Social insurance reduces the need for debt

Monica Prasad’s excellent article for the Niskanen Center in 2019 is entitled:

“The Trade-Off between Social Insurance and Financialization: Is There a Better Way?”

She comments: “The more a government spends on social insurance, the less likely households are to fall into debt. Social insurance includes pensions, health care, family allowances and parental leave, job training, income support, unemployment benefits, etc. Spending on these policies enables households to build up assets and reduce debt.

“The United States offers families more sanctuary in bankruptcy – but at the same time it permits a wide-open consumer credit economy coupled with less protection from the economic consequences of job losses, medical problems, accidents, and family breakups. …

“The European and Canadian approaches, by contrast, make the game safer but less competitive by making credit access and bankruptcy more difficult, but by providing extensive social safety nets.”

She traces the reliance on credit back to the 1930’s, and the recovery from the Great Depression.

“The plan was for Americans to buy more homes, and the government would help them do it; the construction industry would pull the rest of the economy out of the doldrums. The key was expanding and enabling the home mortgage.

“The American political world – even progressives — came to rely on credit expansion rather than social insurance as the motor of the American economy.

Financialization became the political path of least resistance for addressing citizens’ social needs.”

I would add:

We saw the identical problem with the expansion of student debt, starting in the 1970’s. Making college free would have required higher taxes….but having easy loans available instead appeased conservatives, and would not count as new deficit spending. If all college graduates enjoyed higher earnings, then the debts would be painlessly repaid. In a sense no one would know we had even had a social program.

The American fear of honest higher taxes may have reached its peak during the drafting of Obamacare. When Democrats needed another $50 billion to pass the program, they instructed the Department of Education to raise that amount by charging higher interest on federal student loans.

And these were the liberals! Real social insurance does not need to hide and manipulate public programs in this manner.