Wellyopolis

May 5, 2005

Social security as insurance

Matthew Yglesias writes:

I could see circumstances under which ditching the idea of a large-scale pay-as-you social insurance scheme in favor of a mandatory private savings plan would make sense .... As it happens, we have [a social insurance state] that's very heavily weighted toward hedging against retirement-related risks when I think we should be more concerned about health risks, income instability, and poverty more generally

Social insurance comes in many forms; it protects against life's uncertainties -- sickness and the ebb and flow of the labor market -- but it also smoothes income over time in the form of Social Security.

Retirement itself is far more predictable than ill health or unemployment and because of that there are some reasons for saying that people can save for their own retirement. But how long people will live in retirement is uncertain, and the ability to save during your working life is dependent on the uncertainties of the labor market.

Even if working life risks were better insured in America there would still be room for Social Security. The reality that American government don't insure people against working life risks very much makes the case for Social Security all the more compelling.

Posted by robe0419 at May 5, 2005 5:37 PM