Sound Policy in a Luckocracy

Perhaps it’s for the better that we, as individuals, have an exaggerated sense about the degree of control we exercise over our own destinies. Ignoring the room’s 800-pound gorilla – that our sense of free will and autonomy are almost certainly illusory – how our lives turn out is significantly not about innate talent, but dumb luck.

On Monday the Field Guide discussed some of the macro-level facts that almost entirely determine your quality of life, length of life and income: where you were born, who you were born to, and what sex organs you got. But there are many, many other “shocks” that individuals are subject to, which, while smaller in magnitude, have an enormous combined effect, to overwhelm the relatively minor contribution of individual talent. The world is a luckocracy.

Graduating in a recession year has a devastating effect on income. The effect follows an individual through their entire working life, reducing lifetime earnings by as much as 10%. Simply being in utero during a weak economy will also take a bite out of your lifetime wages and lifespan. The increased mortality that comes after you’re laid off stays with you for the rest of your (shortened) life. Exposure to radiation has been measured to reduce IQ not just for the person actually exposed, but for two generations to follow! Kindergarten class size is predictive of future income, even when controlling for other factors. Taken individually, each of these shocks are significant. But when you combine them over the course of a human life, their net effect is overwhelming.

It isnt practical to neutralize all the inequities of life – any cure would likely be worse. But one good policy guideline is to strive for “equality of opportunity” – to provide excellent education, nutrition and medical care to all young people, to give them the chance to fully realize their potential, that their talents might be more determinative of their level of success than the happenstance of their birth.

No matter an individual’s skills or industriousness, in the course of a life, sh** happens – and that’s what social insurance is for. Like every other form of insurance, social insurance is something every reasonable person should want to have – while hoping that they never need to use it! Next time you hear a conservative foolishly complaining that he’ll never “get his money back” on what he’s paid into social security – ask him if he’s also concerned his house will never burn down and his car will never get stolen – that he may never “get his money back” on his homeowners and auto insurance policies either. Or ask a billionaire if he’s distressed that he’ll never get to use Medicare or food stamps – because billionaires are covered by those social insurance programs too. (They’re just not very likely to use them – for which they should be happy.)

More than 40 years ago, the philosopher John Rawls posed an interesting solution to a problem many had struggled with. Rich people, like the infamous Koch brothers, commonly oppose social insurance programs. This may not be very nice, but it is superficially in their interest to not see their taxes go to support public programs that they’re not likely to benefit from directly. Poor people are frequently guilty of the opposite species of self-dealing: voting for politicians who promise to be generous with programs they expect to rely on. (Though trailer parks across the American heartland are filled with folks worried to death about estate taxes….)

Rawls’ novel resolution of the problem is the “veil of ignorance.” He would ask, “How generous would you want social insurance programs to be, if you didnt know your own circumstances?” Imagine you’re an unincorporated spirit, about to be cast at random into a live birth in the US. If you study the income distribution of Americans, you’ll find you’re much more likely to be born middle class or poor than super rich. If you’re perfectly rational, you’ll probably be glad to give up a little extra income in the event that you’re lucky enough to get tossed into a rich family – so you’ll have a little more insurance just in case you land at the bottom of the luckocracy, along with the 25% of American children who are born into poverty.

The fact is that the rise of social insurance coincides with the golden age of capitalism. Western economies never grew so rapidly – and without as many wild booms and busts – before the age of the welfare state. And so while insurance is extremely desirable for individuals, it’s also a big positive for the economy as a whole. Rawls called his book “A Theory of Justice” – but it’s also a formula for success, which we’ll discuss on Friday, when the Field Guide returns.

 

 

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