Decadent Technologies

4 June 2012


In several previous posts I have discussed how novel technologies will often display a sigmoid growth curve, starting with a gradual development, suddenly experiencing an exponential increase in complexity, sophistication, and efficacy, followed by a long plateau of little or no development after that technology has achieved maturity. The posts in which I described this development include:

The Law of Stalled Technologies

More on Stalled Technologies

Blindsided by History

Technological Succession

In Blindsided by History I wrote:

“Present technologies will stall, and they will eventually be superseded by unpredicted and unpredictable technologies that will emerge to surpass them. Those who remain fixated on existing technologies will be blindsided by the new technologies, and indeed may simply fail to recognize new technologies for what they are when they do in fact appear.”

The phenomena of one technology superseding another results in Technological Succession. In my post on technological succession I wrote the following:

The overtaking of a stalled technology that remains at a given plateau by another technology that fulfills a similar need (although by way of a distinct method) is an extension of a society with stable institutions that was able to bring to fruition a mature technology. With a mature technology in place, and stable economic and social institutions built upon this technology, there emerges an incentive to continue or to expand these institutions to a greater extent, at a cheaper cost, more efficiently, more effectively, and with less effort. This attempt to do previous technology one better is, in turn, a spur to social changes that will call forth further innovations. It could be argued that the Industrial Revolution emerged from just such an escalation of social and technology coevolution.

Technological succession, then, develops in parallel with the social succession of institutions capable of fostering further technological development by different means once a given technology stalls. In this post I made a distinction between mature technologies (another name for stalled technologies), which are technologies that have passed through their exponential growth phase and have plateaued at a stable level, and perennial technologies, which are technologies that do not experience exponential growth curves in their development — things like knives that have always been a part of the human “toolkit” and always will be. This distinction between mature and perennial technologies I then developed according to a biological analogy:

By analogy with microevolution (evolution within a species) and macroevolution (evolution from one species into another) in biology, we can see the microevolution and macroevolution of technologies. Perennial technologies exhibit micorevolution. No new technological “species” emerge from the incremental changes in perennial technologies. Technological macroevolution is the succession of a stalled technology by a new, immature technology, which latter still possesses the possibility of development. Mature technologies experience adaptive radiation under coevolutionary pressures, and this macroevolution can result in new technological species.

The coevolutionary pressures are those social institutions that make demands upon a technology to continue its development in the face of advancing social developments, which latter might include expanding populations, higher standards of living, raised expectations and soaring ambitions.

Even if another technology does not come along to further extend the social functions served by the mature and now stalled technology, the incentives to continue to go one better with technology remains, and this incentive drives the attempt to try to squeeze more performance out of mature technologies that would, if surpassed in the process of technological succession, remain stalled at a stable plateau of development. The result of pushing for more performance from a stalled technology is what I will call decadent technology (though I could just as well call this baroque technology).

The obvious examples that come to mind of decadent technologies are either of a humorous or theatrical character (or both). Steampunk and tubepunk are obvious examples of the intentional elaboration of a decadent technology for aesthetic and theatrical effect. As genres of art and literature, steampunk and tubepunk aren’t seeking to supply the wants of mass society (except for aesthetic wants, which respond to a different class of coevolutionary pressures).

Another example of decadent technology is that of race car engines. If you want to go really fast, it would make more sense to strap a jet engine onto set of wheels (which would look like a steampunk contraption), but racing mostly means specialized internal combustion engines — engines pushed about as far as the technology of the internal combustion engine can be pushed. It is obvious, from the thousands of photographs in car magazines, that the builders of racing engines can an aesthetic pleasure in their creations. However, these engines are not merely aesthetic exercises like steampunk, because by pushing the technology of the internal combustion engine to its limits, much more horsepower can be obtained. Thus a decadent technology can be effective, though it quickly begins to reach a level of diminishing returns, and further investment yields progressively less of a return. That is why these engines are not models of efficiency that the mass producers of automobiles look to for technological developments (though this is often used as an excuse for car manufacturers to sponsor drag racing) but rather they are expressions of mechanical ambition. Like I wrote above, if you want to go really fast, you can build a jet; the challenge is to build an internal combustion engine with the power of a jet, and this is a challenge in which both builders of racing engines and race spectators enjoy.

Most examples of decadent technology are not as theatrical and not as much fun as steampunk and race cars, but the principles are essentially the same. Microchip technology, following the social coevolutionary pressure of fulfilling the prophecy of Moore’s Law, is close to becoming a decadent technology. If some other technology for computing fundamentally different from silicone wafer technology does not emerge soon (like quantum computing, which still seems to be some way off), the producers of microchips will come under considerable economic pressure to drive silicone technology beyond its natural (i.e., physical) limits and transform it into a decadent technology.

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Decadent technology

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Grand Strategy Annex

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Voltaire famously said of the Holy Roman Empire that it was neither holy, nor Roman, nor an empire. In a similar spirit we might say of the “Patient Protection and Affordable Care Act” (apparently named by the shade of Kafka) that it will not protect patients, that it will not make health care more affordable, that it is not about care, and it is not even an act — rather, it is an excuse for legislative inaction. It is as though someone proposed “solving” the problem of homelessness by passing a law that every homeless person must either buy a house or rent an apartment or face a fine. Great. Problem solved.

With the US Supreme Court hearing arguments on the constitutionality of the provisions of PPACA, political rhetoric is heating up and the news stories are flying thick and fast. I don’t have much confidence that the Supreme Court will decide the case on the constitutional merits — this is, after all, a political process, so the judgment will be a political judgment. That is unavoidable. But apart from the legal constitutional issues posed by PPACA, there are the larger questions of whether or not it is any good as legislation. After all, a law can be lousy and still pass constitutional muster.

One thing for sure that PPACA isn’t going to save anyone any money. It is not about affordability. If you really believe that funneling vast new sources of money into insurance companies is going to make the health care industry more frugal and more efficient, then if we met we probably wouldn’t have anything to say to each other because our perspectives are essentially incommensurable. And please be clear about the fact that this legislation is not about providing health care, it is about purchasing insurance, and, as anyone who has purchased health insurance knows, having health insurance is not the same thing as receiving health care.

Health care premiums will continue to ratchet upward, steadily and relentlessly, and the new pool of forced contributors to the system will mean that even more money will be dumped into the ever-hungry maw of the medical-industrial complex, as more and more of US GDP disappears into a rat hole without a shred of accountability. Everyone knows the dismal statistics: the US spends a greater part of its GDP on health care than almost any other country (and since the US has the largest economy in the world, this means that not only are the rates the worst, but the absolute numbers are the highest also), and the US population is far from being the healthiest for all the money that is spent on health care. The US population has been very poorly served by the health care industry. What are we going to do about it? We are going to reward the industry by giving it even more money and forcing everyone to participate in a deeply troubled industry.

PPACA is not an act, because it takes no action — it does not confront the vested interests of the health care industry (whether hospitals or doctors or labs or the manufacturers or medical technology), it does not confront the vested interests of the insurance industry, it does not confront the vested interests of the pharmaceutical manufacturers, it does not confront the vested interests of the US government itself, and it does nothing to change the way health care is managed or delivered. Rather than taking on the powerful, the PPACA targets the most vulnerable and least powerful elements of our society — people who do not already have health insurance and probably cannot afford it.

It will be obvious from the above that I have nothing good to say about PPACA, but there are three simple things that could be done that would cause me to drop my objections:

1. a universal single-payer system

2. an “opt out” clause

3. bring all employees of the government, from the president on down to the lowest bureaucrat, into the PPACA as individuals forced to purchase insurance under the individual mandate

Unfortunately, all three of my alternatives are politically “radioactive” to the point that they are not even on the agenda. We do not talk about the ways in which real reform could be brought to health care in the US; instead we take action against those least able to resist the intervention of the government into their lives. This reveals the rapacity of the welfare state in its most ugly aspect.

I would have no objection whatsoever to a universal single-payer health care system in the US. In fact, I think it would be a good idea. When it is mentioned how every other industrialized nation-state has universal health care, so we therefore need to have government-mandated health care in the US also, it curiously goes unmentioned that the vast majority of these universal health plans are single payer systems that eliminate private insurance in favor of a truly universal system. In the US we don’t discuss this — not because the older universal single payer systems in Europe are running into chronic problems not unlike over-promised legacy pension systems (which is true) — but rather because the insurance industry in the US is very big, very profitable, and employs a lot of very wealthy and influential people. A tough-minded administration would be willing to take on vested interests like the insurance industry, but nothing whatsoever is being done by the PPACA to reign in insurance companies, who stand to be flooded with a tsunami of new money unless the individual mandate is struck down by the Supreme Court.

An “opt out” clause would be equally fine with me. Since PPACA incorporates an individual mandate, which particularly targets individuals, why not give the individual a chance to opt out of the system? And I do mean opt out entirely. I would be perfectly willing to carry a card in my wallet, like an organ donor card, or even to wear a tag around my neck, explicitly stating that I have opted out of PPACA and that I am not to be taken to a hospital or an emergency room unless I have the money available to pay cash on the barrel head for my treatment. I can imagine the people who thought this through would think I am crazy, and if my opinion mattered it would be denounced as barbaric and inhuman. So be it. I have no problem with it. If I die as a result of injuries sustained from a car crash because no ambulance was called, I accept that risk. (As I have attempted to explain in Risk Management: A Personal View, I believe the management of risk to be illusory, and in fact a moral hazard.) If I came down with a chronic problem requiring medical care, I would seek medical help in a country where the prices of the health care industry have not been so distorted by non-market incentives. So I am perfectly willing (if not enthusiastic) to do without the entire US health care system.

Similarly, I would have no objection to the PPACA if I knew that those making the law had to live according to its dictates (or alternatively, if they provided the benefits that they receive under their plan to the American people generally — but then that truly is politically unthinkable, is it not?). As with the unspeakable alternative of a universal single payer health care system, which would take on the vested interests of the health care industry, the insurance industry, and the pharmaceutical industry, government employee inclusion in PPACA provisions would not only take on the vested interests of the US government, but would also ensure that something actually gets done. As I wrote above, the legislation in its present form does nothing except to target the disadvantaged and the powerless — not something that you would call courageous legislation. If the people who wrote this law had to live according to its provisions, they might actually do something and make some changes. At present, they have no incentive whatsoever to do anything.

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Grand Strategy Annex

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North Korea and Areté

18 December 2011


Aristotle as depicted by Raphael in the Vatican stanze.

Aristotle said that excellence is not an act, but a habit.

Aristotle is famous for saying, among other things, that excellence is not an act, but a habit. The Greek word for excellence — areté, ἀρετή — is also translated as “virtue,” so the same Aristotelian quote is sometimes rendered virtue is not an act but a habit. These variant translations are justified, as they point to the close interrelationship between excellence and virtue in Aristotle.

Kim Jong-il impoverished his people and left the world a worse place than he found it.

Aristotle was a common sense philosopher before there was any such thing as common sense philosophy, and his moral psychology is equally commonsensical. Aristotle maintained that people enjoy doing the things that they are good at doing, and so people make an effort at getting good at doing certain things so that they can enjoy these activities all the more. I think that this is largely correct.

The elder Kim looking frail a few months before dying; the younger Kim Jong-un, heir apparent, looking scared.

It would not be overstating the case to say that many individuals actively seek out opportunities for cultivating excellence. These opportunities can vary dramatically from place to place and time to time. Certain socio-economic systems will be richer in opportunities for certain kinds of excellence, so we find excellence unevenly distributed across history and geography.

The blackout of North Korea is both literal and metaphorical. If it was not the Hermit Kingdom in the past, under its communist autocrats it certainly has become a Hermit Kingdom today.

If Aristotle’s moral psychology is more or less correct, it would then stand to reason that we will find excellence-seeking individuals at all times and places, so that these efforts toward excellence are likely to be directed into whatever channels happen to be available.

They know how to goosestep in the DPRK.

Today the news has brought word that Kim Jong-il, the North Korean despot, has died. I have written repeatedly about Kim Jong-il and North Korea, as these provide a radical example of state failure. Even while North Korea is the paradigm case of a failed state, there is a sense in which its rulers have chosen to rule over just such a failed state, though we usually think of failure as an accident. This is failure by design. But what then is the design? In a word: the military.

While the Kim family has been the despotic focus of attention in North Korea, the country is really ruled by the military. And while it is often reported that North Korea maintains an enormous military of a million men under arms, it is rarely reported how the North Korean military is not merely large, but is also an innovative, aggressive, and essentially meritocratic institution (assuming you also know to say the right thing and not say the wrong thing).

Sometimes dictators will create a bloated military of conscripts for bragging rights, but this does not accurately describe the North Korean military. People who study such things say that the North Korean military is an impressive institution in terms of its discipline, organization, and training. While they cannot count on having the most advanced technology and the most sophisticated weapons systems, they can train relentlessly and by all reports they do.

Knowing this to be the case, I would guess that one of the few opportunities to pursue excellence in North Korea would be by way of entering the military. Another opportunity would be to be a gymnast, dancer, or other performer in the enormous spectacles that were staged for the “Dear Leader.” Those are narrow options, but in the nation-state in which saying the wrong thing can mean a life sentence to the gulag for you and your family, it is best not to even try to pursue excellence in literature, art, entertainment, or anything else that might “send a message” and therefore be considered dangerous or subversive. Sports are relatively safe, and we all recall how the Eastern Bloc Warsaw Pact nation-states cultivated extensive sports training programs during the Cold War.

If the only (safe) outlets for a people’s pursuit of excellence is the military or sports, this is going to profoundly affect the cultural life of a country. It is also going to channel a lot of very clever and innovative people into the military who would not, under other circumstances, choose a career in the military. The talents of these intelligent men and women, indirectly conscripted through the suppression of other activities by which they might have pursued other forms of excellence, are in North Korea at the service of the military and therefore at the service of the state. These are the people who rule North Korea.

How will the military rule North Korea after the death of Kim Jong-il? Will they allow his inexperienced son, Kim Jong-un, to assume his place as a figurehead, and continue to rule the country to the greater glory of the DPRK military at the expense of all else? Some self-perpetuating institutions do exactly this; they have an overriding incentive to maintain the system that has put them in control and which disproportionately benefits them at the expense of their countrymen.

There are problems, however. A military establishment of more than a million soldiers is a sufficiently large organization for factions to emerge, and for those factions to be quite large. If, say, each son of Kim Jong-il could command the loyalty of a third of the army, each would still have military forces far larger than those of most nation-states. Internal power struggles have almost certainly already begun, and the issue of these struggles is not likely to be decided for months, if not years. Kim Jong-un is still quite young, and much could happen before he has any opportunity to exercise control (or for others to exercise control in his name).

Internal power struggles in the DPRK could be an opportunity for outside powers to intervene, or to use whatever levers they have available to influence the outcome in North Korea. But China and South Korea, the geographical neighbors, will be most concerned about stability and avoiding a flood of refugees should a crisis emerge. Furthermore, China will not want to take any action that might be interpreted as condoning either interference in internal affairs or questioning the legitimacy of a one-party state, since either action could be turned around and used against China in turn.

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Grand Strategy Annex

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Market Composition

14 December 2011


We can represent the particular market composition of an entity or region by showing the relative proportion of black, gray, white, pink, and red markets in a given economic system.

Yesterday in What color is your market? I introduced the idea, in addition to familiar ideas of black markets and gray markets, of red markets and pink markets — that is to say, sectors of the economy that exist only in virtue of state subsidies, direct (red markets) or indirect (pink markets). A completely nationalized economy is a red market; crony capitalism at its furthest reach is a pink market.

In so far as the ideal of political economy is that all transactions should be fully legal, a representation of an economic system predominated by the white market illustrates this ideal.

One of the greatest difficulties of producing a coherent economic theory is a function of what gets left out of conventional econometrics, and what gets left out is the black market and the gray market. Now that I have formulated the ideas of red markets and pink markets, I would also point out that, while statistics on these markets could be had with a bit of research, they are not the kind of things that governments put prominently on exhibition when publishing their economic statistics to the world.

In a classic Soviet-syle state-controlled economy, the red market would predominate. Nation-states undertaking nationalization measures approximate this representation.

It is nearly impossible to get accurate black market and gray market statistics because people are not about to be truthful about their illegal and quasi-legal financial dealings, and, similarly, nation-states and institutions are not going to be forthcoming about their red markets and pink markets.

Crony capitalist regimes, in which state favor of particular industries is primarily indirect mean a nation-state dominated by a pink market.

Nation-states have a vested interest in misrepresenting their red markets, because a population that was well informed about how the public money is being spent to support certain industries and certain jobs would likely create a backlash. No one wants to know that their tax dollars are being spent to prop up a decrepit industry, unless they themselves are employed in that industry.

Where the informal sectors of the economy dominate, black markets and gray markets flourish.

And while nation-states have a greater degree of plausible deniability when it comes to their pink markets, there is perhaps an even stronger incentive not to divulge the details of the pink market, as compared to the red market. When a government goes so far as to nationalize an industry, the case must be made explicitly that this is a good thing. In the case of pink markets, to case need not ever be made, if all can be done quietly, on the side, and no journalists take an interest in it.

The nightmare for every regulator and bureaucrat is an economy in which the black market predominates: the black market not only resists control, but also defeats attempts at measurement.

We can intuitively represent the overall structure of an economy by representing each of the five markets I have been discussing — black, gray, white, pink, and red — each by its eponymous color, showing the relative preponderance of a particular market in a particular economy by the relative preponderance of the associated color. If we could get good statistics, we could be quantitatively precise about this, but the above sketch is simply to present the idea and for this I claim no quantitative precision.

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Grand Strategy Annex

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Poor Cousins

9 July 2011


The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

A Parable

Once upon a time there was a large family, which either because of or in spite of their long intimacy and shared history, was a fractious and disputatious bunch, with old fights and old grudges that were never forgotten, even though the principals to these disputes were long dead. Over time the fortunes of the family had diverged, and some that had been rich in the remote past had become quite poor, while others who had started with nearly nothing had done very well for themselves.

The wealthy members of the family, who owned many industries, employed many people, and had large, modern, comfortable houses for themselves and their immediate family, were fully aware of their improved status in their world, while those members of the family who had fallen on hard times were equally well aware of their fallen status.

The poor cousins nurse a sense of resentment over the lower living standards and their perceived lower social status, while the well-to-do cousins nurse a sense of resentment over contributing to the support of their ne’erdowell cousins. The former never lose sight of the fact that every penny given has been given begrudgingly; the latter never lose sight of the fact that every penny spent on the poor cousins is a penny they are not spending on themselves or their children.

The wealthy cousins were constantly faced with the question of what to do with the poor cousins. Say you put the poor cousins on the dole. They become lazy, drink too much, pick fights, and cultivate a sense of entitlement. Do you help the poor cousins find work? Do you make work for them in your own industries? The same problems reappear: the poor cousins show up drunk and do shoddy work.

Say that the wealthy cousins attempt to observe the old maxim that if you give someone a fish they eat for a day, but if you teach them how to fish, they can feed themselves in perpetuity. In this spirit, the wealthy cousins help the poor cousins to start businesses. But the business doesn’t go well. Do the wealthy cousins continue to support the failing business, just so the poor cousins have something constructive to do? And, if they do, for how long?

In the fullness of time, the wealthy cousins decide to pool their resources and create a bigger business enterprise than ever before. The poor cousins want to be part of this, so the wealthy cousins tell them that if they maintain certain standards, stop drinking, and promise to work very hard, that they can be part of the new business enterprise and share in the wealth that will be produced.

Alas! the present plan works no better than previous plans. The poor cousins join in the new business, but they can’t quite make it work, and worse, they threaten to pull the whole industry down with them. What’s a wealthy cousin to do? Cut the poor cousins loose? Keep giving them money so they can continue with their end of the business, even though it is obvious that they can never turn it around?

The Lesson

Europe has not an essence, but a history. Like the individuals who jointly constitute Europe, there is no metaphysical center to the continent any more than there is a metaphysical center of the individual person. It is the shared history that constitutes Europe that makes Europe what it is. But in addition to being a shared history, it is also a disputed history. Every part of Europe has its own perspective on European history, and therefore its own sense of its place within Europe.

The shared history of the European nation-states makes the Eurozone seem like an obvious idea, so much so that it would only seem to be a matter of financial engineering in order to get things right. It would seem to be a mere matter of details to be cleaned up and the whole scheme put into practice, but, as is often said, the devil is in the details. The disputed history makes the obviousness of the Eurozone not quite so obvious in practice.

The crafting of the Eurozone turned out to be more political than financial engineering. As a political creation, the Eurozone was more diplomatic than a strictly business deal would ever be. Businesses deal with hard and unpleasant facts; if they fail to do so, they will go bankrupt. Diplomacy, however, avoids hard facts because hard facts are the rocks upon which ships of state come to grief. In diplomacy, nothing that can be stated indirectly is stated in direct and unforgiving terms.

This diplomatic behavior is fine for cautious nation-states who always keep an eye on neighbors, even when they have signed a peace treaty with them, but when it comes to unifying economies, it is no longer an acceptable practice. To make the Eurozone work for all members of the Eurozone would have required internal mechanisms that would, quite without sentiment, transfer wealth from where it was abundant to where it was needed. But rich cousins don’t want to support poor cousins, and poor cousins have no incentive to go to work if rich cousins are there to foot the bill.

It was widely reported not long after Greece joined the Eurozone that it had cooked the books to show itself as having met the Eurozone standards for entry into the monetary union. This was no secret once it came out. Greece was not summarily dismissed. Once made part of the family firm, how do you fire your poor cousin? Now the Eurozone is paying the price both for its diplomacy and its family sentiment.

Every large extended family has at least one drunk, one lunatic, one pervert, one criminal, one womanizer, one ne’erdowell, and one layabout — at least one, and more likely several of each. Europe is a family, it has its share of misfits, and some of these misfits are the most successful among the European nation-states. Family sentiment can paper over the strained relations withing families in the limited and controlled context of a family reunion, but when it comes to sharing the family purse, family sentiment is not enough.

It has been a fascination and an education for me to open up the Financial Times over the past few weeks, since every day has brought a new round of stories and opinion pieces on the looming Greek debt problem, possibly leading to default. Every possible opinion has been presented and argued for and against. I suspect that what is happening in the pages of the Financial Times is often more important than what is happening in government bureaucracies and boardrooms around the continent, since everyone in the bureaucracies and boardrooms reads the FT before they attend their meetings, and they probably all take their arguments from those already presented in the press.

I have the luxury of being intellectually fascinated by the process; those in the Eurozone must be experiencing that sinking feeling and so cannot really fully engage in the question as an intellectual exercise. For the Europeans, this is about family. And so the question remains: what is to be done with the poor cousins?

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Grand Strategy Annex

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Should risk management consist of three steps?

I have never thought of myself as a person who takes risks. On the contrary, I view my actions as cautious and calculated, since I am not likely to engage in some activity until I judge it to be a sure thing. But others see things otherwise. Some years ago I was talking to a financial adviser and I was taken up short when he characterized me as a risk taker. I think this was primarily because of my attitude to insurance. I have a personal distaste for insurance, probably from a mixture of instinct and experience. This may sound odd, but it is accurate.

Should risk management consist of four steps?

As I see it, the attempt to manage risk is illusory. I act upon this view by minimizing my insurance coverage. (This is what struck my financial adviser as risky.) About the only regrets I have in life are when I paid for an insurance policy when I didn’t strictly have to do so under legal compulsion. It felt a lot like flushing money down a toilet, and this latter exercise would probably be more fun than sending a check to an insurance company. Buying insurance does not give me peace of mind, it only makes me angry.

Should risk management consist of five steps?

One of the reasons I view the attempt to manage risk as illusory is because of my personal experiences with insurance policies that do not pay when you most need them. There are countless stories in the news, some of them tragic, about people who thought they were covered for some eventuality but found out in their hour of need that they were not. Whether it is someone who lost their home to a flood and later found a waiver in the homeowner’s policy for flood damage, or someone who cannot convince their HMO to pay for some particular medical procedure and who is dying as a result, there is almost always something in the fine print that makes it possible for an insurance company to deny coverage. These episodes are not accidental. Insurance companies have many lawyers who write up policies precisely to minimize the losses of the insurance companies for whom they work, and insurance adjusters can be even more creative in their interpretation of events.

Should risk management consist of six steps?

The state of Oregon requires that Oregon residents maintain insurance on their motor vehicles. I always buy the legal minimum, which means that I get liability insurance, but no collision or comprehensive coverage. I have no life insurance policy, but I have no wife or children so the only beneficiaries could be my sisters or parents or a charity. Also, life insurance feels like blood money to me. I wouldn’t want to receive a payoff, and I wouldn’t want someone to profit from my demise. I think it is a good policy to be worth more alive than dead; it gives others an incentive to keep you around. The moorage where I live requires residents to have fire insurance, and this seems reasonable to me as a fire could easily spread, so again I get the minimum coverage required, which is to say that I have the structure covered but not the contents. How could one replace the contents of one’s home? If you have picked up irreplaceable items throughout your life, and received gifts from family and friends, your possessions are more than widgets that can be replaced. Being paid for their loss would, to me, feel like getting blood money for objects.

Should risk management consist of seven steps?

I also have no health insurance. That’s right, I’m one of those people who make up the statistic of 47 million Americans without health insurance. And I am fully prepared to accept the consequences of my actions (and inaction). I have emergency instructions in my mobile phone that state that I have no health insurance and that no special measures are to be taken to preserve my life, because I can’t afford them. I suppose if I were taken to an emergency room contrary to my wishes, and I died despite any efforts made to save my life, that a diligent collector for the hospital might come after my assets to pay the bill, so they might eventually get their pound of flesh.

Should risk management consist of eight steps?

What would I do if I were diagnosed with a serious condition that required major surgery or some expensive treatment like chemotherapy? One thing I can tell you is what I would not do, and what I would definitely not do is to seek treatment in the US. Policies and litigation have so distorted the market for health care that no ordinary working class person in the US can afford to be sick, but this is not the case everywhere in the world. Since I know people all over the world, if I required major medical treatment, I would send out e-mails to friends in other countries and ask them to find a doctor who speaks English and to get an estimate for the procedure needed. I would without hesitation seek treatment in Korea or Peru, Indonesia or Argentina, before I would seek treatment in the US.

Should risk management consist of nine steps?

Perhaps you think this is odd, and perhaps even odd enough to be pathological. I have had many disagreements with others over insurance. None of the arguments that have been advanced to try to convince me of the folly of my position have changed my mind; they certainly have not changed how I feel about insurance. Then could we at least, at the very minimum, agree that it is rational to minimize risk, and to not take any unnecessary risks? Alas, we cannot even agree on the rational minimization of risk. As I see it, risk (like pain) is a good thing that forces us to think through our course of action carefully, so that the minimization of risk by way of insurance is a moral hazard that lures people unnecessarily into braving risks they would otherwise avoid.

Should risk management consist of n or more steps?

Allow me to relate a little story about the philosophical dimensions of risk. Contemporary legal and political philosophy is dominated (utterly dominated) by the work of John Rawls. Rawls’ claim to fame is a thought experiment. According to Rawls, a just society is a society that would be chosen behind a “veil of ignorance,” that is to say, if we would choose a social system not knowing what place we would be born into it, then that is a just social system (by our lights). The assumption here is that, if you don’t know the position in which you will be born into in a society, you will choose a thoroughly egalitarian system so that the birth lottery does not relegate you to a irremediably marginal role. It has been observed that this thought experiment and its presumed outcome assumes that the individual choosing a society from behind a veil of ignorance is risk averse. Of course, not everyone is risk averse, and there may be individuals — perhaps many of them — who might prefer inequitable social arrangements and be willing to take the risk that they will either end up in a privileged position or that they can manipulate the social system in question sufficiently to their benefit that the initial inequity will not be a liability that they cannot overcome.

John Rawls formulated one of the most influential thought experiments of our time, such that a just social order would be chosen from behind a veil of ignorance.

I don’t take the Rawlsian thought experiment too seriously, partly because almost no one believes in their own impoverishment and immiserization before they have hit rock bottom, and partly because the Rawlsian emphasis upon fairness seems so vulgar that it might have been explicitly conceived in contradistinction to the Aristotelian conception of areté. How would Aristotle’s Great Souled Man judge a society from behind a veil of ignorance? He would value most highly that society in which the highest virtues would attain their highest development. This would not necessarily be an egalitarian society, and it would not be a society without risk.

Great accomplishments, great deeds, and great undertakings are all won in the face of adversity and risk. To eliminate risk from the world would be to eliminate the possibility of greatness and excellence (areté); to minimize risk would be to minimize the possibility of greatness and excellence (areté). There is a sense, then — an Aristotelian sense — in which virtue is predicated upon risk. Even the great works of art, literature, poetry, science, mathematics, and philosophy all enjoin risk and entail risk. It is a risk to entertain a radical new idea or to present a radically new vision to the world. One risks one’s career, one’s reputation, one’s ability to make a living, one’s friends — in a word, one risks everything in attempting any authentic innovation. And yet almost everything of value in the world comes from such efforts, and from such willingness to court risk, all in the pursuit of being true to oneself.

This is perhaps a somewhat grandiose if not histrionic characterization of risk, but even if we reduce our scope and scale to the most intimate and personal perspective, risk cannot be eradicated from life. To be alive is to be at risk of dying. Whether we choose to think in terms of our legacy we leave in the world or our immediate personal circumstances, in remains true that we cannot control the world, we cannot control our circumstances, we cannot control what others say, think, do, or feel, and sometimes we cannot even control ourselves. The world is an unpredictable place, and, as I have argued many times in several posts, we ought to expect to be blindsided by history. And if we are blindsided by history to our misfortune, we ought also expect that our insurance policy is not going to cover the loss or make us whole again.

Perhaps risk management need only consist of a single step, and that is the recognition of inescapable risk.

I hope that this personal view of risk management has managed to convince you of one thing. I do not expect to have convinced you that the attempt to manage risk is illusory, but I may have been able to successfully make the point that an individual’s attitude to risk management is deeply embedded in the way that a given individual sees the world. A conception of risk management is predicated upon a particular Weltanschauung. Two individuals with distinct outlooks on life are also likely to have distinct ideas on how to best manage risk — or, as the case may be, to live with risk and not attempt to wish it away. The point is that there is not a single rational and pragmatic way to manage risk, but that the management of risk will be relative to the criteria of reasonableness and pragmatism that follows from a given Weltanschauung.

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Note added 03 March 2011: There was a great article in Financial Times by John Kay, Don’t blame luck when your models misfire, which includes the following:

“Like practitioners of alchemy and quack medicine, these modellers thrive on our desire to believe impossible things. But the search for objective means of controlling risks that can reliably be monitored externally is as fruitless as the quest to turn base metal into gold. Like the alchemists and the quacks, the risk modellers have created an industry whose intense technical debates with each other lead gullible outsiders to believe that this is a profession with genuine expertise.”

What can I say other than that I agree? This isn’t quite as blunt as my contention that, “the attempt to manage risk is illusory,” but it is not far from it. If the technical debates of risk modellers constitute a profession without genuine expertise, as implied by Kay, it is high time that we declared our independence from technocrats who would presume to control us all for our own good.

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Grand Strategy Annex

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The front page of the Financial Times featured the health care vote.

The Insurance Industry Attains to a State of Grace

If grace is an unmerited gift, then certainly today the insurance industry must have attained to a state of grace, for it has received an unmerited gift of truly stupendous proportions. Health care legislation has been passed that will require individuals to purchase health insurance and will require businesses to offer health insurance to employees. In other words, an enormous amount of money is about to flood into the medical-industrial complex, to which the insurance industry is central, and which will be the primary recipient of this government-mandated largess.

What must the insurance industry do in order to earn this gift? Nothing. Nothing whatsoever. That is what makes this government directive the purest form of grace. An industry that has been profiteering off the misery of mass man is now, by legislative fiat, to be enriched beyond anything that the market free of coercion would provide.

The Loyalties of the Democrats

Shrill and unthoughtful commentators sometimes say that Democrats tend to side against the business community in their political dealings, but more thoughtful commentators have observed that the Democrats’ primarily loyalty is to big business while Republican loyalties tend to go with small business and entrepreneurs. Thus in the past Democratic policies have favored enormous big businesses of the sort that appear in the Dow Jones index, companies like 3M and GM. The UAW has always been a stalwart supporter of Democratic candidates. But the big businesses of the past are no longer the big businesses of the present. GM, once a force to reckon with in the economy, is bankrupt.

Not only has industry changed, but workers have changed too. The constituency of the Democratic party tends to be better educated and better paid, and that means that they tend to have pencil-pushing desk jobs, the sort of jobs one might find, for example, in the insurance industry. Thus a gift of magnanimous proportions to the insurance industry from a Democratically controlled federal government ought not to be a surprise.

The only way to truly provide improved health care in the US at a lower cost would be to create a universal single payer system that would put the health insurance companies out of business. I would have no problem with this, but the Democrats are not going to take on the insurance industry because that is their constituency.

A single payer system could be made to work. But the American people, like peoples in democratic societies, are about to get exactly what they deserve. As they say, be careful what you wish for because you just might get it. And one ought also to be careful what one wishes not to have, because one may well not get it. Because of the hysterical antipathy to a universal single payer health care system that would be relatively simple and straight-forward, we will instead get a Rube Goldberg health care system that will cost a lot of money and not make people any healthier than they are now.

The Moral Hazards of Health Care Legislation

When an economic policy encourages irresponsible behavior, such as insulating people from the consequences of risk-taking, economists call this moral hazard, and we find that there is substantial moral hazard in the newly passed health care legislation. The provisions of the legislation, while well-intended, like all good intentions will have unintended consequences.

Individuals will be forced, under penalty of law, to purchase health insurance, and businesses will be forced, under penalty of law, to offer health insurance to their employees. What this means in actual fact is that young people and healthy people who have, to date, opted out of the medical-industrial complex, will be forced to put themselves at the mercy of that system. And what this means is that they will have to pay for a service that they neither want nor need.

A Tax upon the Healthy

Everything that your mother told you is true: you should eat well, exercise, and get plenty of rest. Simple as it sounds, that is the foundation of a healthy life. Forcing individuals to buy health care, however, will mean that the healthy will subsidize the unhealthy. Those who eat small portions of healthy food, exercise regularly, and get enough sleep will subsidize those who eat large portions of unhealthy food, live sedentary lives, and fail to get the rest that they need.

In other economic calculations we could say that this creates an incentive to eat unhealthy foods, to overeat, to become a couch potato, and to deprive oneself of sleep. However, when it comes to how individuals live their lives, this calculation no longer applies. People who live active and healthy lives enjoy the intrinsic benefits of their health and are not likely to begin neglecting themselves and their health because they have an economic incentive to do so. So the healthy will continue to live healthy lives, the unhealthy will continue to live unhealthy lives, and the the former will be forced, under penalty of law, to subsidize the unhealthy lives of the latter.

Since the healthy will not be able to opt out, and since they won’t take advantage of the medical-industrial complex in order to enjoy the dubious benefits of an unhealthy life, the new health care legislation constitutes a de facto tax upon the healthy. In other words, the incomes of the healthy will be redistributed to the unhealthy. It is difficult to imagine a worse social policy than this.

The Apotheosis of the Medical-Industrial Complex

The medical-industrial complex in the United States, which to date had been something that a law-abiding citizen could avoid, is now set to become an-embracing, all-pervasive reality in the lives of all US citizens. If you fail to make your contribution to the enrichment of the insurance industry, you will be fined according to the level of your income. Such a penalty will require an enforcement regime that has access to both the medical records and the financial records of every US citizen. Perhaps one will have to present one’s papers to the authorities to prove that one has paid one’s premiums. A whole new class of insurance industry commissars, apparatchiks, and nomenklatura will be created.

In his classic Principles of Political Economy (Volume 2, Book V, Chapter II, section 5), John Stuart Mill wrote these words in criticism of landlords:

The ordinary progress of a society which increases in wealth is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were, in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches?

Landlords, while still powerful, are no longer the bête noire of the economy, but I would suggest that the insurance industry neatly fills their ample shoes. What Mill wrote of landlords can now be reformulated, mutatis mutandis, for the insurance industry:

The ordinary progress of a society which increases in wealth is at all times tending to augment the incomes of insurance companies; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were, in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches?

John Stuart Mill could not have imagined, in the very different climate of nineteenth century England, how timely his appeal to “social justice” would sound today, but I find that the advocates to today’s conception of social justice seem to have little say in the matter of enriching the insurance industry. It seems now that the insurance executives, aided and abetted by professed supporters of social justice, can now gently recline for a nap and can expect to grow fat while they sleep.

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Insurance company fat cats can expect to grow fatter.

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Grand Strategy Annex

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