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March 25, 2005

Why Oh Why Can't We Have a Better Press Corps? (Insurance-Ain't-Welfare Department)

Writing from Oregon, Mark Thoma laments that Newsweek's Robert Samuelson doesn't know the difference between welfare and social insurance, and thinks Social Security is welfare. Thoma's right. You would think--Roosevelt thought--that a program in which you only got substantial benefits if you paid in substantial contributions could not be mistaken for a giveaway-handout. But Roosevelt misoverestimated Robert Samuelson:

Economist's View: No it isn’t. Social Security is mainly a means of insuring against economic risk. It is fundamentally an insurance program, not a saving program, and as such it is not welfare. Just because an economic activity transfers income from one person or group to another does not make it welfare. Fire insurance transfers income. Some people pay premiums for their whole lives and collect nothing. Others, the unlucky few who suffer a fire, collect far more than they contribute. Does that make it welfare? Of course not.

Social Security is no different, it is an insurance program against economic risk.... There is an important distinction between needing insurance ex-ante and needing it ex-post. Insurance does redistribute income ex-post, but that doesn't imply that it was a bad deal ex-ante (i.e., when people start their work lives)....

The main feature of Social Security is... insurance against economic risks and as such it makes us collectively better off. Calling it welfare when it isn’t is misleading... ignores and obscures the important role Social Security plays...

Posted by DeLong at March 25, 2005 01:13 PM