Is insurance a form of Socialism?

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GE Morton
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Re: Is insurance a form of Socialism?

Post by GE Morton » October 20th, 2017, 8:15 pm

Steve3007 wrote:So here you seem to be agreeing that there is at least a sense in which insurance and "socialism" (as I defined it earlier simply as services funded by taxation) are comparable. That sense is that they both damage the link between supply and demand. As you've said, if we're not paying for something directly, and/or we're spending from a collective pot of money, then we tend to shop less prudently.
Well, sure. Many dissimilar things have something or other in common. Comprehensive insurance and government health care payments both weaken the link between supply and demand. The government payments are worse, because they are universal, whereas only a fraction of the patient population will carry insurance. If most charges are being paid out-of-pocket then suppliers will have to set prices for those patients. Also, there is still some competition among insurers, who therefore must try to keep payouts down. With a government monopoly there is none, and the bureaucrats have no incentive to control costs. The money is not coming out of their pockets. On the contrary --- their incentive is to spend all that they can, in order to argue for a bigger budget next year. (This is the "public choice economics" phenomenon).

http://www.econlib.org/library/Enc/PublicChoice.html
Here you say that the socialism (taxation to fund public services) aspect of it accelerated the cost spiral, presumably because you regard the severing of that link as more severe for socialism (as I'm calling it) than for insurance.
Yes, for the reasons just mentioned.
Yes, I agree that this is one of the problems with funding from a collective pot of money and making services free at the point of delivery. As I've said previously, I think that the competitive free-market system is a very useful tool in many circumstances because it often promotes efficiency. But not always. One of its downsides, just like Evolution, of which it is a close analogue, is that it tends not to be forward-looking. It's not always the best tool to use for solving long-term problems where individual players in the market have no immediate incentive. Often referred to as the "tragedy of the commons".
Huh? I think you're misunderstanding the "tragedy of the commons." The market is not a common (in the relevant sense), i.e., a limited resource with no restrictions or conditions on use.
There are examples from Evolution of "bad design" due to the fact that we're not actually designed at all. For these examples, we perhaps might wish that there was a designer who could have foreseen problems before they arose and headed them off, without the need for every individual step to be beneficial to survival. Likewise, I suggest, there are some problems in society that cannot be entirely solved by a system in which it is necessary to make a profit at every step and where those who don't do so, and who do things for the benefit of wider or long term gain, are out-competed by those who don't, and go bust.


There are persuasive arguments that that is impossible in principle. Biosopheres and economies are complex adaptive systems (CAS's), and future states of those systems cannot be predicted in advance, except in the very short term. There are too many variables --- billions, many of which are unknown or imperfectly understood --- and their interactions yield astronomical numbers of possibilities. A small change in one variable can have huge consequences in the long term (the "butterfly effect"). Such systems evolve in response to external stimuli impacting them from moment to moment.

http://web.mit.edu/esd.83/www/notebook/ ... ystems.pdf
(Similar cost spirals have occurred in college tuition costs and housing costs, which latter led to the 2008 recession, after government began paying those bills, through guaranteed student loans and Pell grants, and the "affordable housing" policies adopted in the early '90s).
That's not my understanding of the principle cause of the 2008 recession. I thought that was caused by the repackaging of mortgage debts into investment vehicles that were sold as being a lot lower risk than they really were. Fraud, essentially. (On a massive scale. So massive that the fraudsters were deemed too big to fail.)
That was indeed part of the problem. That itself was a consequence of two government actions. The first was a rule requiring many securities to be rated by a "Nationally Recognized Statistical Rating Organization" (NRSRO). This rule put the rating services into the employ of the issuer, rather than the buyer, because now the issuer had to obtain a rating before it could market its bonds. The rating services, of course, were motivated to give their customers, the issuers, the rating they wanted, lest they lose their business. The second action was to ignore warnings from analysts in the SEC and other oversight agencies that those mortgage bonds were risky, and new rules were needed. Those warnings were dismissed by both the Clinton and Bush administrations, because they did not want to throw cold water on the housing boom then underway. Some of those bond issuers were major originators of "affordable housing" loans sold to Fannie Mae and Freddie Mac, which had been ordered under the Clinton adminstration to increase the fraction of "affordable housing" loans in their portfolios to 50%. Fannie Mae's Director once cited Countrywide Mortgage, later found liable for fraud, as "a paragon of affordable housing lending."

Yes, the wolves and vultures came out to feed. But only because the government had thrown raw meat on the trail.
In the UK, the principle reason for spiralling housing costs appears to simply be too few houses, a small country and a rising population. i.e. supply and demand. Plus cheap money - low interest rates. Perhaps a bit different in the US.
Another reason for spiraling housing costs in the US are "smart growth" policies adopted in the last 20 years or so by many municipalities. These policies confine developments to specific areas, which, of course, limits the supply of housing and hence drives prices for homes and land in the allowable areas sky high.
My lack of knowledge of US political history may be showing again here, but presumably if this "constitutional restriction" existed originally it must still exist? What part of the US constitution changed?
No (relevant) part of it actually changed. But two provisions were essentially re-written by the Supreme Court in the 1930s and '40s. The "general welfare" clause was re-interpreted to allow the government to do whatever it decided would promote the "general welfare," despite the express rejection of that interpretation by both Madison (who wrote the Constitution) and Jefferson (who wrote the Declaration of Independence). The second ruling re-wrote the commerce clause, giving the government power, not only to "regulate commerce . . . among the States," as the document actually reads, but to regulate anything that affects interstate commerce. That, of course, is nearly everything. So a farmer may be forbidden to grow wheat for his own consumption, because then he will not buy wheat, which would affect the interstate wheat market.
If you think it's a good idea to live in a democracy, I don't see how you can design that democracy to remove the danger of this happening. This problem with democracy has been recognised since Plato's parable of the ship. How do you stop politicians from taking this populist route to electoral success? Are you saying that you arrange things such that politicians are constitutionally barred from offering any options to the electorate? Wouldn't that essentially mean that you're proposing an end to democracy and a society which is, instead, dictated by an unchangeable "written in stone" constitution, and nothing else?
Any government with no structural limits on its powers is, or will become, totalitarian, by definition. Tyrannies of majorities are no less oppressive, and no more justifable, than any other tyrannies. Nor is "the public" any wiser or any more noble than most of history's despots. There is nothing wrong with democracy, provided majority decision-making is circumscribed by moral constraints. How to enforce those constraints is problematic. No approach tried so far has been successful; megalomaniacs and demagogues always devise ways to evade them.

-- Updated October 21st, 2017, 2:42 pm to add the following --
Steve3007 wrote:Is this because you regard free-trade capitalism as closer to a discovered law of nature than it is to an aritificially created law of human behaviour? i.e. more of a description than a prescription?
Not a "law of Nature." It is just the sort of economy which arises spontaneously among people in a social setting (so situated as to be able to interact) when no third-party interference occurs (i.e., before politicians get involved). It is the sort of economic system observed in traditional agoras all over the world, and in flea markets today --- craftsmen, farmers, traders bring their wares and produce to the market, or offer their services there, and willing buyers compare goods and prices from different vendors and buy or not, depending on their personal interests, needs, and budgets.
If so, I presume the usual analogies with Evolutionary Biology and Physics would be made. The actions of bureaucrats in re-distributing wealth (mentioned near the end of your post) would perhaps be analagous to friction in a mechanical system. As I said earlier, the operation of markets has obvious parallels with Evolutionary Biology. etc.
Yes. Biospheres and economies are both Complex Adaptive Systems (CAS's). See previous comment.

Togo1
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Re: Is insurance a form of Socialism?

Post by Togo1 » October 21st, 2017, 7:35 pm

GE Morton wrote:
Steve3007 wrote: (Nested quote removed.)


That was indeed part of the problem. That itself was a consequence of two government actions. The first was a rule requiring many securities to be rated by a "Nationally Recognized Statistical Rating Organization" (NRSRO). This rule put the rating services into the employ of the issuer, rather than the buyer, because now the issuer had to obtain a rating before it could market its bonds. The rating services, of course, were motivated to give their customers, the issuers, the rating they wanted, lest they lose their business.
I think you're overestimating the influence of that rule. After all, similar issues occured in most of the markets around the world, which didn't have such a rule. The problem in this case was a refusal to regulate. As with any new product, there was a necessity to provide a market consensus on how to price them, and the ratings agencies were really the only port of call for creating that consensus. By putting a credit rating on a product they didn't really understand. Because that in effect allowed banks to turn low rated consumer debt into high rated tradeable debt instruments, the process would always accelerate faster and faster until the bubble burst. But the process was market driven, it wasn't anything to do with an obscure rule by the US government.
GE Morton wrote:The second action was to ignore warnings from analysts in the SEC and other oversight agencies that those mortgage bonds were risky, and new rules were needed. Those warnings were dismissed by both the Clinton and Bush administrations, because they did not want to throw cold water on the housing boom then underway.
Indeed so. They should have regulated and they didn't.
GE Morton wrote:Some of those bond issuers were major originators of "affordable housing" loans sold to Fannie Mae and Freddie Mac, which had been ordered under the Clinton adminstration to increase the fraction of "affordable housing" loans in their portfolios to 50%.
Yes and this caused damaging issues with the housing market. However, most of the mortgages were commercial lending, out of town malls and the like.
GE Morton wrote: (Nested quote removed.)


Not a "law of Nature." It is just the sort of economy which arises spontaneously among people in a social setting (so situated as to be able to interact) when no third-party interference occurs (i.e., before politicians get involved). It is the sort of economic system observed in traditional agoras all over the world, and in flea markets today --- craftsmen, farmers, traders bring their wares and produce to the market, or offer their services there, and willing buyers compare goods and prices from different vendors and buy or not, depending on their personal interests, needs, and budgets.
Spontaneously? Heck no, it takes a lot of effort to run a market, and the reason why they are successful, and appear so often is that it's so hard to trade without some kind of rules and limitations on what salepeople and customers can do to each other. That's why people get together in markets, and why people travel to shop in them - because they provide rules, regulations, and protections that you don't get buying something from a some bloke down the pub. In the UK, some local authorities arose at first because someone needed to run the market, and only then after that did you get a town, and the people running the local corn exchange or farming co-op started to run other things as well.

Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 22nd, 2017, 7:13 am

GE Morton:
The government payments are worse, because they are universal, whereas only a fraction of the patient population will carry insurance.
Do you think that the article I cited earlier was correct in saying that a large part of the reason why the US (like many other societies) spends a larger proportion of its GDP on healthcare now than it did in the past is because of much wider use of healthcare services, an aging population and unhealthy lifestyles? Not just the inefficiencies of disconnecting the payment from the "lunch"?
Also, there is still some competition among insurers, who therefore must try to keep payouts down. With a government monopoly there is none, and the bureaucrats have no incentive to control costs. The money is not coming out of their pockets. On the contrary --- their incentive is to spend all that they can, in order to argue for a bigger budget next year. (This is the "public choice economics" phenomenon).
Yes, I've already said that I agree that there are inefficiencies in taxpayer-funded services, for the kinds of reasons you've mentioned. And I've already said that I believe the free-market model to be a very useful tool for generating efficiency and innovation in many different circumstances. As a pragmatist, the concern I always have is when people take a useful tool and turn it into an ideology. Whatever the tool is, and from whichever part of any supposed political spectrum it comes. As soon as that happens, people stop looking at it objectively. I've noticed that happening on both the "left" and the "right" where I live. On the left, there's a tendency to think of things like "equality" as an end in themselves rather than a means to an end. On the "right" (or perhaps I should say "libertarian") end, there's a tendency to do the same for concepts like "freedom" without properly thinking about what it means to be free.
Huh? I think you're misunderstanding the "tragedy of the commons." The market is not a common (in the relevant sense), i.e., a limited resource with no restrictions or conditions on use.
No indeed. "The market" is not a common. It is not any kind of resource at all. It is an abstract concept - part of a tool for efficiently taking the goods and services created by producers and getting them to the consumers who most want them for the most efficiently and rapidly calculated "fair price".

I mentioned "the tragedy of the commons" here in the context of my proposition that the free-market concept cannot solve all problems. It's not a universal tool. As I said, the situations where it doesn't work by itself are where individual players in the market do not have a direct, immediate vested interest in putting work into projects that generate wide and/or long term benefits. In fact, in an efficient and well-running market, players who do that will be immediately out-competed by those who go for more immediate short-term personal gains. The more efficiently the market is operating, the more effectively this will happen.

In healthcare, I think preventative care for such modern epidemics as diabetes are perhaps a good example. If they have to pay up front, people, with limited resources and many other bills to pay, will tend to put things off until the situation gets too serious to ignore. By then, the cost is much greater.

Another example if of course environmental protection. I guess that's why the subject of climate change (ostensibly a scientific issue) seems to so often break down along political lines. Free-market advocates have a vested interest in portraying man-made climate change as a fraud perpetrated by people who's real motive is to increase government regulation, for some kind of ideological reason, because if it is admitted that the world faces problems that will only fully manifest themselves decades from now and which need international cooperation, then it has to be admitted that the short-term benefits of free-markets can't solve the problems alone.

Likewise, the other side has a vested interest in portraying the free-marketeers as motivated by an ideological dislike of "big government" to ignore the problem of climate change.

In both cases, I think political ideology gets in the way of pragmatic solutions. A great tragedy. Possibly the greatest tragedy in human history. The two sides hurl insults at each other from their respective ideological positions while Rome burns.
There are persuasive arguments that that is impossible in principle.
That what is impossible in principle? You said this in reply to a paragraph in which I drew a parallel between a property of Evolution and a property of free markets, to illustrate some shortcomings of both, if we view them as tools for solving problems. I'm not sure what you're saying is impossible.

What you seem to propose in the rest of your paragraph, after that first sentence, is that any kind of long term planning about anything at all is impossible, because of some kind of argument based on Chaos Theory.

Is that really what you're saying there?

GE Morton
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Re: Is insurance a form of Socialism?

Post by GE Morton » October 22nd, 2017, 10:08 am

Togo1 wrote:Spontaneously? Heck no, it takes a lot of effort to run a market, and the reason why they are successful, and appear so often is that it's so hard to trade without some kind of rules and limitations on what salepeople and customers can do to each other. That's why people get together in markets, and why people travel to shop in them - because they provide rules, regulations, and protections that you don't get buying something from a some bloke down the pub. In the UK, some local authorities arose at first because someone needed to run the market, and only then after that did you get a town, and the people running the local corn exchange or farming co-op started to run other things as well.
Your last sentence there refutes your denial. Markets appear spontaneously; "local authorities" are erected to regulate them. In the UK, after about 1200 AD, Royal Charters were required to operate permanent marketplaces. But hundreds of markets were already in operation, with no government regulation, though the regular merchants often joined together to establish and enforce rules of their own.

"A large number of markets and fairs were established by a grant, most often in the form of a charter granted by the King. Kings occasionally also granted markets and fairs by two other forms: letters close and letters patent. There is evidence for grants of markets and fairs by charter from the time of the Norman Conquest (1066) onwards. However, the vast majority of grants by charter date from 1199 onwards. Grants of markets and fairs by letter close and letter patent also begin c.1200 . . .

"There are many references in the sources to markets and fairs which do not appear to have been set up by a grant. These markets and fairs are described as prescriptive, that is, they were held by custom. Many of the oldest and most successful markets and fairs were held by prescriptive right. These were often in urban centres. The problem with identifying prescriptive markets and fairs is the lack evidence. The first mention of a prescriptive market or fair often dates from the thirteenth century, when a wide range of detailed sources are available. However, it is not clear how long the market or fair has been operating: was it set up in the thirteenth century, or had it been trading for longer?

A good example is the market at Maldon, Essex, which is first mentioned in 1287. When first recorded, trading was taking place at the market and there is no evidence that it was set up by a grant: it is, therefore, a prescriptive market. How long had trading been taking place at Maldon? Maldon is known to have been a borough from 916 and to have had a mint between 924–39 and the 970s–1100. It seems very likely that a place which was a borough and/or which had a mint, operated as a centre of local trade and had a market. This assumption has been used to identify Anglo-Saxon and Norman prescriptive markets in the Gazetteer. The earliest date for a market at Maldon would therefore be 916. As at Maldon, it seems very likely that the prescriptive markets which first appear in the records in the thirteenth century had already been trading for several centuries."

http://www.history.ac.uk/cmh/gaz/gazweb2.html

You're right, of course, that markets require regulation --- typically, of weights and measures, "truth in advertising," and generally to prevent theft and fraud. But as with all economic activities the activity comes first, the regulations later. Houses were built for millennia with no building codes; electricity use became widespread with no electrical codes; automobile use became popular before any traffic laws were in place. Regulations always appear in response to an activity already underway.

Belindi
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Re: Is insurance a form of Socialism?

Post by Belindi » October 22nd, 2017, 2:42 pm

G E Morton wrote:

You're right, of course, that markets require regulation --- typically, of weights and measures, "truth in advertising," and generally to prevent theft and fraud. But as with all economic activities the activity comes first, the regulations later.
"Economic activities" are abstracted , above, from social life which is a whole and underlies all the social activities. The basic premiss for social life , and for each socal activity, is mutual trust. Long custom, and official markets crystallise the trust component of exchanges , and the trust remains at least until a sociopath comes along and sometimes thereafter, when the morale is strong enough.

Togo1
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Re: Is insurance a form of Socialism?

Post by Togo1 » October 23rd, 2017, 9:30 pm

GE Morton wrote:
Togo1 wrote:Spontaneously? Heck no, it takes a lot of effort to run a market, and the reason why they are successful, and appear so often is that it's so hard to trade without some kind of rules and limitations on what salepeople and customers can do to each other. That's why people get together in markets, and why people travel to shop in them - because they provide rules, regulations, and protections that you don't get buying something from a some bloke down the pub. In the UK, some local authorities arose at first because someone needed to run the market, and only then after that did you get a town, and the people running the local corn exchange or farming co-op started to run other things as well.
Your last sentence there refutes your denial. Markets appear spontaneously; "local authorities" are erected to regulate them.
Historically, that's not what happened, at least in the UK. The markets appeared after people were promised fair dealings and no theft, not before. What you has before was tinkers, who travelled to their customers.
GE Morton wrote:In the UK, after about 1200 AD, Royal Charters were required to operate permanent marketplaces. But hundreds of markets were already in operation, with no government regulation, though the regular merchants often joined together to establish and enforce rules of their own.
That's still a regulated local market. There was still a local authority creating and regulating the markets since the time of the Roman occupation, well before 1200AD. How do you think the local corn exchange was staffed by, if not local dignataries, including merchants, developing their own rules and ensuring that everyone stuck to them?
GE Morton wrote:You're right, of course, that markets require regulation --- typically, of weights and measures, "truth in advertising," and generally to prevent theft and fraud. But as with all economic activities the activity comes first, the regulations later. Houses were built for millennia with no building codes;
But after land rights were established.
GE Morton wrote:electricity use became widespread with no electrical codes;
But lots of building codes.
GE Morton wrote:automobile use became popular before any traffic laws were in place.
But after the regulated development of roads, and the regulation of fuels. Hence: http://blog.oxforddictionaries.com/2012 ... -gasoline/

How could you possibly get widespread use of machinery, let alone automobiles, without a de facto fuel standard?

Belindi
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Re: Is insurance a form of Socialism?

Post by Belindi » October 24th, 2017, 5:07 am

Does the academic discipline of economics depend from certain presumptions about human nature?

Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 24th, 2017, 6:16 am

Belindi:

One of the aspects of human nature that seems to be assumed in the concept of a free market is the proposition that, other things being equal, people don't want to expend more effort on something than is necessary. Since money is roughly a measure of human effort (labour) then it follows that people don't want to spend more money on something than they have to. I guess that's a pretty fair assumption.

This principle of economy - of expending the least effort required to get the job done - is not that different from principles of economy in physics - concepts like the path of least resistance.

Another one is the proposition that the people who are best qualified to calculate the fair value of a product are those who have a vested interest in finding it - potential buyers and sellers of that product. So you put the sellers and the buyers together, let them sort it out between themselves, and objectify the process that goes on between them by calling it an invisible hand.

I think the concept of finding the fair value of a product reaches its strange abstract mathematical height when you start to consider the ways in which the fair values of financial derivatives, like stock options, are calculated. It really does start to get like physics then. But that's perhaps a new subject.

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Re: Is insurance a form of Socialism?

Post by Belindi » October 24th, 2017, 7:40 am

Thanks Steve, you are elegant as usual.

GE Morton
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Re: Is insurance a form of Socialism?

Post by GE Morton » October 24th, 2017, 12:34 pm

Steve3007 wrote:Belindi:

One of the aspects of human nature that seems to be assumed in the concept of a free market is the proposition that, other things being equal, people don't want to expend more effort on something than is necessary. Since money is roughly a measure of human effort (labour) then it follows that people don't want to spend more money on something than they have to. I guess that's a pretty fair assumption.

This principle of economy - of expending the least effort required to get the job done - is not that different from principles of economy in physics - concepts like the path of least resistance.

Another one is the proposition that the people who are best qualified to calculate the fair value of a product are those who have a vested interest in finding it - potential buyers and sellers of that product. So you put the sellers and the buyers together, let them sort it out between themselves, and objectify the process that goes on between them by calling it an invisible hand.

I think the concept of finding the fair value of a product reaches its strange abstract mathematical height when you start to consider the ways in which the fair values of financial derivatives, like stock options, are calculated. It really does start to get like physics then. But that's perhaps a new subject.
Good answer, Steve. I'd add that the value of a thing as assigned by buyers and sellers is the only value the thing can have. Values are subjective, and relative to a persons (the valuers). The value of a thing is only defined with respect to a valuer. The value of X to P is given by what P will give up (time, money, effort, some other good) to obtain X.

I'll respond to your long earlier post later today.

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Re: Is insurance a form of Socialism?

Post by Chili » October 24th, 2017, 12:51 pm

There are immediate perceived values based on impulse or limited knowledge. Then there are long-term values declared by examination of outcomes which occurs in public debate and discussion.

Steve3007
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Re: Is insurance a form of Socialism?

Post by Steve3007 » October 24th, 2017, 3:08 pm

GE Morton:
I'll respond to your long earlier post later today.
Ok. No Hurry. I was going to reply to a bit more of your previous post earlier today (as I'd previously only replied to the first couple of paragraphs of it) but accidentally deleted my reply halfway through.

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