The Wrongologist

What’s
Wrong Today:

The United
States’ social insurance system has always been a public-private hybrid, but conservatives have dreamed of returning to a
world where private social insurance and private charity fulfills all public social
safety net needs ever since the passage of the Social Security Act
in 1935. But, according to an article by Mike Konczal in Democracy, that world never existed. The article
draws on serious historical research to make two main points:

• There
  never was a Golden Age of purely voluntary charity

• What
  charitable support mechanisms existed completely collapsed with the onset of
  the Great Depression

Konczal outlines the desire of conservatives to return to private or
voluntary insurance: (brackets by the Wrongologist)

In
the past 30 years, there has been a continuing effort by Republicans to privatize
much of the safety net, including social security. When Ronald Reagan was challenging Gerald
Ford for the GOP nomination in 1976, during a press conference at Daytona
Beach, Reagan made
this comment about Social Security:

More
recently, we saw similar efforts with President George Bush I’s “thousand
points of light”, followed by George Bush II’s 2005 plan to partially privatize Social Security,
and now, Rep. Paul Ryan’s
and the Republican Party’s platform: Path to Prosperity.

Despite Republican
longing for the old days, there are sound economic reasons why public social
insurance is superior to charity and private solutions. The goal is to protect
people against risks of unemployment, health emergency, and outliving one’s
savings. For risk-mitigation programs to work, several things are necessary.
One is that people are actually covered. This is something you can’t have with
a private system (unless it’s regulated to the point of being essentially
public), since charities or insurance
companies get to pick and choose who they want to help. Konczal says of
private agencies before the Depression: (emphasis by the Wrongologist)

Any safety
net must have the assurance that the system will have the financial capacity to
actually protect people in the event of a crisis. That’s why you don’t depend
on your neighbors to rebuild your house if it burns down. They may not like
you, they may not have enough money — especially if you lose your house in a
fire that burned down the entire neighborhood. Finally, it’s important to know
that more than half
of total private charitable donations go to religious organizations, private
schools, and medical organizations, with
only 12% going to human services organizations.

Private social
insurance cracked after the Great Recession in 2008. According to the US Census,
employer-based health-care coverage has
declined from 64% of the workforce in 1997 to 56% in 2010. Private savings vehicles are a poor substitute
for social security. They don’t look capable of providing the safety net in old
age, since the typical 401(k) holding was just $83,000 in
2013.

Importantly, private charitable
giving failed to meet the challenge of the Great Recession. The start of the Great Recession should have been the exact moment
when private charity could have made a huge difference. But, private giving
fell as the Great Recession started. Overall, giving fell 7% in 2008, with
another 6.25% drop in 2009. Using the yardstick of charitable giving measured
as a percentage of GDP, charitable giving fell during the Great Recession (even
as GDP shrank), from 2.1% in 2008 to 2.0% in 2011. The high point in the ratio was
2.3% of GDP in 2005.

All of this didn’t hurt
as much as it might have, because of the role of “automatic
stabilizers”. Automatic stabilizers are federal programs such as
unemployment insurance and food assistance that maintain an income floor when
people lose their jobs. These stabilizers, in turn, also decline automatically
as the economy starts to recover. During 2009, automatic stabilizers expanded
rapidly, from 0.1% of GDP to 2.2% of GDP, more
than all charitable giving in the US in that year. This was directly
targeted at areas that suffered from the most unemployment, and helped those
most in need—something that private charities cannot do.

Alongside the
government’s efforts to prevent the collapse of the banking sector and the Fed’s
expansion of monetary policy, automatic
stabilizers were a core reason the Great Recession didn’t become a second Great
Depression.

But social insurance
isn’t just a collection of socialist programs. It’s a reflection of who we are as
a people and how we intend to navigate the risks of our age. It establishes a
baseline of equality among all citizens, so that charity can serve to enhance
the lives of the less fortunate instead of forcing them to rely solely on the good will of those
with big bucks.

Contrary to the
idealized imaginings of conservatives, Mike
Konczal’s article amply
demonstrates that the Four Horsemen of accident, illness, old age, and
joblessness won’t be—and have never been—fended off with purely private programs.