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.