Archives for posts with tag: corruption


One does not normally insure against chosen and regularly incurred costs, like fill-ups and oil changes in cars . . . or haircuts, waxes, and contraceptive devices on people. When insurance companies’ policies do cover regular, pre-injury/-illness purchases, they are not economically engaging in an insurance contract. They are offering a payment system, a kind of premium savings plan.

Why would they do that? Sometimes to attract customer with a convenience — an expensive convenience they expect to make money off of. But also for another reason: because they are compelled by law.

The corruption of the insurance industry by government policy has been ongoing for decades.

Especially in medical markets.

How? At a fundamental level.

Economist Friedrich Freiherr von Wieser (Social Economics, 1928, p. 149) noted that there are three kinds of “binding compensatory contracts”: exchange contracts, insurance contracts, and social contracts. Wieser noted that insurance contracts sometimes look like social contracts, sometimes like exchanges. But the resemblance to explicit social contracts is that they mimic the widespread effects usually aimed at by social contractors, but through private exchanges. An ingenious invention. Insurance provides a public good by private means. The core nature of insurance contracts Wieser explains thusly:

Its purpose is to distribute the effects of loss over many private economies. It has attained great importance in developed economies. But it has to do only with the security of the economic body, not with its creation.

Wieser did not examine this form of contract in detail. He also, in developing economic theory, put aside discussion of the social contract:

One should expect that it be adopted to the integration of the social economy. Nevertheless in its effect it has been overshadowed by the exchange contract, which although as a rule is made only between two parties, has manifested itself the coördinating instrument that binds individual economies into the national economy.

This manifestation of unexpected and unintended coördination puzzles many people. Which is perhaps one reason why, as Wieser’s student F. A. Hayek suggested, we witness much social distress regarding — and political pressure to undermine and control — market order. The coördination provided by markets is “spontaneous,” as Hayek metaphorically put it (“inadvertent” is more exact), and its mechanisms and processes mysterious, in no small part because of its inadvertence. Folks balk at accepting an unplanned order.

This is especially true of insurance contracts, which often seem “unfair.” For example, I was a very good and safe driver as a young man, ages 16–28. Never an accident. Never even a complaint. But an appreciable number of my peers drove recklessly (but not “wrecklessly”!), skewing the actuarial tables that make insurance bets doable, so my insurance rates were high. Young women, on the other hand, had far lower rates — despite my personal knowledge of many dangerous young female drivers.

But I understood the unfairness, and rallied through. Meanwhile, during that same period, feminists pushed through in my state regulations that forced insurers and their customers to pay equal rates, disregarding the sexes. Young women tend to have more medical issues, especially regarding pregnancy — which, one should note, are usually the result of free choices, not wholly accidental events — and thus are greater risks for insurance companies, requiring higher rates.

But . . . unfair!

For some reason, feminists did not push for a forced equalization of auto insurance rates.

So, consider what that regulation did: it increased the pool of insured people, bracketing out of consideration reliable data upon which insurance businesses calculated profitable rates. So, it decreased the information content of insurance rates — prices, really — and made the business decisions less efficient, and less capable of adding efficiency over the course of time.

And by equalizing men’s and women’s rates, it swept into the mix a mostly non-insurable expense: pregnancy and birth. One insures for things out of one’s control. And, except in case of rape, one can choose not to engage in sexual intercourse, the activity that causes pregnancy. So, under modern regulatory requirements, more and more people are swept into the pool with more social contract problems associated with such pools: that is, “the tragedy of the commons.” When some gain at the expense of others, they tend to opt to do just that. A common resource subject to individual exploitation tends to degrade, as has been understood since the time of Aristotle, but clarified by William F. Lloyd, Garret Hardin, and Richard Stroup. In the case here made as an example, what would normally be unforeseeable and insured-for is now intermingled with eventualities placed under a woman’s or couple’s control. Thus they are able to game the system and free ride off of it. Basically, shifting their avodiable medical expenses onto other people who do not choose to produce babies.

This jiggering with the insurance industry basics changes its very nature. But not without costs.

And it is certainly not limited to just the one example. Tax policy, regulation and now subsidy have been contriving to turn medical insurance contracts wholly into social contracts. And politicians and activists have succeeded in convincing many simpletons and distracted citizens into thinking insurance should cover events that no honest business would cover — events such as already existing disabilities, or expenses that are wholly voluntary.

Remember: One cannot “insure” against the present; one cannot “insure” against controlled outcomes. It is only future uncontrolled events with assignable probabilities that make sense to insure. Only these eventualities that can make for stable, long-term and sustainable and efficiently provided buffering of the effects of loss or injury.

But, to repeat, tax law, regulations and now subsidy — by state and federal governments — have so twisted the industry that it now is a badly run redistribution scheme, something one would normally expect from governments pretending to enforce “social contracts.”

Wieser’s “coördinating instrument” of the exchange system, and the pricing (in this case) of insurance rates, has been scuttled by people more comfortable with the seemingly “rational” — but much more ungainly and discoördinative — government policy. Also, the instrumentality of force quickens the vindictive soul, spurring folks to demand a great cause — fairness, justice. Which allows, naturally enough, for the heady mix of self-righteousness and outright oppression (for what else is forcing others?) as well as the precious social signaling that moral crusades engender.

But because information is thereby decreased, and the tragedy of the commons introduced into the industry, society is corrupted, hobbled, injured.

The very opposite result, you might think, of medical insurance policy.

And witless Americans carry on with the fiction and lies. As if they were being smart and wise. Anyone who repeats the current wisdom about medical “insurance” — such as demanding “coverage” for a wholly voluntary aid, like contraception — is a dupe or a liar.



Friedrich von Wieser portrayed at top, in sketch; the current blogger immediately above.


Simple corruption in politics we understand, clearly. The paradigmatic corrupt act? Bribery.

But it is obvious that there is more than one form of corruption. I’ve been touching on this in my latest LocoFoco videos, and, on-again, off-again, in this and other forums.

Paul Jacob deals with this, too, in his most recent bout of Common Sense, titled “When in Rome”:

Americans concerned with government corruption really should study Italy.


“You know Italians,” septuagenarian Elio Ciampanella was quoted in the New York Times last week. “If there is a law, they will try to find ways to go around it!”

But it is not just ordinary citizens — the people — who are evading bad laws. It is government workers who won’t do their jobs, and who engage in a wide range of corrupt deals and shady incompetence.

I know, this seems awfully unfair to the Italians. What I’ve said is the case with governments around the world. But not equally. (Scandinavian countries have a long history of government worker probity, if not ultra-competence.) And Italians do have a well-earned reputation for government corruption.

Arguably, it’s the form freedom takes in Italy.

Be that true or not, Mr. Ciampanella’s story, as related in the Times, is a fascinating one. He asked for a government-subsidized apartment, and had to wait ten years to get one . . . only to discover the problem wasn’t a lack of apartments, but a surfeit.

Yes, the government owned too many apartments to keep track of!

And so they didn’t.

And gave special deals to “special people.”

In other words: incompetence and corruption as a way of life.

Market institutions that behave so chaotically and with so little attention to efficiency go out of business. But government? That’s “necessary,” so: too big to fail. And so, commonly excused.

No wonder, then, that the common-sense approach to government is to limit it.

This final idea, the idea of limiting corruption by limiting its very opportunity — by circumscribing the scope of government itself — is one that I have been trying to formulate well in the past few years. It seems foreign to my contemporaries, however. The whole mindset of statism, at least in this instantiation in the modern progressive, resists the idea, as if it were anti-matter. The commonsense notion seems almost unmeaning to progressives.

What I learn from Paul Jacob, however, is that incompetence and corruption might be linked.

And that is worth thinking about.

The image is shamelessly nabbed from This is Common Sense.

One of the odder aspects of modern Realpolitik is the almost universal avoidance of Lord Acton’s dictum that “power tends to corrupt.” Almost no one ever acknowledges that this influence applies to citizens as well as politicians, and that the lust for domination and “getting one’s way” in the political realm corrupts at the ideological level more surely than at any other.

People who talk about corruption invariably mean the taking of bribes or the practice of nepotism or the like. But the most common instances of corruption are the policies that politicians and citizens push.

I would say that the typical policy package of a modal right-winger or modal left-winger — or even (perhaps especially) a moderate — provides us the best examples of corruption in modern times. The grand example is favoring some at the expense of others. That is corruption, the perversion of the division of responsibility. Insisting on programs of subsidy, for instance, but supporting those subsidies from “some other guy.” The old bit of doggerel here applies:

Don’t tax me,
Don’t tax thee —
Tax the fellow behind that tree.

Bastiat defined it as “everyone attempting to live at the expense of everyone else.” Recent policies that stand out as corrupt in and of themselves include

  • banker bailouts
  • auto-maker bailouts
  • protectionism to “preserve ‘our’ jobs”
  • “make the rich pay their fair share” when the rich already pay more of federal taxes than the nominal middle class

If you want to talk about corruption, you must look to the policies themselves.