Insurance versus Charity
By Bryan Caplan
One of the most effective ways to take the sting out of charity – for recipients and involuntary donors alike – is to give it a new name: “insurance.” If you buy fire insurance and your house burns down, you don’t feel like a bum when you cash the check. Why? Because you paid market price for a service, and are just getting what’s coming to you.
If you want government to redistribute money to the unemployed, or the poor, or the old, then, it’s foolish to call it what it is. Don’t call it “welfare.” Call it “social insurance.”
Economists strangely seem even more prone to this kind of obscurantism than the rest of the world. Whenever economists see anyone giving money to anyone else without hope of repayment, they call it “insurance.” Maybe it is; but isn’t it possible that it is what it seems to be – something for nothing, or at least something for a lot less than it costs?
A case in point: Economists who study religion are very interested in its “social insurance” function. But hold on! Is this really a case where people are pooling risks to mutual benefit? Or is the real story that predictably rich church members are helping predictably poor church members?
One simple test: If you don’t have to pay any premiums until you’re ready to file a claim, it’s probably charity rather than insurance. When I’ve probed economists who work in this area, they’ve generally admitted what I suspected: When new members show up at church and ask for help, their new friends usually give them a hand, without worrying too much about whether they’ll ever pay them back. Who makes the books balance? Not the temporarily lucky, as the insurance story would predict, but the predictably rich.
One reason why economists confuse insurance and charity is that they think people are even more selfish than they really are. People are highly selfish, but many are nevertheless willing to give away 1% of their income to causes they believe it.
The other reason, I suspect, is that economists feel like they have enough bad press already. When politicians call welfare “social insurance,” the obvious sarcastic question for economists to ask is:
If it’s really “insurance,” then why don’t the rich pay less than the poor? After all, the rich are a lot less likely to file a claim.
But even though this is right on target, who but a Non-Bleeding Heart Libertarian economist would want to publicly raise the question?