We have been having this discussion for a long time.

September 9, 2009, 10:59 am

Jim Henley’s nice post appreciating the concept of “social insurance” moves me to provide this link to, if not its original definition, then its early full definition, from I. M. Rubinow’s invaluable Social Insurance, (1916; orig. 1913):

… social insurance is that policy of organized society to furnish that protection to one part of the population, which some other part may need less, or, if needing, is able to purchase voluntarily through private insurance. … The term “social insurance” is as yet very little understood by the vast majority of English-speaking nations. … All insurance is a substitution of social, co-operative provision for individual provision. Technically, this substitution of social effort for individual effort, is known as the theory of distribution of losses and the subsequent elimination of risk. … There is an individual advantage is substituting a very small definite money loss for the possibility of a very large financial loss. … It has sometimes been argued, however, that while there is the individual gain, socially insurance brings no such gain, for the amount of total loss is not decreased, and that inasmuch as in actual practice the cost of combined insurance is much higher than the actual loss, socially insurance represents a waste…. But can human happiness or misery be measured so easily by the simple addition of dollars and cents? … Thus, the social advantages of distribution of loss are equally applicable to all forms of insurance. …

It may have occurred to many of the readers, especially those who have some personal knowledge of the life of the vast army of wage-workers and people in similar economic conditions,—that to them the payment of an insurance premium, no matter how small, is not a matter of slight discomfort, but a very serious financial problem. … [They face] a selection between a possible deprivation in the future and a certain serious loss in the present which a payment of the premium requires. … [I]n the vast majority of cases, interruption of the wage-workers income soon leads to serious economical distress. … Sickness, accidents, invalidity, premature or normal old age, premature death, and finally unemployment,—such are the economic risks which stare in the face each and every workingman. Their economic consequences are very much more serious in his case, than in the middle classes. … But why necessarily insurance? … [T]he assertion that, in the case of the wage-earning class, individual saving may solve the problem of poverty, necessarily presupposes the existence of a surplus in the budget of the average wage-earner’s family. There was a time when that assertion could be glibly made for lack of accurate scientific material to contradict it. That time is fortunately gone. … [S]aving for all possible future emergencies must necessarily mean a very substantial reduction of a standard already sub-normal. …

Here, then, is the social problem underlying the need of insurance of the wage-earning millions. Their economic condition is precarious; the economic dangers threatening them many; and the degree of risk in each case is very high. Individual provision is insufficient, social provision through distribution of loss is necessary but costly, often much too costly. … Thus the state may begin by simply providing a safe insurance organization, devoid of the elements of profit. … It may take the next step and assume part or the entire cost of administration of the insurance institutions, and thus further reduce the cost. … It may take still one more step and directly subsidize insurance, thus assuming a part of the true cost, or it may impost such assumption of cost upon other elements of society, such as the employing class. … And it may finally counteract the unwillingness of the working class to pay even a small subsidized premium by making insurance compulsory. All this the modern state may and does do to develop social insurance, to furnish protection to those in need and are unable to purchase it in the open market.

Still quite depressingly timely, no?

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