Economics of Social Safety Nets

Food stamps, unemployment, Emergency Rooms, Medicaid, disability checks are just a few of the social safety nets that most industrial countries have. They exist to ensure the "least of these" have some basic living standard provided by the government. Many economists, myself included, complain about the inefficiencies these incentives can create. But what if instead of government distortion of the free market, this is just a correction of it. What if the welfare state is genetic insurance?:

Back before you were born--in fact, before you were even conceived--nobody knew you were going to develop into the sort of sophisticated individual who reads Slate. For all anyone knew, you might have been born without enough skills to boot up a computer--or to earn a decent living.

If your unborn soul could have bought an insurance contract, then you'd probably have snapped up some kind of "skill insurance" in which everybody pays premiums, and those who land in the shallow end of the gene pool split the pot.

If this did exist, just how much insurance (or how much safety net) would there be? You'd have to know the risk of being poor and the difference between the rich and the poor. Once you know that, then you know what percentage of the population should be getting assistance:

If you take the insurance metaphor seriously, then 23 percent of the population--the 23 percent with the fewest skills--should be permanently unemployed and on welfare.

Based on those numbers the welfare state should be bigger. That is, unless, you take into account the inefficiencies created:

Factor that into the equation, redo the calculations, and you end up concluding that the fraction of the population on welfare should be just 0.6 percent--in other words, practically zero.