Saturday, February 19, 2005
A post inspired by marginal revolution
Over at marginal revolution there is a post on micro insurance.
Overall a good post although I have a few quibbles.
But, since I just drank two cups of coffee, and am running late to see the slurs at punk rock night, I had one of those insights I get when I drink coffee.
If you are new here, I'm an idiot savant - lots of solutions to the world's problems,
difficulty tying my shoes or getting anywhere on time or anything done.
There's a big todo these days over "social security". Including an elaborate metaphor at agoraphilia about a bathtub model for the lockedbox trust fund.
Bush, pretending to be a conservative so he can later pull a bait and switch,
wanted to let people invest part of their ssi tax into market-based investments,
which would grow into a retirement fund to replace ss payouts.
This is because ss is a huge scam, with about a 3% return, similar to the whole life scam, in which the insurance company invests your money at 15% and pays out 3%.
A decent mutual fund will average, over time, about 7%. Over a 40 year life cycle, 7% isn't just more than twice 3%, it's way more, because of compounding.
Bear with me, I'm getting there.
The mutual fund a better investment because it invests in a basket of big evil companies, that either produce goods and services in the market or to the government monosopy. This is a better return with less risk than investing it all in tbills, the all-your-eggs-in-one-heavily-armored-basket approach. The less risk part is disputed.
But here's my bright shiny new idea.
Let people invest some of their ss funds in a microcapital fund.
This would provide small loans to people in developing countries.
The idea has been tested among women in bangladesh, the poorest of the poor,and actually works. The risk is spread out among many borrowers, so average rates of return are stable, even if the occasional individual borrower can't repay because she starved to death or was washed away in the flood or killed by jealous husband.
The returns are high. The loans are secured by cosigners or collateral such as a cow.
This happens to be a pretty good investment, but that's not why I'm pushing it.
It would need to be given a catchy label, something "peace corps" like. No acronyms.
It would appeal to liberals, and they could drag along the compassionate conservatives. Both of them.
Benefits:
Retirement savings for citizens.
Capital for the 3rd world where it's needed most.
Goodwill for US in developing countries.
Risk is acceptable because of the charitible component - this is money that, if it never comes back, at least it does some good.
A program like this could be a "both sides of the aisle" kinda thing.
Downside:
No program is so wonderful a government can't screw it up.
It is unclear how to structure the program so there are incentives to keep it running well.
Anyhow that's the idea.
Now about those quibbles:
In a development context, this means that the people who most need insurance will be the least likely to buy it.
Now, I know what he's trying to say here, and generally I agree.
But he equates "most likely to have a claim" with "need it most."
These aren't really the same.
The very poor, and the non-risk-averse, have rational reasons for not needing insurance.
My time is short and not going to write a few pages on why that is and how it works.
I'll just leave at this for now and unpack it if asked.
More on micro-insurance.
India: 1% gnp on insurance.
USA 5%.
But, most of that 5% is driven by the legal structure - either directly compelled, or tax-incentivized, or driven by market distortions, I almost wrote extortions.
Car insurance: mandated by law, at least minimum levels.
Health insurance: A tax shelter. Which in turn affects the demand-elasticity curve for medical services, and results in some hidden forms of price discrimination.
The elasticity factor drives the prices way above their otherwise market price.
So you can't aford to buy it, so you invest in health insurance like a lottery ticket where if you win, you lose.
Homeowners: you need this to qualify your mortgage for the secondary mortgage market driven by fannie mae. You need a mortgage because building codes make it impossible to build your own home the way grandpa did.
Similar with full-coverage car insurance.
Isn't that most of US consumer's insurance right there? Oh, and liability insurance, a million for everybody, because we are overly litigious. I say that as a plaintiff's lawyer. Some of the liability insurance is genuine and is an economic good, but much of it goes to transaction costs of the inefficient legal system.
So I'm not, yet, convinced India underinsures, rather the US overinsures, driven by thedamn liberals. lack of law and economics input into social planning.
Very important news from marginal revolution: half the missing women of asia found.
Hep B results in more male than female babies, as much as 3:2. So my second thought was, there's a vaccine for that. My third thought was, but wait, maybe then in India hep B would be seen as a benefit rather than plauge. Most people who get hep B have mild symptoms, like a cold. Only now and then does it destroy the liver and cause death, although I suppose the death rates would be higher in an undeveloped region.
Hep C is nastier; the woman I got my HIV and Hep tests from has hep C.
(I am negative to everything I've been tested for. The lack of social skills results in a lack of sex results in less exposure to std's. I forget this week's buzzword, they aren't called std's anymore.)
Over at marginal revolution there is a post on micro insurance.
Overall a good post although I have a few quibbles.
But, since I just drank two cups of coffee, and am running late to see the slurs at punk rock night, I had one of those insights I get when I drink coffee.
If you are new here, I'm an idiot savant - lots of solutions to the world's problems,
difficulty tying my shoes or getting anywhere on time or anything done.
There's a big todo these days over "social security". Including an elaborate metaphor at agoraphilia about a bathtub model for the lockedbox trust fund.
Bush, pretending to be a conservative so he can later pull a bait and switch,
wanted to let people invest part of their ssi tax into market-based investments,
which would grow into a retirement fund to replace ss payouts.
This is because ss is a huge scam, with about a 3% return, similar to the whole life scam, in which the insurance company invests your money at 15% and pays out 3%.
A decent mutual fund will average, over time, about 7%. Over a 40 year life cycle, 7% isn't just more than twice 3%, it's way more, because of compounding.
Bear with me, I'm getting there.
The mutual fund a better investment because it invests in a basket of big evil companies, that either produce goods and services in the market or to the government monosopy. This is a better return with less risk than investing it all in tbills, the all-your-eggs-in-one-heavily-armored-basket approach. The less risk part is disputed.
But here's my bright shiny new idea.
Let people invest some of their ss funds in a microcapital fund.
This would provide small loans to people in developing countries.
The idea has been tested among women in bangladesh, the poorest of the poor,and actually works. The risk is spread out among many borrowers, so average rates of return are stable, even if the occasional individual borrower can't repay because she starved to death or was washed away in the flood or killed by jealous husband.
The returns are high. The loans are secured by cosigners or collateral such as a cow.
This happens to be a pretty good investment, but that's not why I'm pushing it.
It would need to be given a catchy label, something "peace corps" like. No acronyms.
It would appeal to liberals, and they could drag along the compassionate conservatives. Both of them.
Benefits:
Retirement savings for citizens.
Capital for the 3rd world where it's needed most.
Goodwill for US in developing countries.
Risk is acceptable because of the charitible component - this is money that, if it never comes back, at least it does some good.
A program like this could be a "both sides of the aisle" kinda thing.
Downside:
No program is so wonderful a government can't screw it up.
It is unclear how to structure the program so there are incentives to keep it running well.
Anyhow that's the idea.
Now about those quibbles:
In a development context, this means that the people who most need insurance will be the least likely to buy it.
Now, I know what he's trying to say here, and generally I agree.
But he equates "most likely to have a claim" with "need it most."
These aren't really the same.
The very poor, and the non-risk-averse, have rational reasons for not needing insurance.
My time is short and not going to write a few pages on why that is and how it works.
I'll just leave at this for now and unpack it if asked.
More on micro-insurance.
India: 1% gnp on insurance.
USA 5%.
But, most of that 5% is driven by the legal structure - either directly compelled, or tax-incentivized, or driven by market distortions, I almost wrote extortions.
Car insurance: mandated by law, at least minimum levels.
Health insurance: A tax shelter. Which in turn affects the demand-elasticity curve for medical services, and results in some hidden forms of price discrimination.
The elasticity factor drives the prices way above their otherwise market price.
So you can't aford to buy it, so you invest in health insurance like a lottery ticket where if you win, you lose.
Homeowners: you need this to qualify your mortgage for the secondary mortgage market driven by fannie mae. You need a mortgage because building codes make it impossible to build your own home the way grandpa did.
Similar with full-coverage car insurance.
Isn't that most of US consumer's insurance right there? Oh, and liability insurance, a million for everybody, because we are overly litigious. I say that as a plaintiff's lawyer. Some of the liability insurance is genuine and is an economic good, but much of it goes to transaction costs of the inefficient legal system.
So I'm not, yet, convinced India underinsures, rather the US overinsures, driven by the
Very important news from marginal revolution: half the missing women of asia found.
Hep B results in more male than female babies, as much as 3:2. So my second thought was, there's a vaccine for that. My third thought was, but wait, maybe then in India hep B would be seen as a benefit rather than plauge. Most people who get hep B have mild symptoms, like a cold. Only now and then does it destroy the liver and cause death, although I suppose the death rates would be higher in an undeveloped region.
Hep C is nastier; the woman I got my HIV and Hep tests from has hep C.
(I am negative to everything I've been tested for. The lack of social skills results in a lack of sex results in less exposure to std's. I forget this week's buzzword, they aren't called std's anymore.)
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