STOCK MARKET WATCH -- Monday, 1 October 2012

[Demeter]

21. Social Security: Solidarity, Not Investment MUST READ

https://www.commondreams.org/view/2012/09/27

Recently the Associated Press (AP) published a four-part series of stories examining “the state of Social Security and its long-term health.” The AP said that “Few things affect more Americans than the future of Social Security, and yet it’s an issue mostly invisible during the current campaign.” True, it’s not talked about much, but perhaps more important is the fundamental misunderstanding of the nature of the program that is revealed when people do talk about it. This misunderstanding was revealed in the very first installment of the AP series, which appeared on August 5th. The headline on this kick-off piece read, “Social Security Not Deal it Once Was for Workers.” Asked the AP, “How can you get a better return on your Social Security taxes?” A large and growing number of people share the misunderstanding revealed in that headline: They think that Social Security is a program of Individual Investment. It’s not, and was never meant to be. Instead, it is a program of Social Insurance. Understanding the difference between these two types of systems is the key to having even a glimmer of understanding about what is at stake in this huge public debate.

Here’s how insurance works: With insurance, one only gets something back if one loses something. I hope I never collect anything on my home insurance, for example, since that would mean my house has burned down, or some other horrible thing has happened. Still, I pay my home insurance premium every year and I don’t think I am wasting my money. Why not? Because I know that, if and when I do lose something, I have insurance. If I never “get back what I paid in,” that’s a good thing. And, if I lose something, and DO get back some of what I paid in, what I get back is related to what I lost, not to what I paid in. And that, too, is a good thing. That’s the nature of insurance. That is not the nature of investment.

Insurance, in principle, is based on what we know, as opposed to what we don’t know. What we know are aggregate numbers, or social statistics. We know, for example, roughly how many houses are going to burn down in a given year. What we don’t know is which ones they will be. So, we insure the group. Everyone who wants to be in the insured group agrees to pay a premium that amounts to their proportionate share of the costs of replacing all of the homes that will burn down this year, not knowing whether or not one of them will be their own. Insurance, then, even in it’s most commercial form, is a social program.

When we become part of an insurance “pool,” what we get in exchange for our premiums is two things: we get to express solidarity with our neighbors and fellow insurees by paying our share of the social costs of property replacement, and we get the security of knowing that, should we have a loss, all of our neighbors will share in the costs of replacing what was lost, and none of us will have to bear the burden ourselves. That, in fact, is the essence of insurance: Everyone chips in to help out those who lose something. If it is standard insurance, we chip in by paying “premiums.” If it is Social Security, we chip in by paying taxes. The loss that Social Security is intended to insure us against is the loss of income due to old age, death, or disability. (The program is sometimes referred to as “OASDI,” for “Old Age, Survivors, and Disability Insurance.”)

The essence of the social insurance program known as Social Security is that it’s a deal between the generations, where those who are working chip in to help those who are not, knowing that the same giving will come their way when the time comes... MORE