Business cycles, and the unemployment, homelessness, lack of adequate food, and so on that come with them can all be mostly eliminated under socialism, but in a capitalist system a worker who does everything right to provide for his or her family – show up every day, works hard, etc. – can suddenly find themselves out of work and struggling to make ends meet. Business cycles are an inherent feature of a capitalist system, and globalization and technological change add to the insecurity that workers feel.
Social insurance spreads these risks across the population much as fire insurance spreads the risk of losing a home. Without fire insurance, some people would lose everything if they were unlucky enough to have their house burn down. To prevent this, large groups of people put some money into a collective pot each month, a much, much smaller amount than the value of their house, and the unlucky few who experience a fire draw from this pot and rebuild what was lost, or most of it anyway. Everybody loses a little bit through their monthly contributions instead of a few people losing everything.
Of course, under the existing floating rate monetary system, taxes don't "pay for" anything and there is no "redistribution" involved operationally, although there could be politically, for example, taxing away economic rents that capitalism inevitably generates owing to asymmetries, especially involving power, and "recycling" the forfeited rents through public expenditure,
The Fiscal Times
Why Social Insurance Is a Necessary Part of Capitalism
Mark Thoma | Professor of Economics, University of Oregon
