Bloggingheads TV with Joseph Heath on Filthy Lucre

Congrats for building an enduring civil society on that basis.. Good job..It sounds good to hear that a proper and regular argument to be made for using taxation to redistribute money to poor people i mean who are in more risk..
Disability Insurance for Physician

I've just looked at the webcast. Great stuff. Very happy to have recently discovered Will Wilkinson and Jospeh Heath who both have views in line with my own intuitions. The point I'd like to make is that Francois Ewald, the writer on the history of insurance mentioned at the end, is a major figure in the study of social risk, and was closely associated with Michel Foucualt and Daniel Defert (Foucault's lover). Foucault in most people's minds is associated with post-Marxist left social/cultural theory and anti-capitalism, whether people find such a position negative and positive. Many have suggested that Foucault's later texts (from about 1976 until his death in 1984), at least, present views which at the very least compatible with Classical Liberal ways of thinking, though Foucault never explictly took on such views and always remained a man of the left. The association with Ewald certainly confirms that view, that even as 'leftist' Foucault moved into territory maybe overlaps with classical liberal/libertarian thinking, and even Foucault's earlier texts have a libertarian spirit not easy to reconcile with statist leftism.

Coase's theory on the function of states has numerous flaws. One I'll point out here is that the state does not provide a more efficient method of delivering a service; it provides a more efficient method of getting non-interest parties to PAY for a service that they don't want or need.

Evidence welfare.

That's a big difference and does not invalidate the right's thinking on government.

Your obsession with Naomi Klein is embarrassing, you know.

Filthy Lucre: Economics for People Who Hate Capitalism Amazon.com Sales Rank:

#129,118 in Books

Hmmm.

I don't even understand what the observation is supposed to imply.

Is it that the ranking indicates the quality of the book's arguments?

Or, perhaps that people who hate capitalism are uninterested in understanding what they claim to hate?

Or...what?

Only that the quality of a book is not expressed in it's Amazon ranking.

The relative positions of The Bible and Heath's book on the Amazon rankings are evidence of the strained grip on reality maintained by the book buying public, and the testify to their illusions and delusions.

Paul, I understood your observation. It was Alphie's I was asking about.

I hoped he meant something deeper than to point out an uninstructive correlation.

His follow-up comment disabused me of that hope.

The Dow is now up under Obama.

Shall we discuss the quality of the stimulus hater's arguments?

Or is economics just a word game played by bratty children?

Is The Holy Bible still #1?

(I ask only to underscore the sad fatuousness of that observation.)

...or to put my point a bit more sharply: Trying to help poor people by having the state screw with insurance prices is a terrible idea for exactly the same reasons that other price-fixing schemes (e.g. rent control) are terrible ideas.

The difference between rent and medical insurance is that demand for medical services by people with genetic pre-dispositions to certain diseases is fixed. Unlike renters -- who can move elsewhere -- or smokers -- who can quit -- or young adult drivers -- who will grow older and wiser -- there is no way someone with can affect demand, regardless of the "price signal".

Got a family history of Huntington's? Or a bunch of bald maternal uncles? You're gonna need Tetrabenazine or Hair Club for Men.

The point being -- the market for medical insurance is a bit of an oddity. What Uncle Milton wrote about rent control, or Brother Hayek wrote about market information, doesn't quite apply in the same way.

Near the end of the video, Heath claims improved risk pricing made it impossible for the private sector to provide "social insurance" goods (leading to the state stepping in to fill that role). This makes zero sense to me.

Initially, mutual aid societies sold this sort of insurance, and supposedly they weren't very good at distinguishing high and low risk individuals. So the mutual aid society sells insurance to both groups at price X. Then some actuaries figure out how to distinguish the high and low risk groups, so they start a company to sell an identical social insurance product to low risk people at a lower price, call it Y. Low risk people move to the new insurance company. The mutual aid society now has only high risk members, and must charge them a higher price, Z, to avoid being bankrupted those risks. (Note that the new insurance companies companies can sell social insurance to high risk individuals at price Z too.)

Now, Y < X < Z, which is good for the low risk people and bad for the high risk people. But there is no question that by more accurately pricing risk, adverse selection problems have been lessened and the private sector has become better at providing social insurance. There's a legitimate argument to be made for using taxation to redistribute money to poor people (who tend to be in the high risk group). But Heath seems to suggest that the state ought to step in, tax everyone by X, and provide the social insurance. Why exactly do we want the state to systematically distort the market prices for risk???

So that high-risk people can have affordable health-care?

There are two kinds of "high risk" people, though.

A) those born with genetics pre-disposing them to certain kinds of cancer, liver failure, ALS, blah blah blah. And B) those who's behavior--smokin', drinkin', screwin' around, driving too fast, and doing doing all four at once--increases their risk.

The trick is to come up with a system of incentives that does not punish you (any more than nature already has) for A) , while trying to minimize the collective impact of B). I mean, there are powerful incentives for B). B) is fuckin' fun! .

For the Nozick fans in the audience, there is a basic natural justice argument here that I could re-state it as some kind of liberty and/or property rights over my own body argument, but that's pretty silly.

The universal experience (*cough* empirical evidence *cough*) strongly suggests that profit maximizing private insurance companies find it easier to screen people for A) (because it's biological, there's a test you can do based on a cheap, anonymous blood sample) than it is to persuade people to stop doing B).

On the other hand, if EVERYONE signs up en masse, and there is no longer any mechanism (let alone incentive) to exclude people based on a blood test. So the entire struggle moves to B); explaining to people that too much smokin', drinkin' and screwin' around while driving fast means (overall) LESS smokin', drinkin' and screwin' around.

BTW: I distrust philosophers. They seem, as a class, to have too many good teeth and bad haircuts.

The question of what that word 'risk' means - it's instructive here.

Risk is about the uncertainty of outcomes, implicitly attached to choices. From the point of view of a private insurance company, the outcome is (highly simplified) "cancer or no"? And the choice the company has is "insure this individual or not?"

From the individual's point of view, the outcome is the same - "cancer or no?" But for some individuals (Class A above) there is no question of a choice. Their genes predispose them, in some way. The imbalance pivots on the way the insurance company has a choice the individual does not have.

One way to respond to the plight of such individuals is to say - "Tough banana. Get Darwin up yer!". Good luck building an enduring civil society on that basis. Its emotional and psychological appeal is limited to people with little regard for the feelings or welfare of others, an attitude that might be encapsulated as "they [people unfortunate enough to posses genes that increase their risks of various diseases] are perfectly free to not buy insurance if they think it makes them worse off"

Successful insurance is all about pricing risk accurately. The point is that the same technical mechanisms by which a private medical insurance company can screen out individuals with a class A. risk can also be applied to population studies. We can -- collectively -- "price" type A risks with much more precision than we can price type B risks, precisely because type B. risks involve individual choices in a way type A risks do not.

As tempting as it is to argue the semantics of "risk" or respond to your moral posturing, I won't, because none of it is really relevant to the question at hand.

As I stated previously, if you want to help the unfortunate, just give them money. Screwing with insurance markets is hideously inefficient.

Upon further reflection, there is not as much difference as I had at first thought between handing out money to the unfortunate and having the state provide a broad system of social insurance.

...not quite sure what I think about this issue now.

Paul:

Charging people in class (A) a market rate based on an accurate assessment of their risk does not "punish" them any more than nature has; they are perfectly free to not buy insurance if they think it makes them worse off. To ask insurance companies to charge group (A) below-market rates is asking them to act as a charity, not an insurance company. Instead of fixing prices to help the unfortunate, just give them money -- you could rig redistributive taxes to give more money to poor people who don't deserve their poverty. Regardless of whether that's a sensible or just goal, it accomplishes what you want without destructive price fixing.

As regrettable as it is that we aren't very good at assessing and pricing class (B) risks, the solution is simply to try to do this better. The solution is not to start deliberately mispricing class (A) risks.

Even if everyone signed up en masse there could still be mechanisms for excluding people, and the incentive to exclude them or only provide them with extremely expensive plans is inherent in the effort to maximize profits.

To explain in greater detail, how everyone signs up is the key question here.

If everyone signs up as an idividual then the insurance company can do what they do in such cases now. They can take a blood sample and use the information in that sample to decide what plans to provide and what to charge for them.

If, as has been the norm, everyone gets the coverage through their work this problem is largely prevented. However, it is prevented mostly because businesses pay significant sums to insurance companies to cover their employees.

Actually preventing insurance companies from denying coverage in cases of A would probably take government action. The government could pass an act forbidding such denials, or the government could provide coverage the same way businesses do.

The only non-governmental way of doing this that I can think of would involve a charity paying insurance companies to cover people that they would otherwise exclude.

Suppressing rates for high-risk people does not make them any better risks, rather the opposite actually, as you end up subsidizing behavior that you would presumably like to discourage. There are no perfect solutions, but if you prefer government intervention to help accommodate the needs of high-risk insureds, it would be far better to provide them vouchers and let them make spending decisions facing market prices as there would then be more of an incentive to conserve scarce resources.

This is an excellent point. Prices contain a wealth of information, and trying to suppress them deprives individuals of an additional factor to take into consideration when making decisions regarding particular behaviors. I've always found it absurd that the government subsidizes flood insurance for example. Are we really so short on viable building space that people need to settle in floodplains? Charging an actuarially sound premium for homeowners coverage to these people would probably make them think twice about where they lived. That goes double for coastal homeowners in Florida, Louisiana, or Texas.

Good Stuff. I like the concept of insurance crowding out mutual benefit societies and then government taking over these "insurance functions". We've seen that in health insurance, disability insurance and auto insurance (in terms of mandatory/no fault laws). Why hasn't that happened with life insurance? (or is that what basic welfare is supposed to take care of)

I'm not sure the government should take over insurance functions. Disability insurance companies are worthy trustees of our mutual interest as our invested money goes toward covering our society. By society, I mean anyone who's invested in the disability insurance.

Life insurance is 100% predictable where other types of insurance subject the insurer to catastrophic unpredictable loss. Even a six sigma event of a person dying the next day after purchasing life insurance will not bankrupt the company. Those little clauses like war and such preventing payout further limit catastrophic loss.

Not so with P&C or CDS (credit default swaps) losses occur in waves and a six sigma event will be catastrophic.

Well, his story is that moral hazard, which varies from one type of insurance to the next, makes insuance impsossible if large enough in any particular market.

Although all insurance creates some moral hazard it is hard to tell a story about how life insurance would increase moral hazard all that much. People don't seem to be in a rush to collect on their policies!

I wouldn't say that government has crowded out auto insurance however, private auto insurance markets opperate perfectly well as far as I know. Mandating liability coverage, for those who choose to drive, isn't the same as government supplied insurance.

Anyway, I too enjoyed that part of the conversation!

I take it you've never seen It's a Wonderful Life (or Double Indemnity for that matter)

Regarding personal responsibility, I don't see anything objectionable about acknowledging that it is often the case that forces outside your control have contributed to your present predicament. However, I still believe it to be the case that if you want your life to be different, accepting personal responsibility for achieving that change is the only strategy capable of reliably delivering the sought after results.

Unfortunately every time I try to even breach the subject of economics with a Naomite (clever, huh), they dismiss the so-called "dismal science" as some type of nefarious voodoo concocted by purveyors of False Consciousness to woo them into bourgeois catatonia. Then again, anyone who is willing to surrender their intellect to Ms. Klein cover to cover has already betrayed a certain personal lack of sagacity that no amount of Econ 101 will remedy.

Sorry, you mention Klein, I get all worked up.