Well, if you are going to parse words like that, OK, this is a “type of insurance”, I guess, which functions without the insurance industry, which I think was what oldscratch was orginally getting at didn’t provide an “explicit” value. I hope the veil is now lifted from your eyes.
Now, I have no idea where he was going with this, but it better have been good – not that facillitating communication between capitalists and commies isn’t fun.
I apologize if I’ve been confusing. If a waitress shows up at my table and produces a hamburger (tah-dah) she’s still put labor into getting me the hamburger, which is the important thing. I didn’t ever mean to imply that the only worthwhile labor is done in a factory somewhere.
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And by that same principle the insurance company provides something of worth. Someone had to “labor” to calculate the variables that goes into insurance figures. But for some odd reason you feel like bringing up the Amish who have no use for insurance companies.
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Actually the US was never a third world nation. Third world nations didn’t exist until the cold war after WWII.
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What you call exploitation someone else might call a great opportunity.
Of course it isn’t a communal farm. The guy on the bottom certainly isn’t making the same as the guy on top.
Marc
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None of us are Amish. Things that work for a small tightly knit community where people have the same religious, ethnic, and cultural values does not always work for the population in general. Yes, there are other ways to ensure security besides insurance companies. But for the vast majority of us insurance is the best way to protect our automobiles and homes.
And the insurance companies do provide an explicit value. Should my house burn to the ground they will provide the funds to build a new one. If I run someone over with my car I’m financially covered. They provide me with peace of mind and that is valuable.
Marc
I’m saddened you can’t see past the illusion. But, you admit, there are systems which don’t require insurance companies. In fact, if we were all just willing to help our neighbors in their time of need, you wouldn’t need insurance at all. But because of the constraints of capitalism, people are either unwilling or unable to do so (or, perhaps Amish are superhuman if you insist), so insurance and all the wasted effort that goes into it, is a requirement of capitalism.
Fine. Whatever term you want to sub in for “third world nation” feel free. I don’t care for the term much myself.
Well, that does seem to be the general deception in the system. I’m sure they believe it is an opportunity.
Well, OK, but there are a lot of guys on the bottom. Close enough for my purposes.
Well, I imagine if I was a black atheist living in the middle of Amish country and I helped out everyone else when their houses burnt down, they’d help me if mine burnt down, but OK, I get your point.
But, if you lived in a communist society, you’d have that peace of mind anyway. Perhaps you’d have too much peace of mind and I think that is communism’s big flaw.
That fact that you don’t have peace of mind (or have to work even harder to purchase it) can thus be said to be a symptom of the capitalist system, which, again, I think was oldscratch’s point.
I’d say if you build your house on sand, and capitalism is just a big metaphorical house on sand or so some of us are arguing on this thread, you get what you deserve. Who insures the insurance companies? The government tries to insure the banks, the banks mortgage out all the real estate. But it can all come crumbling down. I’m not looking forward to the mass hysteria. I know I’m not helping – but perhaps oldscratch has some thoughts on the revolution he’d care to share.
Those people who think our current boom is going to last forever should be day trading, not hanging out here. :eek:
the current issue of THE ECONOMIST has a section on e-commerce/the new economy and says the US is experiencing a bubble based on computers and the internet. the ‘bubble’ is promoted on television tho the popular media doesn’t call it that. does television make it possible to blow up a bubble bigger than one has ever been blown before?
Dal TimgarThat’s because you live in a Capitalist country that has made you incredibly wealthy. $5 per day is more than the total daily income for more than half the world. The poor third-world people I’m talking about live in countries where the median income is less than $1000 per year. And that is a LOT of countries.
No, I’ve produced enough food to feed YOU for 15 weeks. But we’ve already established that you are incredibly rich, compared to the average human on this planet. You can thank Capitalism for that.
But even for poor people, $500 isn’t much. In fact, poor farmers work 16 hours a day to barely provide enough income to buy food for their family. There isn’t much left over. Not enough for decent health care, shelter, transportation, or education. Just enending toil. Do you know how poor people like that improve their lives? They have children. In the poorest countries, children are simply a source of labor. By the time the kids are 3 they are helping with the chores, and they are expected to produce a full day’s labor by the time they are 8 or 9. If they survive their infancy.
‘Workers’? Our farm didn’t have any workers. Did I mention it was a POOR farm? There was my Grandfather, myself, and my Brother. My Grandmother not only looked after the house, but spent 8 hours a day in a gigantic garden that provided many of our fresh vegetables. In the fall, she had to pick everything that was left (we’re talking several acres here, including the wild berries) and can them for the winter.
But yeah, in the poorest countries farming makes up a big chunk of the labor force. In pre-industrial times pretty much everyone was a farmer. Later, it took perhaps half of our population to provide the food for all of us, as our efficiency grew. Today, with the advances under capitalism it takes only a small fraction of the population to work in agriculture.
BTW, I wasn’t talking about our farm when I mentioned that the 3rd world farmer might make only $500/yr. Our farm probably earned my Grandparents more like $40,000 a year or so. That’s the difference between a ‘poor’ farm in a capitalist country and a ‘poor farm’ in the worker’s paradise.
LOL. How am I backtracking? No, capitalism is not a utopia. We still have to work, don’t we? If I were designing a utopia from scratch all the work would be done by superintelligent cyborgs. Man, I hate working. I do as little as possible. Capitalism isn’t a utopia, it’s simply the most fair and effective ACTUALLY existing economic system.
The sweatshop laborers and ditchdiggers are lucky they live in a capitalist society, otherwise they’d work more and make less. Ditchdiggers increase my wealth when they work, THAT’S WHY THEY GET PAID. They get a share of my wealth whenever they use their paychecks to buy something that I produce. They get compensated for their work. Under other economic systems they still have to work, but don’t get anything for it…they are slave laborers or serfs.
Ditchdiggers increase my wealth (each by a tiny amount), and I increase the ditchdigger’s wealth (also by a tiny amount). You say that because of this they should get a share of my wealth. Well, they do…by the tiny amount that their dollars can buy more goods. And no, I wouldn’t contribute to the world by not working…if I consume goods without producing goods then I am a drain on society, not a benefit. But ditchdiggers are not a drain, they are a benefit. I contribute to the world by working, by creating valuable goods and services. Don’t you see that for goods and services to exist, someone has to create them? You seem to feel that all these cars, houses, and ham sandwiches just fall out of the sky and all we have to do is divide them up fairly. But no. We have to make the cars, the houses, the ham sandwiches. Unless someone makes them, we’ll do without. The only way to get a car from someone who makes cars is to (metaphorically) give him a house or a ham sandwich. If no one makes cars, then I can only trade my houses for ham sandwiches and vice versa. So when someone makes cars, my houses are more valuable because suddenly I can exchange them for either cars or ham sandwiches, when before all I could get for them where ham sandwiches. See why my goods are worth more when other people produce goods?
Let’s put it this way. An average middle class person in America today is wealthier than the Emperor of Rome was. Sure, they don’t have servants, or vast estates. But they have millions of things that the Emperor could never have, even with the resources of the empire to plunder. Sure, we don’t have the same ego gratification or the power to crucify our enemies. But we get clean hot water 24 hours a day, music and theater on demand in our own houses, the ability to travel around the world in a few hours, freedom from disease, freedom from barbarian hordes invading. I wouldn’t trade places with any medieval person.
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Heh heh…good one. You know when the Amish sell their goods outside the community what system do they switch to? That’s right, capitalism. If you think the Amish are so great why not work towards creating some sort of community similiar to theirs?
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And it is.
Well, OK, but there are a lot of guys on the bottom. Close enough for my purposes. **
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Not close by a long shot.
Marc
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Are you sure about that? There’s a good chance they wouldn’t want you helping them out. They kind of shun outsiders, y’know. And since you don’t share any of their values they probably wouldn’t want to hang out with you.
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No, if I lived in a Communist country I’d be to afraid of hearing a knock on the door at midnight and being dragged off to some prison because my ideas are not party approved.
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Harder then what? I certainly don’t work harder then my ancestors. Hell, I think of the jobs my father and grandfather had and I can’t believe how easy work has been for me.
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Which explains why we seem to be living so well. We must deserve it.
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Barring some super serious disaster the entire system is not going to come crashing down. Capitalism has buried Communism. The western european nations have a higher standard of living then any eastern bloc country. Japan and Thailand have higher standards of living then China and Viet-Nam. North Korea is starving while South Korea is doing peachy. The USSR, the flagship of the workers paradise, couldn’t even last 100 years. The US on the other hand has lasted over 200 years and is prospering.
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The coming revolution is a little late don’t you think?
No, the boom won’t last forever. But that’s ok. Even during our off hours we still live very well.
Marc
Geez, you don’t think that differences in language and geography might having anything to do with it? Perhaps there are other explanatory factors. How nice it must be to be jmullaney who knows the answer to everything.
Your answer explains nothing. Why would the investors in the Philippino economy not want to see their investments increase in value? What do they gain by economic stagnation in a country? Yeah I know your going to say cheap labor, but see having a better educated workforce allows you to enter into more advanced types of production. Microsoft is never going to move to the Philippines because it needs a highly skilled work force…something you tend not to find in third world countries.
Not only that but I find it hard to believe that every industry and factory in the Philippines is owned by a foreigner (be it a corporation or person). In fact, I bet this claim of yours is completely false and I have little doubt you will not present any evidence to back up your claim.
Oh, and it is nice to know that there are no bad effects from cronyism and nepotism.
Well, consider this…if everybody lives on communal farms and they actually are successful what are you going to have? Lots of food. Now, what does this mean about the price of food? It is going to be very very low. Now how are they going to buy the things they might want like clothing? Or are they going to have to make that too?
You fail to grasp the advantages of the division of labor. Also, who is going to make the farming equipment that they are going to need? What about things like roads, trucks and tractors? Are the dollar bills lying around going to make these things?
Are you really this naïve or are you just trolling?
Oh boy you are that naïve. You see nobody thinks money actually produces anything. This may surprise you (in fact, I know you are going to be surprised and probably express some sentiment that implies I am being less than honest), but many economists see money as being essentially nothing more than a facilitator of trade. That is people agree on a commodity, a numeraire good, that is used as money. I could be gold, sea shells, etc. Money itself really doesn’t matter (this is why micro-economists are always talking about relative prices instead of absolute prices…but I wouldn’t expect you to know that). Anyhow, money basically makes engaging in market transactions much much much much easier, than say barter, especially in an economy with a large number of participants.
So you see, nobody here thinks money makes anything (other than making market transactions easier…we have a common reference point). So getting that $50,000 from the insurance company does not mean that the money is going to be scattered across the ground like seeds and bingo a new house springs up. You take that money and use it in the market place to purchase the goods and services to buy/build a new house.
See it is very much like the Amish example you gave. In your example, each Amish family sets aside some of its resources (labor, timber, tools, etc.) for helping a neighbor build a barn or house that burned down. In modern society, people are using a proxy to do the same thing, money. Two reasons I suspect the Amish scheme works well is that it is a small community (hence free riding is unlikely) and their religious/cultural background (which further reduces free riding). In a larger community with out a similar religious/cultural background would have problems with free riding.
Thanks MGibson…say this wouldn’t be Mel Gibson would it? 
Your are absolutely right. The insurance industry relies very heavily on actuaries who spend years learning mathematics, economics, and statistics. They develop very intricate statistical models to try and calculate the relevant probabilities. Lest anyone think this is easy try reading up on the literature on adverse selection and moral hazard. Even the simple problems are a fricking pain in the ass? For example, if you also have a principal agent problem, IIRC, there are problems with using the standard first order conditions in the analysis, but it has been a few years since I looked at this.
As I noted above, such systems are usually small and depend on the religious/cultural background. Not all societies can function as the Amish do. Nor, does everyone want to live life as the Amish does. I suggest you study the free rider problem.
And what type of enforcement mechanism would you suggest? I am sure there is one in the Amish community. If I don’t pitch in, then if my barn burns down my neighbors might not help me? Given the constraints of the Amish lifestyle this could be devastating, combine it with social ostracism and it would be a very effective enforcement mechanism. But, in modern society, what is to keep me from moving? Plus, how far does this extend. Over 100,000 people live in the town I live in. I know maybe 15 or 20 of them casually and none of them very well. In this situation the free rider problem would be such as to render your Amish solution unworkable. Also, modern houses are not as easy to build as an Amish house. There is electrical stuff, plumbing stuff, and what not. What if no “neighbor” knows how to provide such things or expertise? Surely you aren’t suggesting we give money…that might eventually lead to…gasp insurance companies!
MGibson, you know, I don’t think we are going to “win” this discussion with jmullaney. He slips and slides all over the place. He has adopted the “capitalist” definition of value, he has argued for insurance, just not the kind we find in non-Amish society, etc. He is like a bar of soap, when you try to pin him down he slips away and pops up elsewhere to post silly bromides and baloney for the most part. However, I am sure there are lots of lurkers watching this thread…so keep up the good work. Same to kabbes and Sam Stone.
Damn…I messed up the codes in my last post…uhhh…I don’t know if you guys think of bold as shouting…but I didn’t intend for half the post to be in bold…
jmullaney:
Here’s a simple thing to consider. What happens if an Amish person stops helping out at the barnraisings of his neighbors? Well, he’ll probably be visited by the elders of the church to see what is wrong. If he still refuses to engage in community functions he will eventually be shunned. That means that no one will help HIM when HIS barn burns down.
So it isn’t just neighbors helping neighbors. The Amish don’t have a formal accounting system. But they do have a very effective informal accounting system. If certain people try to take undue advantage of their neighbors everyone knows it, and people will stop being so generous with people who don’t return generosity. Yes, it is more relaxed, it is more community oriented, it is a more natural way for humans to think.
But it wouldn’t work that well with 250 million people. The only way to avoid wide-spread abuse of the system would be a vast beauracracy, with the power to investigate claims and determine who has had a disaster, who has helped others in the past, and who gets helped and who gets shunned. Hmmmm…sounds like our modern insurance system. Yes, we could have a government run insurance system rather than private insurance, but there is no evidence that it would be fairer, more efficient, or more likely to help people in need. Indeed, given the track record of government social programs it would almost certainly be less fair and responsive than our private insurance.
But still, if you want to advocate a national insurance program, lets sit down and crunch some numbers and see if we can make it work. But that’s probably not going to happen, not even if Al Gore wins the presidency…
Bangladesh is subject to frequent devestating floods. With no insurance to cover their losses, each time this happens the result is catastrophe. To use your Amish example, what would happen if the whole Amish community suffered flood? Who’s going to build the houses when all tools and equipment have been lost? Insurance seeks to spread the risk a hell of a lot wider than a simple community.
Look, one of the big problems in insurance is accumulations of risk. This is where risks are not independent so that one event can trigger many claims. There are a number of sources of accumulations, but one biggie is geographical accumulations - i.e. if there is an earthquake we can be fairly sure that there won’t be just one claim.
Insurance companies get around this by making sure that they have a diverse portfolio of risks. This makes the risks more predictable and more controllable. The Amish-style insurance (and it is undoubtedly a form of insurance) is pretty much a textbook case of geographical accumulation.
regards,
pan
kesagiri, keeping up the good fight:
The average qualification period of an actuary in the UK is seven years post degree and you have to have a pretty good numerate (ie mathematical/economic/scientific) degree to get into the institute in the first place.
Hopefully this gives an idea of the difficulties involved in managing risks.
If you think, jmullaney that this knowledge is not valuable and worthwhile to society, then I can only state that I disagree with you wholeheartedly.
regards,
pan
Funny enough this was a point I was going to bring out this morning anyway. Insurance companies use sophisticated reinsurance techniques to ensure that their portfolios are as diverse as possible. This ranges from simply passing on x% of all premiums and claims to another insurer to layers of complex aggregate reinsurance with specialist reinsurers which will only kick in under special circumstances.
If insurance is such a scam, why would insurers themselves be partaking of it?
regards,
pan
As others have pointed out (thankyou to Lemur, Sam Stone, kasarigi, MGibson amongst others), the ability to manage your risks is a valuable “good”.
In case you are having difficulty imagining how, let me illustrate:
Suppose you are a big bad Capitalist. You think that building a bridge would be a profitable venture. It would also be good for society (pretty much by definition since if it wasn’t useful it wouldn’t be profitable). However there is a 1% chance of a catastrophe wiping out your investment.
Let us assume that there are also a whole lot more risks that would cause you to lose money if they were to occur on this particular project. Without going into detail about systematic vs specific risks in any project, we’ll assume that if you could just build 10,000 bridges worldwide, you could be fairly certain that the problems will occur on 225-250 bridges.
However you are only building one bridge. If it goes wrong, you are bankrupt. Without any risk-management techniques that bridge will not be built. Its just too risky. However insurance can turn this disaster/success dichotomy into a continuum. It is now worth your while to build the bridge. You benefit. Society benefits. Insurance has value.
regards,
pan
Away from the whole issue of insurance, I’d like to state a problem I have with unfettered capitalism.
It’s commonly understood that in some way mechanisms head towards the optimum solution. However these optima are only local - that is although each market may be in its optimum state, the economy as a whole may not be.
I’m talking synergies people, the holistic approach.
To illustrate with an example: pollution costs are often not levied exactly on the particular market that produces them. It will then not necessarily be in that market’s interests to minimise pollution, even though the economy as a whole is suffering.
The only way I can see in the context of capitalism to solve this problem is regulation and taxes. However I’d be interested to hear other peoples’ views.
regards,
pan
jmullaney:
Riiiiiight. Of course, it’s inconceivable that by taking the risk associated with burned down houses and wrecked cars, insurance companies have freed up time for people to aid each other in other ways.
By the way, do the Amish carry crop insurance?
MGibson:
Let’s all be very, very careful in our characterizations of the Amish, as there are different sects with widely different habits, mores and values. I worked in retail in Northeast Ohio for a few years, where there is no shortage of Amish, and saw more than a few hanging out at that monument to capitalism, the shopping mall, while paying for their purchases with Visas and Mastercards.
Could those Amish have actually been Mennonites (hope I spelled that correctly)? I believe they are not as opposed to many of the modern conviniences as the Amish.