From: Black Unicorn <unicorn@schloss.li>
Date: Tue, 17 Sep 1996 14:13:02 +0800
To: jbugden@smtplink.alis.ca
Subject: Risk v. Charity (was: RE: Workers Paradise. /Political rant).
In-Reply-To: <9608168428.AA842894324@smtplink.alis.ca>
Message-ID: <Pine.SUN.3.94.960916192115.6924B-100000@polaris>
MIME-Version: 1.0
Content-Type: text/plain


On Mon, 16 Sep 1996 jbugden@smtplink.alis.ca wrote:

> tcmay@got.net (Timothy C. May) wrote:
> >"Saving for a rainy day," whether saving, investing, getting an education
> (while others are out partying), preparing, etc., all takes effort and
> commitment. If those who save and prepare are then told they have to pay
> high taxes to support those who partied....well, the predictable effect 
> [...] is _more_ people in agony. When you tell people that a compassionate
> society will meet their basic needs, a predictable fraction of them will choose
> not to work hard and prepare themselves.
> 
> Two questions, two observations:
> Do you have health insurance?
> Do you have life insurance?

Yes, so?
Yes, so?

> I have commented on your line of reasoning before and and it still
> seems to me that an important part of the discussion is missed.
> Specifically, that anyone can "save for a rainy day" and still not be
> able to provide for events that can always happen: Heart attack, stroke,
> car accident, pinched nerve that leaves you in excruciating pain and
> unable to work for several years.

Understand what it is you are saying.

You are saying that everyone on the planet has a right to health insurance
and disability insurance whether they can afford it or not.  This is
folly.  The result is serious moral hazard problems.  See below.

> I don't think that a reasonable person would argue that medical
> insurance should be outlawed because everyone should take care of their
> own needs.

Perhaps not.  A reasonable person will argue, however, that your rates
should be reduced and you should be placed in a lower risk group based on
criteria like employment, health history, marital status, number of
dependents and so forth.

(Charging the same premium for the 49 year old married non-smoking
female accountant with two kids and the inner city 18 year old corner
crack dealer is folly).

This is called "Risk pool seperation."

And while I may not argue for the prohibition of health insurance, I will
argue for compulsary payments for insurance policies - and against
socially funded insurance (Look up the term "moral hazard" - I'm not going
to provide you with an insurance vocab course).

Remember the original purpose of social security.  A government fund which
was self sustaining because it only gave out what was put in and gained by
investment.

> A social safety net is simply a form of health and life
> insurance. Statistical arbitrage if you will.

Yes, but not for the reasons you would cite.  Social safety nets prevent
rioting by the lower classes, revolution and general civil disorder
because they appease the masses.  Indeed this is a form of health and life
insureance for the middle and upper classes.

> By spreading the risk you
> minimize the cost. Yes, some people will take advantage of the system.
> But like a virus, a robust system should be able to withstand this form
> of attack.

This is absolutely silly.  Speading the risk alone does nothing.  The cost
for those who can pay is increased, and the cost for those who cannot pay
is made 0 (it already was 0 incidently).

It is also the reason the taxpayers (and not the savings and loan
community at large) were forced to bail out the failed financial
institutions.  Namely, because premiums were not tied to risk.  The FDIC,
as of last year in any event, charges a flat rate fee for all financial
institutions.  This is independent of any risk analysis of their
investments.  i.e., a financial institution that invests in trailor parks
in Arkansas pays the same premiums for federal deposit insurance as a
institution that invests in government issued debt instruments.  (There is
some ceiling for risk, but not a graduated system below the ceiling).

The result was (is) an incentive to risky investments.  If you are a
financial institution and I tell you "I will charge you $1.00 to insure
$1000.00 of low risk and low profit investments, but I will charge you a
while $1.00 to insure $1000.00 of extremely risky but highly
profitable option and currency investments" which one are you going to
choose?  (Hint, you're an idiot if you pick option #1).

The reason the insurance fund was depleted is because there was no risk
balancing built into the system.  The premiums did not cover the losses.
They would have if they were risk adjusted.

Spreading the risk, by itself, does NOT reduce cost.  You must properly
PRICE risk.

This is the distinction between insurance and welfare.  I suggest that you
read up on this topic carefully before you try to argue this subject.  It
makes you look rather clueless.

Welfare merely hands out money for those who have not bothered or cannot
afford insurance.  The result is an INCREASE in cost (taxes) to those who
are coughing up the cash so that they may support.

(I might add that no one in the United States today is denied catastrophic
health care.  Emergency Rooms are not allowed by law to discharge an
unstable patient.  You could be a bum on the street and be treated very
well by any global standards for a heart attack, stroke, car accident,
etc.  To argue, as you effectively do, that such people are somehow
entitled to millions of dollars in medical care so that they may, e.g.,
get a heart transplant, is an untenable position).

[Bloom County Nonsense removed]

> Prend soin,
> James
> 
> [Bible excerpt awaiting review as a motivation for human decency.]
> The ground of a certain rich man brought forth plentifully: And he thought
> within himself, saying, What shall I do, because I have no room where to bestow
> my fruits? And he said, This will I do: I will pull down my barns, and build
> greater; and there will I bestow all my fruits and my goods. And I will say to
> my soul, Soul, thou hast much goods laid up for many years; take thine ease,
> eat, drink, and be merry. But God said unto him, Thou fool, this night
> thy soul shall be required of thee: then whose shall those things be,
> which thou hast provided? 

Read: What you don't spend, you must give away.  (This of course ignores
the benefits to society of investing in e.g., the stockmarket, or
government debt, it also ignores the fact that anyone who manages to save
and invest a pile of money after paying the effective 50% tax rate in the
United States has already given up half or more of the value of his
labor).

> [excerpted from Luke 12:16-20, King James Version]

"When you have nothing to say, consult the bible."

- C.S. Lewis

--
I hate lightning - finger for public key - Vote Monarchist
unicorn@schloss.li