[FoRK] Adverse selection in insurance

J. Andrew Rogers andrew at ceruleansystems.com
Sun Oct 18 12:13:04 PDT 2009


On Oct 18, 2009, at 11:28 AM, Benjamin Black wrote:
> Greenspan discovered a 'flaw' in his model of the world.  Who, even
> someone as intelligent, experienced, and connected as Greenspan, might
> have guessed that promoting amoral psychopaths to positions of  
> enormous
> power in the financial industry would result in their treating it  
> like a
> machine for creating bubbles and harvesting money from the rest of the
> population?  Might there be a similar flaw in the current health care
> system model?


The "flaw" is in all extant health care system models: mal-regulation  
that cannot deliver the supposedly desired outcomes even in theory,  
never mind in practice. As long as policy is driven by  willful  
ignorance and childish delusions this will continue to be the case.   
We may not want creationists running our schools but we have the  
economic equivalent of creationists running our regulatory policy.  
There is plenty of anti-science to go around. Regulatory action is  
designed to stroke biases, not solve problems in any kind of rigorous  
systemic sense.

You can't regulate your way to a well-functioning system when  
regulatory capture is complete and regulatory incompetence is  
pervasive. Existing problems in the financial and health care markets  
have largely been created by regulatory complexity, so most proffered  
solutions are an attempt to "fix" things while aggressively ignoring  
root causes for the problems. Is it any wonder that regulatory changes  
in heavily regulated industries invariably amount to nothing more than  
rearranging the deck chairs on the Titanic?


One of the biggest flaws in our current system is that regulators are  
never held to be responsible for the state of systems in which the  
regulators are defining the equilibria.


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