risk takers

The bright side of flood insurance

by Michelle Minton on January 22, 2010 · 1 comment

in Insurance

Some Michigan residents are boiling mad that their mortgage lenders are forcing them to purchase flood insurance. The notifications were sent out to residents as a result of FEMA’s adoption of updated flood maps. There is, however, good news here.

Consumers have options. FEMA is certainly not infallible.  The maps may not be accurate (I know it’s hard to believe) and homeowners can hire their own property surveyors to determine if they are in a floodplain and how likely it is that a flood will occur on their property. With these actions they may be able to avoid the mandatory purchase of flood insurance or at least they can reduce the cost by giving details about the risk of flood (as I wrote in an earlier blog post insurers can charge less when they are more certain of the risks). Additionally, the more residents who assess the risks associated with their property provide more thorough details for their insurance companies which means that these companies can come closer to risk-based-rates for all of their customers and potentially charge less for everyone as the result of higher profits.

In addition, some consumers who have their property surveyed might find out that they are not in a flood zone though they thought they were and had already purchased flood insurance–in which case they can have their premiums refunded from the previous and current year.

On the flip side, some residents who have their properties surveyed might just find out that they are indeed in a flood plain and they may have to purchase flood insurance. But how “bad” is it really when people are forced to calculate and prepare for a hazard that is very likely to occur?

Milton Friedman counters Kennedy inaugural–and Obama’s

by John Berlau on January 20, 2009 · 4 comments

in Bailout Watch, Deregulate to Stimulate, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Sanctimony

Before President Barack Obama gave his inaugural address, it had been reported that he was heavily studying John F. Kennedy’s speech at the inauguration in 1961. And no doubt Obama’s “call to service” will be compared to Kennedy’s inaugural that contained the famous lines: “Ask not what your country can do for you. Ask what you can do for your country.”

On the good side, Obama did hail “doers” and “risk takers” in his speech and talked about how they have improved our way of life. That’s important, given the bipartisan urge to stamp out all risk-taking in the wake of the financial crisis. Perhaps that’s a good sign that will Obama will look at the ability to take risks as an important consideration in policy matters.

Unfortunately, though, Obama mainly talked about individuals as a means to achieving collective goals. Left out were individual American dreams of building a business or a better life — which is what fights against state tyranny from the British stamp tax to Jim Crow laws have really been about.

So the best rebuttal to this aspect of Obama’s inaugural is actually the late great economist Milton Friedman’s rebuttal to Kennedy’s “ask not.” It came from the introduction of Friedman’s seminal book Capitalism and Freedom, published in 1962, one year after Kennedy’s inauguration. In this passage, Friedman rips the concept of “national purpose” that permeated the inaugural addresses of both Kennedy and Obama:

In a much quoted passage in his inaugural address, President Kennedy said, “Ask not what your country can do for you – ask what you can do for your country.” Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic “what your country can do for you” implies that government is the patron, the citizen the ward, a view that is at odds with the free man’s belief in his own responsibility for his own destiny. The organismic, “what you can do for your ‘country” implies the government is the master or the deity, the citizen, the servant or the votary.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather “What can I and my compatriots do through government” to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?

To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

So this inauguration, when we celebrate another peaceful transfer of power and congratulate President Obama for his impressive journey to the White House, lovers of liberty should ask what can we do to protect our freedom and lift goverment barriers to achieving our several individual purposes.

Barack Obama’s ‘Digital Lines’ to Nowhere

by Ryan Radia on January 20, 2009 · 4 comments

in Deregulate to Stimulate, Features, Stimulus to Nowhere, Tech & Telecom, Zeitgeist

So spoke President Barack Obama in his inaugural address today:

“We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.”

When Obama said this, he was no doubt referring to his stated goal of having government build out broadband networks on taxpayers’ dime. The massive $825-billion stimulus package unveiled in Congress last week devotes $6 billion to build out broadband to areas where high-speed online connectivity is sparsely available.

Providing private goods like broadband Internet access is a task best left to private enterprise. As Obama himself noted only a few moments earlier in his address:

“It has been the risk-takers, the doers, the makers of things…who have carried us up the long, rugged path towards prosperity and freedom.”

Unfortunately, it seems that President Obama does not fully understand the true meaning of this line. If he did, he would realize that the very risk-takers he lauds are the ones who ought to be tasked with building the “digital lines” that “feed our commerce”.

We rightly rely on government to provide public goods such as national defense, dispute resolution, and the enforcement of property rights. We rely on the private sector, however, for nearly everything else. In an open marketplace, competing firms take risks, investing in business ventures with hopes of earning a profit by selling goods and services above cost. Demand is met with supply, and consumers enjoy the goods and services they desire at prices that aren’t too high.

Broadband is not a public good, and government should not be in the business of funding the development of networks for private use. Investment in broadband in the U.S. today may be below the socially optimal level, but this is the case because of too much government involvement in the marketplace, not too little of it. Moreover, it is not at all clear that government has any better idea than the marketplace how much investment in broadband is socially ideal.

To be sure, spending billions of taxpayer dollars may well mean faster and more widely available broadband access in America. To make this happen, however, capital would have to be reallocated to government from other, likely more productive uses. $6 billion spent on broadband at government’s whim necessitates $6 billion in additional tax revenue, which must come from the pockets of private firms and individuals. For government to spend the funds on delivering a service that the market has deemed unworthy—specifically, fiber optic connectivity to homes across rural America—would deny private entities the ability to spend or invest that $6 billion as they see fit.

Residential broadband access is hard to come by in many rural and low-income areas, and many unserved consumers would love it if firms were to provide high-speed Internet in their neighborhood. Many of these people value broadband considerably as a tool of commerce, communications, and entertainment—or at least they say they do when asked—yet in many cases, private businesses have decided against laying out the funds needed to build out fat-pipes to these areas.

Is the state of broadband access in rural areas proof of market failure? Hardly. What it actually suggests is that, while some unserved individuals clearly desire broadband, residents of underserved communities don’t value broadband enough overall to make it worth deploying. This signals to private firms that in some regions, building fat pipes to every home is an unwise use of limited funds. Instead, these firms allocate their scarce resources to other pursuits—ones which consumers actually value enough to justify an initial investment.

What of claims that the U.S. is lagging behind foreign countries in terms of broadband speeds across? While these reports may hold some truth, they’re hardly cause for alarm. After all, different countries have different characteristics—not just geography and population density, but consumer preferences as well. It’s quite possible that some of the nations with speedier broadband than America actually suffer from too much investment in broadband—and that their economies have suffered as a result. Like telecommunications firms in Japan, which over-invested in building out high-bandwidth fiber optic networks, some nations that currently surpass the U.S. in terms of broadband connectivity may well have harmed their economies on net by misallocating funds. The fact that the average U.S. worker is still more productive than the average worker of any nation with government—funded broadband is a testament to the fact that we can use capital efficiently without embracing a command-and-control approach to broadband.

Bailout fails — Move on to Mark-to-Market Reform

by John Berlau on September 29, 2008 · 13 comments

in Bailout Watch, Economy

Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.

It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.

Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.

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