Tag Archives: economics

Disappearing Insurance

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First it was health insurance, dysfunctional as it was, being replaced by the health coverage plan welfare program known as Obamacare.  Now auto insurance is under attack.

New York financial regulators have banned the use of education and occupation as factors in setting auto-insurance premiums….

Never mind that these are useful, if imperfect by themselves, correlates with driving skill and so of insurance risk. The companies accepting the risk transfer by selling a policy don’t get to know that information, they don’t get to assess the level of risk being accepted.  They can’t charge an accurate premium.  That hurts the driver as much or more than it does the insurer.

When insurers are not allowed to learn all the factors that go into the level of risk an insuree is seeking to transfer to an insurer, the policy being agreed ceases to be insurance.  New York’s auto “insurance” program isn’t yet approaching State welfare status, but it is ceasing to be insurance.

The Complexity of the Fed’s Interest Rate Angst

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A Wall Street Journal piece on how Amazon (and online comparison shopping in general) is making life difficult for the Federal Reserve had this remark early on:

Web-driven comparison shopping complicates Fed decisions on how much and how fast to raise interest rates.

No, it doesn’t. Only the bureaucrats at the Fed and reporters in the NLMSM think this is complicated. The Fed wants inflation stable at 2%. The Fed knows that interest rates—the cost of money—are inherently inflationary. The Fed knows what benchmark rates historically are consistent with 2% inflation.

The Fed should set its benchmark rates at those levels consistent with 2% inflation, and then it should sit down and be quiet. Neither its bureaucrats nor its inherently bureaucratic political appointees need to manufacture busywork by artificially complexifying a simple function in order to preserve their jobs. Reporters don’t need to complexify this matter, either; their interns can find lots of other things about which they can write.

Easy peasy.

Of Course They Are

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Universities and businesses are objecting to losing the tax-exempt status of tuition assistance, tuition that the universities receive in exchange for pretending to educate our youth and that businesses provide as an employment perk.  The House version of the tax bills currently in the offing eliminates this exemption status.

Hewlett Packard Enterprise Co, Starbucks Corp, and others say offering tax-free tuition assistance makes it easier for them to keep and train employees.

Schools say they could lose thousands of students if the tuition program is taxed. The nation’s economic development would be stunted if employees shy away from pricey training programs, they say.

Both groups are being disingenuous.  If everyone loses the exemption, no business gains an advantage, and so there is no hit to competition in keeping and training employees.  The businesses just have to make their decisions in this arena based on what’s truly good for the business and not on what works based on Government involvement—those taxes.

The schools won’t lose much either, other than students for whom college isn’t the best choice, anyway.  If their training programs are pricey, too, well, the answer to that is both obvious and wholly within the purview and capability of the schools to effect.  The exemption of tuition assistance from taxation, after all, is nothing but a subsidy, and so it contributes to inflating the price (not the cost) of the programs involved.

Tuition assistance is income; of course it should be taxed, as should all income regardless of source.  The questions here are whether income will be taxed at a low rate—as it should be—and whether our tax code, including tuition assistance being exempt, should be used for social engineering—as it should not be.

“major distortive impact on international trade”

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That’s the claim of European nations–Germany, France, Italy, Spain, and the UK—as they worry about the drop in corporate tax rates that the House and Senate bills propose.

Well, of course.  They also don’t like the highly competitive tax rates applied by Ireland and Luxembourg and routinely excoriate those nations for having the temerity of competing via tax treatment for business.  While the nations bleat about double taxation and how European businesses operating in the US would be at a tax disadvantage compared to US companies operating in the US, here’s the nub of the thing:

Even without those provisions, the reform would leave US businesses facing lower domestic-tax rates than some of their European peers, putting governments under pressure to reciprocate.

The horror.  And those nations—and the EU generally—still have not justified either their high tax rates or their high spending rates that underlie those tax rates.  The nations also have exposed their hypocrisy:

[T]he proposed “base erosion and anti-abuse tax provision” contained in the Senate bill could harm international banking and insurance businesses because it would treat cross-border financial transactions between a company and a subsidiary as nondeductible, subjecting it to a 10% tax[.]

Never mind that the EU already is attacking the international banking industry (and the insurance industry won’t be far behind) by demanding a tax on all financial transactions (currently masqueraded as a tax on investment transactions, but what else does an international bank do?), which itself can only depress international banking.  But hey, it’s a tax, so it’s all good.  Or so insist the Know Betters of EU Big Government.

The UK’s concern is especially interesting both as that nation drifts away from Thatcherism, even in its allegedly Conservative coalition and as the UK stands to make out like bandits in international trade following Brexit and the loss of EU fetters on its economy (always assuming the timid May government doesn’t surrender the farm in the face of EU intransigence).

Individual Mandate and Risk Pools

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Louise Radnofsky and Stephanie Armour had a piece in The Wall Street Journal that looked at the small and shrinking impact of removing the Individual Mandate (or more accurately, removing the penalty Supreme Court-created tax imposed for not satisfying the IM) on the health coverage providing industry.  The piece is worth the read, but there was one remark quoted at the end that wants a particular look.

“Making the risk pool stable is a vital part” of keeping individual insurance premiums in line with the overall cost to cover a person insured through a larger group or employer, said Andy Slavitt, a top health official in the Obama administration.

You bet. However, in order to stabilize a risk pool, it’s necessary to understand risk pools. A healthy young man does not have the same risks as an elderly man or woman, and so he does not belong in either of their risk pools, either of them in his, and neither of those two in each other’s. A healthy woman of child-bearing age does not share the same risks as a post-menopausal woman, and neither share the same risks as a man of any age. None of those three groups belong in the same risk pool as any of the others.

Health-related risk pools, to be effective and accurate at estimating future health coverage costs and so arriving at reasonable fees for accepting the transfer of the risks involved, need to be reasonably homogeneous.  Belonging to the species homo sapiens is not sufficiently homogeneous.