Sunday, December 27, 2009

Those who take medical risks get Congress' help

Published in The Tennessean, December 27, 2009

Those who take medical risks get Congress' help

By RICHARD J. GRANT

"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean — neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master — that's all."

We can only wonder what Humpty Dumpty would have said about health insurance. The word "insurance" used to have a clear meaning. But as insurance has come increasingly under the control of our masters in the various levels and branches of government, the thing itself bears less and less correspondence to the word we use to describe it.

Life comes with a natural uncertainty, and each of us must find a way to handle this fact. We can identify and, in many cases, measure the various risks that we face. This helps us see the connection between what we do and the likelihood of various consequences. Not all smokers will get lung cancer, and we don't know which smoker will. But we do know that smokers are more likely to get it than are non-smokers.

This kind of knowledge enables individuals to make voluntary agreements with each other to share or trade risks. A corn farmer might fear that the price of corn will be lower at harvest time; the company that makes corn flakes might fear that the price of corn will go higher. Each can reduce their risk by agreeing now on the future price.

From this we see the natural emergence of a market for futures and other "derivatives." There is no need for government involvement beyond its basic role in the enforcement of contracts and of laws against theft and fraud.

Similarly, people can agree on methods of sharing and reducing health risks. What we call "health insurance" is an agreement between individuals to contribute to a fund that is used to pay some of the expenses of those who are unlucky enough to require medical treatment. Those individuals who engage in behavior, such as smoking, that is more risky to their health would be required to pay more into the fund.

Faced with this higher premium, each risk-taking individual must decide whether or not the enjoyment he gets from the risky behavior is worth the greater insurance expense. If not, then he is likely to reduce his risky behavior.

Suppose the government forbids "discrimination" between smokers and non-smokers. Smokers would not have to pay the full cost of the higher risk they bring to the insurance fund. Smokers and non-smokers together would pay equal, but higher, average premiums. This would attract more smokers to buy insurance, but many non-smokers would feel ripped off and drop their coverage. The result of "well intended" government intervention is higher average premiums and fewer people with health insurance.

If the government now forbids "discrimination" against people with "pre-existing conditions," then someone who already has lung cancer could purchase a policy from an insurance company to have the medical expenses paid by all the other policyholders. Such a rule would require an increase in everyone's premium to a level that would cover all potential costs. Otherwise, the insurance company would be certain to fail.

Pre-existing conditions by their very nature are uninsurable. We apply the word "insurance" to situations that entail risk, not certainty. The treatment of pre-existing conditions requires existing resources that must come from the patient or from someone else. If they come from someone else, we call it "charity" or "welfare." Congressmen can call it whatever they want but cannot change the underlying reality.

What Congress is now attempting to do will shift the cost of medical risks onto taxpayers. But with an unlimited supply of possible medical conditions, there is potentially no limit to the liability that taxpayers will soon bear.

The result will be the destruction of both insurance and charity.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2009, 2010

Sunday, December 20, 2009

Constitution keeps us on the straight and narrow

Published in The Tennessean, December 20, 2009

Constitution keeps us on the straight and narrow

Richard J. Grant

In Homer's epic, The Odyssey, Ulysses knows that he, like other men, will not be able to resist the Sirens' song and the temptation to get closer and turn his ship into the rocky shores of destruction. He wants to lead his ship and crew safely past the land of the Sirens, but he also wants to hear the Sirens' song and to know when he has passed the danger.

So he orders his men to fill their ears with beeswax and to bind him tightly to the mast so that he can take no action that might endanger the ship as his men continue to row.

Each of us has lived a similar story in that we have adopted rules of conduct that might at times clash with our temptations but guide us safely through the challenges of life. Sometimes we adopt these rules consciously and take responsibility for living up to them. But for the most part we absorb such rules, as part of our growing up, from the example of those who were here before us. We might never know where the rules came from, yet in our present comfort imagine that we can do without them and suffer no ill consequences.

Today, we recognize this tale of Ulysses and his men as the timeless story of our need to bind our leaders to the mast of limited authority, to keep the ship of state on the straight and narrow. In its modern form we recognize it as our Constitution, which grants limited powers and responsibilities to states and branches that comprise the federal government.

The beeswax represents the "red tape" or rules that restrict the actions of government bureaucrats. Many of us are tempted to see this red tape as a tedious impediment to getting things done, as a source of inefficiency. But the rules we call “red tape” are not there to restrict citizens engaged in private endeavors. They are there to restrict those who would serve and regulate us, and to prevent them from taking on the powers of little kings.

Our constitutional rules, as intended by the Framers, maintain a practical conservatism with regard to the foundations of our society. The Constitution is hard to change, and it limits the way that we produce legislation. By maintaining a constitutional attitude we reduce our chances of frivolous action, stoked by the passion of the moment, or the terror of the crisis, or the urgings of the demagogue.

It is a part of citizenship to remember where we came from. There is no role for those who blurt, "We won. Get over it." We have a way of doing things that has worked for over 200 years, and the tyranny of the majority has never been an acceptable part of it.

The essential history of Western civilization and this exceptional Republic began over 2000 years ago, not far from Jerusalem. As men learned to envision a destiny that transcends this life, no man could rightfully claim ultimate authority over any other man. Each individual was important, and in those few countries where this idea was absorbed into the culture and rules of conduct, the people as a whole flourished and grew stronger.

Ultimately, moral rules are only as good as the people who live by them, and constitutional rules are only as good as the people who interpret and enforce them. That we were fortunate enough to inherit the rules at all could be attributed to luck or to grace. However it got here, and whether or not we understand it, the culture bequeathed to us by our ancestors contains more wisdom than any one of us could expect to figure out in a lifetime.

With the light of each day now growing brighter, let us take time to remember where we really came from, and have a happy Christmas.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays.
E-mail: rjg@richardjgrant.com.

Copyright © Richard J Grant 2009

Sunday, December 13, 2009

Don't confuse environmentalism with science

Published in The Tennessean, Sunday, December 13, 2009

Don't confuse environmentalism with science

by Richard J. Grant

Truth is not determined by majority vote. Any talk of a "consensus" in science is best not taken as the final word. As Somerset Maugham once put it, "If 40 million people say a foolish thing it does not become a wise one, but the wise man is foolish to give them the lie."

Climatology is a science, not to be confused with environmentalism. The heart of environmentalism is not to be found in the natural sciences. It is ideology and nothing more. That is why it ends in "-ism."

Environmentalism is itself not a monolith, but its dominant strand is distinctly statist in character. As such, its main nemesis is the science of economics, not climatology or any of the other natural sciences.

A sound understanding of economics is all that is needed to discredit the emerging interventionist social agenda of the environmental movement. The methods that they recommend cannot deliver the results that they promise.

It is common to hear accusations of "junk science" hurled against environmentalists, particularly those touting the dangers of climate change.

These accusations might be well taken and, if so, would be sufficient to derail the CO2 "Cap and Trade" juggernaut. But the real objective of the environmental movement appears to be in the social realm. That means the control of people, with environmental controls serving merely as the instrument.

We have had considerable domestic and international experience with governments that micromanage the lives of their residents. The more governments interfere in our lives, the more things go wrong. The people are poorer, less healthy, and less able to adapt to the vagaries of nature and of other men. If ever a science were settled, this would be it.

It should be obvious that each individual’s actions affect the rest of us to some greater or lesser extent. The same is true with respect to the environment around us. Complex interactions present us with great regularities, as well as many unexpected events. It has always been so; and we can expect it to remain so.

The environmental activists now meeting in Copenhagen need to mature a bit, and come to understand that we have less to fear from CO2 than from bad ideas.

Instead of sucking the oxygen out of the debate, they should admit that they know far less than their claims would suggest. They need to learn humility, an essential ingredient in anyone who would speak of science.

We need not con ourselves that we know enough to predict the Earth's temperature one hundred, or even twenty years from now. Even less certain should we be that we have the power to control it.

What we can control is our readiness to face whatever comes. But to follow the advice of the Copenhagen activists, or those who voted for the Waxman-Markey bill, is the path of fools.

It is the path of weakness and dissipation.

We know better, and we have done better. It is free societies that have done the best in meeting economic and environmental challenges. It is free societies that have led the way in developing new energy sources and making them incrementally more efficient.

If we, as consumers, really feel that burning coal for energy is too dirty, we don't even need to put a tax on it. All we need to do is stop wasting money on subsidies to low-yield, low-reliability sources, such as wind and solar, and remove the irrational and crushing regulatory burdens from more promising energy sources, such as nuclear. We don't need to subsidize any energy source.

The technology has already advanced sufficiently that private competition to serve customers would result in a systematic replacement of old energy sources by cheaper and cleaner sources.

If governments would stick to their job of protecting us from aggression, rather than blocking us from progress, we would now be wealthier, healthier, safer, and cleaner.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column will appear on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2009

Sunday, December 06, 2009

Fudged global-warming data melt under scrutiny

Published in The Tennessean, Sunday, December 6, 2009

Fudged global-warming data melt under scrutiny

by Richard J. Grant

Have you noticed how often it is assumed that people in business are ruthless, greedy and unprincipled in their pursuit of profit, but that people in government are assumed to be selfless, benevolent and unerring in their pursuit of social justice?

Is there something about the two types of service that magically transforms human nature, or is there just some mysterious sorting mechanism?

Here's an example. A corporation, let's say a big oil company, gives a monetary grant to a group for the purpose of funding research related to the issue of climate change. Around the same time, a government agency gives a monetary grant to another group, also for the purpose of funding research related to the issue of climate change. Is there a difference? Are the results of the two grants portrayed in the media in exactly the same way?

If the research results cast doubt on the current great social cause célèbre, it is unlikely that the recipients of the corporate funding will escape being labeled as obviously biased, in the pocket of big business. The common assumption is that the results will always support the corporation's interest. But no such stigma is automatically attached to governmental funding of such research, even though a contrary result may be just as likely to lead to loss of future funding.

When an issue is politicized in the way that the issue of "man-made global warming" is, it is reasonable to assume that those who dispense the funds will harbor hopes about the results expected to come from the research. This is not to suggest that researchers are necessarily corrupted by the source of their funding, but there can be a mutual self-selection, and some researchers seem to have a strong desire to please.

Does size matter when it comes to influence or temptation? It should be noted that while private funding of climate-change research is measured in the millions, government funding is measured in billions of dollars.

Also, those who manage to find evidence supporting an activist "carbon reduction" program just happen to receive aggregate funding that is two to three orders of magnitude greater than those researchers who find no cause for alarm.

This lopsided funding might help explain the widespread belief that global warming must be a clear and present danger. And the high stakes might help explain the stridency of the debate such as it is. One side, however, insists that there is a "consensus," that "the science is settled," and that anyone who disagrees with the need for massive government intervention to abate global warming is either morally or intellectually defective.

That the science is not settled is demonstrated by the large number of scientists who do, indeed, stand against the so-called consensus. There have also long been charges from independent researchers that some leading believers in anthropogenic global warming have been mishandling the statistics. A famous example of such mishandling involves Michael Mann, the Penn State researcher who has had to step down from his job pending investigation of the recent "Climategate" e-mail scandal.

The e-mails are important because they purport to show Mr. Mann and other "top climate researchers" joking about how to fudge the statistics to get the results they want.
This raises the question of integrity with regard to the work of Mann, et al. whenever they have presented statistical series, such as their famous "hockey stick" graph that claims to show global temperatures remaining flat until the industrial era, and then rising sharply. Unfortunately for Mr. Mann, two Canadian statistics experts, Stephen McIntyre and Ross McKitrick, had already shown how Mann's methods, not the data, made the past look cooler and recent times appear significantly hotter. Fudge melts.

The fear of catastrophic, man-made global warming is a socialist's dream. It offers rich opportunities for the aggrandizement of government. If it didn't exist, they would invent it. Did they?


Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column will appear on Sundays.
E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2009