Tuesday, October 1, 2013

A Limited View of Protection

A parent naturally tries to protect her/his child. They feel a responsibility to do so. It is a measure of the person how well they protect their own. In the Quest for Security by Stiglitz and Kaldor introduced in last week's blog, one sees a rebuttal to the idea of protection, one that argues that individuality is of paramount, and perhaps the only concern.

 Let's remember that our founding document was entitled the Declaration of Independence.

     Recent years have seen marked changes in perspectives on social protection. Some of these changes were the result of misguided government interventions to increase individual responsibility in the belief that markets work well on their own. Some of these changes were the result of misguided views on the extent of the problems of moral hazard (the adverse of effects of providing any insurance). Conceptually it is possible that as individuals get wealthier, they are in a better position to bear risk, or that as markets improve, there is less need to rely on social protections.
     A closer look at what has happened provides and alternative, and less benign, interpretation. Markets still do not provide retirees with adequate insurance against inflation. Markets till do a poor job of protecting against market volatility. No private insurance company can provide the kind of security that the U.S. Social Security program provides -- and none can do it with anywhere near as low as transaction costs.
     ...Much of the drive for change is coming from a quarter that has no interest in making the economic system work better -- especially not for those who need social protection. Rather it is coming from those in the financial sector who see risk management as their domain of competency; and they see a takeover of activities in these sectors as a rich, new opportunity for enhanced fees (i.e., high transaction costs). (Joseph Stiglitz , "Social Protection Without Protectionism", pp. 38-39).

Juxtapose this with the second chapter of the book written by Karl Ove Moene, noted professor of economics at the University of Oslo. Moene goes on to demonstrate how Scandinavian equality

     ...gives direction to governance, social consciousness, and economic behavior. [He shows] how coordination induces wage compression in the labor market, which in turn leads to an egalitarian welfare state. Together they constitute an institutional equilibrium where equality is both cause and consequence. Faced with fierce competition on the world market, this equilibrium path has produced the smallest wage differentials, the lowest frequency of labor disputes, and the most generous welfare states in the world. It must be the prime example of protection without protectionism -- where worker security and free trade have persisted together for more than sixty years despite shifting governments and varying external circumstances. (Moene, "Scandinavian Equality", pp. 48-49)

Moene goes on to chronicle, using ironically, De Tocqueville's insights from his study of early U.S. society and government, the multiple benefits of the Scandinavian model  while simultaneously answering the critics of neoliberal economic thought. Why oh why I wonder, can those who are willing to shut down government today so as not to offer health protection to their fellow citizens, do not realize the bankruptcy of this approach? The data of well-being, so wonderfully provided by the authors of The Spirit Level should at least get them to pause for a second before obstructing others opportunity to be protected.

I find it also a little galling that the same voices that want to over turn the Affordable Care Act, which they help create to through their refusal to consider a single-payer option, want the president to now 'negotiate' health care protection even further.

If we were to craft a new declaration, and this time call it a Declaration of INTERdependence, would a majority of our elected officials sign it? Or would they prefer our steady decline in world rankings of human and environmental well-being.  Either way, we all share the same future. Sitting quietly wishing it would change won't make it happen.