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Disability Insurance Observer: Sunny California

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The Orange County Register says the desperate government of the state of California is borrowing $313 million from the state’s disability insurance trust fund to make an annual interest payment on a federal loan for unemployment benefits.

The move highlights the importance of owning adequate private group and individual disability insurance — and the risks involved with letting government agencies build up trust funds for worthy causes.

Despite the naysayers, I think government agencies can be effective operations that get imporant tasks done well and efficiently.

Maybe General Electric could have won World War II or gotten to the Moon more cost-effectively on its own, but the U.S. military and NASA ended up achieving their goals pretty well, all things considered.

But government agencies also may face changing conditions, hard times and some of the kinds of tough choices individuals and employers might face in their own lives.

The difference is that individuals and employers can make smart, dumb or necessary but wretched decisions on their own, for their own reasons, with their own money.

Government officials may make those kinds of choices with money they compelled taxpayers to pay, even though the government never mentioned that possibility when the program was created or the tax money was paid.

As I write this, we still don’t know if the U.S. Supreme Court thinks Congress can make Americans buy and/or eat broccoli, but it clearly thinks that state governments can make workers pay payroll taxes. 

California is in a terrible situation, and people who’ve been unemployed for months are in a terrible situation.

Apparently, the California disability trust fund is doing well.

But the reason to set up a government-run disability insurance program is that people who are unable to work because of a serious illness or injury are often truly desperate.

As hard as it is to find a job in California right now, imagine trying to find a job there if you couldn’t see, couldn’t walk, or couldn’t control pain well enough to sit at a desk or stand behind a counter for a full work day.

If the state disability fund is really collecting too much money, maybe it could emulate the example set by the health insurers subject to the new Patient Protection and Affordable Care Act (PPACA) minimum medical loss ratio (MLR) rebate requirements and pay rebates. Maybe the recipients would give the state economy a boost by blowing the money on dinners out, or at least paying some bills.

If California will actually pay the fund back, and pay any kind of respectable rate of interest, the fund could come out looking better than if it had invested the assets in Ben Bernanke’s low, low rate bonds.

But, if I were a fund trustee, or a worker insured by the fund, I think I’d be scared of the idea of trusting in the creditworthiness of a cash-poor entity that seems to have the ability to make up its own financial rules as it goes along.

Come to think of it, what holds for California might hold for the United States, too.

I think economists like Paul Krugman make convincing arguments that Keynes was right about plenty of things, that giant countries are different from households, and that, in some cases, you have to spend today to have a civilization worth worrying about tomorrow.

But big countries can get used to the idea that they can make up whatever rules they want to follow. If the countries fail to maintain their economic and military might, if they lose their standing in the world, then: Spain. Today’s it’s just another struggling country that has some good filmmakers and some good restaurants. A few hundred years ago, it was a superpower. Times change.


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