Wednesday, March 04, 2009

Insurance and Socialism



I want to consolidate ideas from the last two posts:

Socialism is a system where the people surrender ownership and power to the government. The government then establishes an internal bureaucracy to distribute resources. In theory, resources will be distributed by some sort of socially just mathematical equation.

Insurance is a scheme where people voluntarily give up a chunk of their resources. The bureaucracy of the insurance company then redistributes these resources according to an equation that is theoretically socially just.

The basic form of the two concepts is the same. They differ in the amount of coercion used to sell the product.

In practice, insurance firms use a great deal of coercion to sell their products. Most insurance policies are pushed on the public through third parties such as an employer. In some cases, insurance is mandated by the government. For example, you must have auto insurance to license a vehicle or to take out a mortgage.

In recent years we've seen an explosion in weird financial instruments like credit default swaps, government backed reinsurance and other schemes. Many of these schemes take place in the background without consent of the consumer.

Over time, the various insurance schemes meld into a private centralized powerbase which starts acting more and more like the socialist scheme.

Unfortunately, Libertarian pundits seem to concentrate only on one outward attribute of the financial system. Is the financial system owned by the government? Or is it owned by a private cartel?

I think they should be looking more at the form of the system. For example, the private insurance regime has driven up costs and systematically destroyed the ability of individuals to control their health care.

Rather than just debating which powerful group controls the bureaucracy, I think we should have debates about the proper place to make health care decisions. Should the decisions be in the hands of bureaucracy or in the hands of the person seeking care?

Should the distribution of health care be driven by formulas created by some third party or should the decisions be driven by people actively taking part in living their lives?

When we relinguish control to a centralized bureaucracy we find the system becomes consumed by the friction internal to the bureaucracy.

As we look back at the market crash of 2008, we find that the financial system had been churning and churning trillions of dollars worth of activity, without really improving life for the majority of the community. This Enron style economy had all sorts of internal activity which created the illusion of wealth, without creating real wealth.

The centralized bureaucracies of government do not fare much better either. For example, when we look at public schools (including charter schools), we find an excessive amount of the resources the public spends on the school being churned up by internal friction within the adminstration while the academic needs of the students often go neglected.

To make the right decisions, we need to be able to discuss the issue at a level that is more fundamental than the petty concern of which centralized authority should have control? Before answering the question of which centralized authority should control our lives, we should discuss the merits of people controlling their lives v. centralized authorities controling their lives.

4 comments:

Anonymous said...

we should also find a way to discuss it without the shock jock overuse of the word socialism

y-intercept said...

This is an odd comment on a post that is essentially saying that all of the negative connotations associated with the term "socialism" belong to a centralized insurance regime.

I assume that you are saying that I am being a shockjock for use Lord Voldemort's name in reference to Lord Voldemort. As a pariah, I do not have the right to use the special word "socialism." The special word can only bee used by college professors behind closed doors.

Personally, I think we should use the terms in our language that are traditionally used for discussing ideas when we discuss ideas.

Whose fault is it that we can't use the words of our language to discuss issues? Is it the shock jocks (who are pretty much a fringe element) or is it a school system that is teaching how to use language for manipulative effect?

BTW, did you know that the term "socialism" was promoted by the left because it had positive connotations? Conversely, the intelligentsia promoted the use of the words "conservative" and "capitalism" because both words had strong negative connotations?

The lexicon was designed to shock people into adopting socialism.

It is absurd. Our country just passed a budget that went beyond the wet dreams of the members of the Fabian society, yet the public at large is forbidden by a cultural stasi from using the term.

Read left wing works from a century ago. They brimmed over with the word "socialism." Lefties never missed a chance to label an opponent conservative when it a universal negative connotation.

Reach Upward said...

When I was a kid and doctor office visits were $2.50, my parents had medical insurance. But it was mostly for big ticket things. It didn't cover office visits or the ordinary broken arm.

Then there was a huge push to cover everything. The argument went that people were driving up costs by failing to get basic care. They didn't go to the doctor to save out-of-pocket expenses. But sometimes that led to people waiting until a problem became serious enough that it was covered by insurance. Expanding insurance to cover ordinary and expected medical costs, we were told, would reduce demand for higher cost services; thereby, reducing overall medical costs.

We can now see that this model failed to deliver the purported benefits. But it did succeed in vastly expanding the socialization of the medical industry.

I think it is instructive to note that the more pervasive the socialized insurance model has become, the more people clamor for yet more coverage. And then we wonder why costs keep going up. I say this is instructive because the principle applies well to all socialized programs, regardless of whether they are government run or not.

The discussion we should be having today is not whether enough people have enough medical coverage, but what kind of relationship should exist between medical consumers and care providers that would produce the most desirable outcomes, and in what kind of system such relationships would thrive.

James Morgan - Puritan Financial Advisor said...

The special word can only bee used by college professors behind closed doors.