James: Social Insurance, market insurance and social safety-net

[Ken Diamond <kd@bmwinc.com>]

> The problem with 'rates of return' is that SS is not meant to be an
> investment program. It was designed to be social insurance.

Rates of return matters. To suggest they don't is to deny the pervasive
natural desire not to be treated unfairly. Unfortunately there is no
corresponding desire not to be treated more than fairly at the expense
of others. I have to wonder what you mean by social insurance when you
use how market insurance functions as an example.

> What rate
> of return do you expect from a 1 year term insurance policy costing
> $200 with a 100 K death benefit. Either 0% or many thousand %. What
> rate of return from your health insurance premium?

It is one thing not to get a return for an insured risk that doesn't
occur. And you're correct in noting that many people are not taking this
basic concept of insurance into account. But using the example above,
consider an isurance company that charged $200 for one person and half
that for the same coverage and similar risks for another. They would
soon be out of business. Yet the Social Security system does this
because its "customers" can't leave. It does this in the name of the
third term you use, social safety-net.

If some posters aren't taking these various elements into account in
their calculations, neither has the system done much to make them clear.
Don't you believe, in the interest of openess and honesty that we make
the system transparent? How about separating pensions and insurance
benefits that are based on actuarily sound principles and premium-type
contributions from those that are part of a social safety net financed
by tax contributions where a return is irrelevant?


> >>>>Last time I checked, there is no compounding interest to speak of
> in the Social Security system. 

For the particpant who wrote this, interest in the trust fund does
compound and is a major source of income to it. But since most of the
sytem is pay-as-you-go, compounding interest plays a small role.

Yours, Ken