The safety net in the short run and the long run

Tyler Cowen responds to my post on gaps in America’s safety net:

These questions could and should be debated with thousands of pages.  But, in the meantime, may I offer my little squib/splat of doubt?

At what wealth level are these protections supposed to arrive?  Now?  One also wonders which risks are considered to be insurable at the individual and family level, either through insurance proper or through social norms, savings, and other voluntary institutions.  What will be the implicit marginal rate of taxation on earning additional income in this new arrangement?  Has it been estimated?  What will happen to the savings rate?  What coercions will accompany these protections?  What will the pressures be, legal or otherwise, to send your kid away at one year of age?  Will job creation for women go down if there is mandatory paid parental leave?  Probably so. Will women end up better off?  Quite possibly not.  How many people would count as falling under these disabilities?  Is this all to be financed by higher taxes on the rich?  We probably can’t even pay for our current bills in that manner.  If it is all done by VAT, how many people would prefer to have the government spend the money for them, as opposed to spending it themselves?  Just asking.  What is the likelihood that such benefits will, in the longer run, discourage our willingness to take in immigrants, the most effective form of aid we know?

Let me sidestep some of the specifics for the moment and say something about the big picture.

As people get richer, they tend to be willing to buy more insurance and more services. We observe this both among individuals and among countries. Some insurance and services are provided at good quality and price by private markets. Others less so. That’s the underlying reason why nations have tended to expand social policy as they grow wealthier.

It happens more rapidly where unions are stronger, where social democratic parties hold the government more often, where Christian democratic parties with a Catholic “social market” orientation are influential, and where the government has fewer veto points (separation of powers, filibuster, etc.). But it happens almost everywhere, including here in the U.S.

Because of our large budget deficit, it wouldn’t surprise me if there’s limited further safety net expansion over the next ten years or so, most of it piecemeal alteration of existing programs. But over the long run I suspect we’ll continue to move, in fits and starts, toward an enhanced government role in funding or provision of health care, early education, parental leave, sickness insurance, wage insurance, and services for the disabled.

Yes, this will require higher tax rates. No, it can’t be funded solely via higher taxes on the rich.

Yes, there are potential tradeoffs. But discussion too often ends once the question “Is there a tradeoff?” is answered. We also need to ask “Where is the tipping point?” and “How severe is the tradeoff?” Suppose our government spending were eventually to rise from 35% of GDP up to 40% or 45% — or even to 50%, roughly the level in Denmark, Finland, Sweden, Austria, Belgium, and France. There might be a cost in savings, investment, and economic growth. But maybe not. Or it might be a relatively small cost, one that many citizens in a rich society would feel worth paying in exchange for the added services and protections. One advantage of having a political system that leans toward incremental change is that we’re unlikely to go very far past the tipping point.

1 thought on “The safety net in the short run and the long run

  1. With all the GOP bloviating about American exceptionalism, they sure have a very low opinion about what America cannot accomplish.

    We can’t offer affordable health care, like the rest of the industrialized world.

    We can’t invest in infrastructure, like the rest of the industrialized world, and a good chunk of the developing world.

    We can’t have a high-speed train system, like the rest of the industrialized world. Guess the Japanese are far, far superior to us in technology.

    We can’t offer parental leave, like the rest of the industrial world. If we do it here, we’ll endanger women’s jobs.

    See the pattern?

    And yet, suggest that America might not be the greatest place on earth, and you’ll run into a firestorm of hate mail.

    I say we roll up our sleeves, show some can-do attitude, and show the GOP for the batch of whining elitists that they really are.

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