Reason for a New Age

Posts Tagged ‘insurance’

Insurance, Loans, and Socialism

Posted by publius2point0 on 2010/01/13


I recently gave an overview of the philosophy of loans, so I won’t cover the basics of that here. I will give an overview of insurance first though.

Say that everyone faithfully saved up money to deal with emergencies: Broken legs, burnt down house, car crash, etc. You’d end up with a bunch of people who, out of sheer good fortune, had an excess of money because they had saved without ever having an emergency. Then you would have other people who were horribly in debt, due to a string of misfortune that could never have been predicted. We might, as a society, know that the odds of any one person breaking his leg is 1 in 5000 per year, but no one knows which specific people are going to be the ones to whom this occurs. There’s no way for an individual to know ahead of time how much he is to save up. We can tell him based on actuarial data how much he should save on average, but that is horribly inefficient.

Not to mention that people aren’t good at saving up without sticking their hand in the honey jar.

Each of us knowing that we are as much at risk of tragedy as anyone else, we join hands and set up a fund that covers the average amount of emergency funding for each, knowing that some will need less and some more, but that it will all balance out in the end. A person who puts in money without ever hardly taking any out might feel cheated, but of course he might just as well have been the one who drew out the most. Overall, it is a fair system.

The worry comes, however, that someone might abuse the collective fund. If you were to simply leave a basket full of money that each person could take when they had an emergency, you’d have rather a lot of people with emergencies. And so you need some third party to manage the fund and to ascertain the honesty and value of each request. Of course, this person has to be paid himself, but it is easy enough to say that his wage is a separate fee from the actual insurance payments and any extra insurance money there may be in a year can never be added to his wage. And there you have a system which is at least decently trustworthy and beneficial to all involved.

Now a thing that people might not realize is that most social programs are simply insurance or loans.

I will be employed for some percentage of my life. I can’t know for how long that period will be or how often, but I certainly need to continue to feed myself during this period. And so, when I am working, some amount of money goes to a central fund that then is shared among all when this sort of emergency transpires. This is a case of insurance that happens to be government run.

In many countries (the UK and the Scandinavian countries, for example), anyone can go to college. A person is given a minimum funding for both their lessons and their livelihood. If their grades are not kept to some minimum, the funding is stopped. But in either case, once they have found employment, the money that they used to go to college is taken back. This might occur as either a set tax through the whole country, or a fee imposed on that one individual. Now you might say that it can’t be a loan if the entire nation is taxed to put only a few through school, but as I have stated, the philosophical purpose of a loan is to see and achieve a better future. Those who go to college and end up creating the better things in life are benefiting everyone in the nation, and so it could be said that everyone is indebted to that person. (Note that I would not personally choose this approach.)

Social Security taking care of the old through their retirement, is another case of insurance. People, not knowing for how long they will live nor how much aid they will need in their last years, pay into a fund (in advance) that then sees them through this period of time. Some need more, others less.

Even communist-style equal wages could be called a vast business of insurance. Each person, not knowing how great his personal needs will be in life, simply cedes all money that he earns, taking back as much as he needs, rather than as much as he earned. And of course, then, the party that oversees the insurance fund makes sure that any one request is honest and decides how much it costs to cover.

Returning to the Law of Toos, the issue of socialism is one of quantity and specific setup. You can’t say it’s entirely a bad thing unless you are quite happy to get rid of your automobile insurance, health insurance, student scholarship, and other such things. Humanity as a whole benefits to some extent by aiding one another, as I will show in my next blog.

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