. I don’t expect to add to it myself, except to say that in this context it is only social insurance that provides a political platform for collective provision for individual well-being. Straight-forward, simple redistribution is not well supported. It’s all we can do these days to protect what benefits have already been won.

It’s true that we have non-insurance programs providing means-tested benefits: anti-poverty programs. These programs are under attack. This is not a sea-worthy vessel you would want everyone else to board. I have urged UBI partisans to direct their attention to the atrocity of welfare reform. The biggest hole in the U.S. safety net is the misery of families with children whose wage-earners are unable, often for reasons beyond their control, to solidify an attachment to the labor market and the social insurance provided to wage-earners.

In 1972 Senator George McGovern proposed a demogrant of $2,000 as part of his electoral campaign for president. He received 17 electoral votes, winning Massachusetts and the District of Columbia, to cheatin’ Dick Nixon’s 520 votes.

We still live in Nixonland.

Tomorrow I’ll offer some remarks on the latest Vox blast on the UBI.

* Not to be confused with a negative income tax, social wage, or the Earned Income Tax Credit, each of which differ from a demogrant in fundamental ways.

** Please do not mistake my characterization as a suggestion that the UBI is dangerously radical or communist. I’ve got no problem with communist, as an ideal. The problem is that the UBI is utopian in an unedifying way.


In defense of social insurance — 42 Comments

  1. Hi Max,

    I’m a little confused by your post: you seem to assume that a UBI is (somehow or another) inconsistent with the models of social democracy we can observe in the real world, and that advocating a UBI would somehow weaken support for social insurance. I don’t really see how this follows, since UBI’s are typically proposed as replacement for means-tested cash transfers, and not universal social insurance. Ed Dolan, for instance, has a proposal to fund a UBI in the US via tax reform: eliminating the standard deduction, the mortgage tax deduction, and the various retirement savings deductions, together with spending on means tested cash transfers (SNAP, TANF, EITC) would provide for a UBI of around $6,000 per person.

    His proposal would leave Social Security, Medicare, Medicaid, SSI, and federal education spending untouched. It would substantially broaden the base of the federal personal income tax (making it less progressive), but would still be substantially downwardly redistributive (since the lion’s share of tax benefits from the deductions go to upper income households).

    If you think this is a lousy idea, fine. But its no kind of attack on social insurance, and seems entirely consistent with social democratic practice in other countries (which you imply but don’t really state have many fewer tax expenditures than the US).

    Making the same argument by analogy: the most social-democratic countries have generally not had a uniform, national, statutory minimum wage. Instead, minimum wages have usually been legislated in countries that are not very social-democratic, or have been introduced far from the peak of a country’s social-democraticness. Does this make the minimum wage a bad idea?

  2. “some variant of the Marxian “From each according to his abilities, to each according to his needs,” has applied. In a naive sense, the UBI is not far off from that ideal. ”

    I don’t see this. A UBI is a fixed amount so it’s not according to your ‘needs’ in the slightest. You may not need it at all, but you still get it.

    Which also goes to the issue of staying power. Since a UBI would be universal it becomes much harder to play the typical divide and conquer game of characterizing those who collect public assistance as ‘losers’ and ‘undeserving. So I think it becomes harder to demagogue against.

    To be clear, I think a UBI does have to be on top of some social insurance, in particular a universal health care system of some kind. There’s that universal word again.

    • Well everybody needs a little something. So a fixed amount speaks to that, at minimum. But you’re right, it’s a rough analogy.

    • I’m old. What’s Reddit? (Kidding) I’ve never used it, so I’m not sure how to jump in there. I appreciate any links from here posted elsewhere.

  3. We have a job ethic

    Any transfer payments need the bona fides
    of life time extractions of job time

    sacrifices by the citizenry individual by individual
    to the production of society’s
    Material basis

    Hence the beauty of the existing retirement social security system
    This can be extended into a life time system
    With earned social dividends distributed at times of
    Below FE effective demand to. Citizens based on their life time job work contributions

    This is better equity then payroll tax holidays
    but to the same
    Macro effect

    Once u open this paradigm up
    Much more becomes possible

    Of course it does

    Recall the famous critique of the Gotha plan

    From each according to her work

    No market mediated work
    Can be included in the contribution category

    If for example
    Moms need to get cut in on the apple pie

    Care giving hours

  4. I’ve been on the fence, given that UBI is utopian and Obama put benefit cuts on the negotiation table (but never actually pulled the trigger), but Max has pulled me over to his side with his Old Man Yelling at the Clouds rhetoric and logic.

    UBI has to work against the whole “sound finance” behemoth which even Obama endorsed with the statement that the government needs to get its house in order just like a household. And Clinton “reformed” welfare, which was a disaster.

  5. You lean more to the idea of some objective fairness winning political support than I do. I think it’s universality rather than fairness. Yes, redistributive welfare programs are under attack, with significant success on the attackers’ part. However, so are earned pensions!

    There’s a lot of hostility to public employees’ pensions. Just because a sanitation worker hauled your garbage for thirty years, that doesn’t mean we can afford their retirement, or so the propaganda goes. People will define fairness in ways that privilege themselves. So, the fact that I don’t have a pension means that the retired school teachers are unreasonable to expect me to pay for theirs. It’s the same dynamic that has damaged welfare, with the difference that civil servants and public employee unions can muster a lot more political clout.

    Meanwhile, everybody gets Social Security, so it is popular across the board without anger at unfairness, even though the sleazy car salesman and the beloved teacher both get it.

    I conclude from this that a universal basic income would quickly become politically sacrosanct. And I like it because it addresses other problems, like the transition to a productive economy that doesn’t need everybody to work at paid employment.

  6. People resent public employees’ compensation in any form, not just pensions, especially in recessions.

    The political weight of universality is hampered in this discussion by issues of detail. How big would the program be, how would it be related to existing programs.

    • Comparing the political possibilities of UBI and social insurance, don’t issues of detail apply equally? If the point is that we have models of social insurance that we can copy, it’s why I look at Social Security as a model of income distribution.

      And I think it’s short circuiting the issue to take resentment of public employees’ compensation as a given. It’s not just that people hate firefighters, garbage collectors, and teachers. I go back to what’s the difference in the public mind between pensions and Social Security?

  7. Maxele! Welcome back to economic commentary.

    I pretty much agree with you on the Middle East and evil Republicans, but that’s not where you are adding value. I can get better elsewhere on those issues. What you have is the best social democratic economics on the blogosphere. More of that please!

  8. Welcome back, Max

    I hesitate to claim I agree with you, since you may not agree with me. But it sounds like you are saying what I have been trying to tell the professional defenders of Social Security: calling for “scrap the cap” amounts to turning SS into welfare, which FDR had to intervene with his own SS committee to prevent.

    This is the more egregious in that SS can be funded fully and forever by raising the payroll tax on those under the cap by one tenth of one percent per year… in some not all years, or about eighty cents per week.

    I can’t see the advantage of, first, losing the current war for Social Security by appearing to agree with Pete Peterson that SS IS welfare and represents a threat of huge taxes (on the rich) to pay for it, or huge deficits by making it “government paid”. It needs to remain worker paid.

    There is nothing wrong with workers paying for their own retirement insurance. They can still afford it, and the appeal to scrap the cap is, I am afraid, based on the Romney idea that workers feel like victims and don’t want to take responsibility for themselves. Us workers don’t feel that way, but some progressives think we should.

  9. I read “The Great Transformation” a few months ago, so I have to ask: Polanyi spends a chapter on the Speenhamland welfare/unemployment scheme, and of course he damns it. If I remember correctly, his biggest criticism was that it allowed employers to slash wages almost to nothing.

    If I understand you, your objection to UBI is mostly political, but I wonder if Polanyi’s argument factors in, too?

    • The Speenhamland System worked on a “top-up” basis: people below a certain income would receive means-tested benefits on a sliding scale. That has more in common with EITC than with the proposed Universal Basic Income. The whole point of a UBI is that it avoids these kind of perverse incentives; everyone gets it no matter what.

  10. It seems like your argument is that ubi is politically unattainable in the US at the moment. I agree with this but don’t see why it’s a) not applicable to social insurance or welfare expansion (we’re not going to be looking like France any time soon either) or b) why it means that ubi is bad. The only way there’s a trade-off is if ubi advocacy was taking resources away from other reform advocacy, but it just doesn’t seem, from where I’m sitting, like ubi is sucking all the energy out of the room.

  11. ‘People resent public employees’ compensation in any form, not just pensions, especially in recessions.’

    Do you think that might have something to do with public employees unions using their monopoly power to extort above market levels of compensation?

    Isn’t it natural for human beings to resent earning less than those who are working fewer years (with more holidays and vacations). Public employees can usually retire in their fifties, often enjoying higher incomes in their Golden Years than the taxpayers who support them.

    • PRS

      you and your ilk have been telling yourselves the same lies for so long that you believe them.

      when i worked as a public employee i made about 75% of what a private sector worker doing the “same” work did. except i did it better and more money was at stake. I made up the 25% in the pension… which “most economists agree” that I paid for (by deferred wages). the pension is not large… about 10k a year. it feeds me and keeps me off the street. the only reason private sector workers don’t do as well is because they are too stupid to unionize. however you’ll be glad to know that your friends are making progress in breaking the public sector employees pensions. pretty soon the only way to make a living as a public employee will be to take bribes. that should work pretty well with the work ethic of your friends.

    • As my friend Coberly aptly points out your understanding of public employee compensation is nil. If public employment has been the largesse people like you claim it to have been why had you not taken advantage of such opportunity when it was available? Why aren’t bright and well educated people clamoring for the opportunity to become teachers or sanitation workers, etc.? A pension is delayed compensation earned during one’s employment during which salaries were generally below private industry standards. Public employee unions are restrained by laws governing such employment which generally make strikes illegal.

      I’ve worked both sides of the fence, public employment professional and private industry “expert.” I earned better than twice the immediate compensation in the private sector, but had virtually no pension provision other than IRA and/or 401K. Those how complain loudest about the virtues of public employment are those least likely to be filling the public employment rolls as they become available. And they’re too selfish to allow others to earn a decent living and retirement. Or they’re too stupid to fill the public employment jobs that they see as so extravagantly compensated.

    • “using their monopoly power to extort”

      No loaded words here! It’s clear that you’re on a simple, honest quest for enlightenment. A regular Diogenes.

  12. Sullivan

    you are welcome to apply for a public job any time you want to. you might be surprised at the work load and the lack of compensation. envy is a sin for a good reason. that is, it is an error that makes you sick.

  13. I think that the increased tendency among progressives (including myself) to favor a UBI over means-tested social insurance is due to our experience with the political climate in the U.S. over the past thirty-odd years. What we’ve learned is that “programs for the poor are poor programs”. Anything that is means-tested, or that can be spun as being a benefit for those lazy shiftless you-know-whats, is under constant and often successful attack. In contrast, universal programs that encompass most or all Americans remain successful. Contrast the fates of AFDC (destroyed with the collaboration of a Democratic President) with Social Security and Medicare (which have successfully weathered numerous assaults from the neoliberal wings of both parties). This isn’t because Social Security and Medicare are “earned” (Medicare isn’t, in any meaningful sense; it’s much closer to “from each according to his ability, to each according to his needs”). These programs are popular because they are *universal* – basically every elderly citizen in the country gets them. They don’t have the stigma of being associated with “losers”.

    There’s nothing that Americans hate more than seeing other people get government benefits that they don’t. It doesn’t matter if they earned them or if they deserve them – look at the repeated attacks on public employees.

    Consider the Republican attacks on SNAP (food stamps) over the past couple of years. Now ask yourself, do you think those attacks would have been as strong and as successful if SNAP was a universal benefit? If everyone in the country got food stamps, middle-class families would factor them into their budget and take them for granted. They would be as untouchable as Social Security and Medicare. Universiality is the key, and this is why a UBI (*not* a negative income tax or guaranteed minimum income) is the best way to break the deadlock and usher in social democracy in the United States.

    There’s another, perhaps even more important, reason why we need to move in this direction. We are fast approaching the end of work. Full employment is a thing of the past; automation and increased machine intelligence means it will probably never happen again. Within a couple of decades, we must transition to a society where the ability of people to sustain themselves physically, mentally, socially, and emotionally is decoupled from their ability to do economically productive work. There won’t *be* enough economically productive work for everyone to do. A UBI is one small step towards that massive sea-change in society. In contrast, means-tested programs just reinforce the dichotomy between “winners” with good jobs and “losers” who at most deserve pity if not contempt.

  14. There’s a pretty easy to determine if a group is being overpaid (all compensation included). Just look to see if there are people waiting in line to get those jobs. When more people want the jobs than there are vacancies, that should tell you all you need to know.

    • Let’s think for a moment about that determination. Given that the U.S. unemployment rate is still relatively high, range is high of 8% to low of 2.8% with average of 6.37% for 2014; BLS;,
      using Sullivanian logic, as described above, one would surmise that wages and total compensation is through the roof for the average American worker. Funny, but there is no data to support such a conclusion. That would lead to the conclusion that Patrick Sullivan is the ideological obfuscator that some have concluded previously.

      Those standing in line for a job do so because they need a job, not necessarily because the job that they seek is well compensated. PRS, please be more specific regarding the excessive largesse enjoyed by public employees. What are these jobs and how much do they offer in compensation? How long is the wait for such employment? If one surveys for positions with the federal government one finds many professional positions currently available at good levels of compensation, $40,000 to $125,000, across the country. There seem to be more jobs than there are current applicants. It must be the excessive compensation that is keeping the job seekers at bay.

  15. Sulivan

    that would tell you all you want to know, because you don’t want to know anything that doesn’t make you feel comfortable.

    it frequently happens that more people want jobs than are available. and those lazy people go out and stand in lines to get those jobs.

    according to you the lucky person who gets the job is overpaid because there are still people standing in line waiting for the next opening.

    there would be no point in my telling you you are an idiot. others have told you that and while i hope it does not hurt your feeling, it doesn’t cure your idiocy.

    but you ought at least to know that when you make statements like this, you pretty much tell the world that you are not worth listening to.

    couldn’t you find a better hobby than irritating people and making them feel sorry for you?

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