Hi, I'd like to ask the respected members of this forum about some free market solutions that can be alternatives to the current government solutions.
Total insurance:
In the current political structure the governments insure the citizens again anything possible and impossible. Meteors, earthquakes, Tsunamis, fires, etc... I'd like to know what do you think about a total insurance in the private market. Is it possible to pay an insurance company to insure yourself against anything possible? What if the insurance company goes bankrupt? This is a much more common occurance than a government going bankrupt.
Electricty
The problem with a market solution as far as I see it is that a co-op requires an organization of many thousands if not millions of people. Is that feasible? The other problem will be a with a natural monopoly. If the inrastructure is extremely costly and it is just not feasible to have two infrastructures, how can we make sure the electricity company will not gouge prices (having no competition)?
Fire departments
You have probably heard that in the last several days there was a huge fire in northern Israel. Israel asked many countries to provide special airplanes to put the fire down. Is there a free market solution for these cases? Do you think forests should be privately owned?
Thank you!
Total insurance: It is unlikely that any one agency would have the expertise to be able to forecast all those things. Still, one might be able to purchase a package of many different insurance plans. I'd speculate that they wouldn't be too popular, given that people can live with a certain amount of risk.
Electricity: There are many empirical counterarguments against natural monopoly in utilities. I will say that monopoly theory is DRASTICALLY overstated. The monopoly price is just higher than the equilibrium price. So what? How much higher? Donno. Monopolies don't charge $10000/product because they wouldn't move any. I'm planning to write up a big thread on how to deal with common (intelligent) objections to free markets. We're all aware of the standard arguments, but imo many of them aren't good enough. Monopoly is one such issue. Fire depts: yes, and yes. But remember, failure is not evidence for state intervention. It is only evidence for improvement.
Okay, how can the free markets solve this issue of huge fires?
About total insurance. Surely there is a free market solution. After all if the government can do this by force , why can't the free market do it voluntarily? Why wouldn't an insurance company offer the same kind of insurance the government offers?
Another question, are there books about free market solutions to things currently performed by the governments?
“governments insure the citizens again anything possible and impossible.”
Government may insure, but it does not necessarily provide. Consider healthcare:
Americans fail to understand is that there's a big difference between universal coverage and actual access to medical care . . . Simply saying that people have health insurance is meaningless. Many countries provide universal insurance but deny critical procedures to patients who need them. Britain's Department of Health reported in 2006 that at any given time, nearly 900,000 Britons are waiting for admission to National Health Service hospitals, and shortages force the cancellation of more than 50,000 operations each year. In Sweden, the wait for heart surgery can be as long as 25 weeks, and the average wait for hip replacement surgery is more than a year. Many of these individuals suffer chronic pain, and judging by the numbers, some will probably die awaiting treatment. In a 2005 ruling of the Canadian Supreme Court, Chief Justice Beverly McLachlin wrote that "access to a waiting list is not access to healthcare."
“Is it possible to pay an insurance company to insure yourself against anything possible?”
Total insurance is possible, but unlikely. Insurance is a risk pool. The more risks covered, the more likely members will withdraw funds from the pool. Too many withdrawals can bankrupt an insurance company. To prevent that premiums and limited covered are used.
“What if the insurance company goes bankrupt? This is a much more common occurance than a government going bankrupt.”
Governments steal. Maybe if I had theft insurance, I could avoid that.
“The problem with a market solution as far as I see it is that a co-op requires an organization of many thousands if not millions of people.”
The essay I, Pencil by Leonard Reed details the extensive cooperation used to create a pencil. Not being able to understand something, does not make it impossible. For example, I do not fully understand how my computer works. It is filled with different parts that interact in ways I do not fully understand.
“The other problem will be a with a natural monopoly.”
Potential private monopoly compared to government monopoly: which do you prefer? The one funded by consumers or the one funded by taxpayers?
“If the inrastructure is extremely costly and it is just not feasible to have two infrastructures”
Getting a loan could help.
“how can we make sure the electricity company will not gouge prices (having no competition)?”
Gouge is an emotional word lacking quantitative specificity.
“Is there a free market solution for these cases?”
Fire insurance can disincentive people from building in fire prone areas. Regardless, disaster can happen with or without government.
“Do you think forests should be privately owned?”
Yes.
“After all if the government can do this by force , why can't the free market do it voluntarily?”
A government can conscript a large military. Voluntary recruitment would be more expensive.
“Why wouldn't an insurance company offer the same kind of insurance the government offers?”
Governments can tax, borrow, and print money. They can fund unsustainable insurance scheme for years before it collapses or has to be restructured.
“are there books about free market solutions to things currently performed by the governments?”
What do you consider a problem? A fellow user asked if the free market could present insider trading while other users considered insider trading to be desirable.
Eugene:Okay, how can the free markets solve this issue of huge fires?
Hi Eugene. There always is a free market solution. The only purpose of the government is the use of force, anything else the free market can do better. Total insurance: The uncoerced market would offer any insurance you can think of. Anything you can come up with and put in a contract. Its not like the sheer size of a disaster could overwhelm the insurance companies. Already today insurance companies insure themselves at bigger insurance agencies that pay in the case of huge disasters. There can always be a second or third layer of insurance to spread out the risk. That would solve the issue of huge fires. If the chance of an event happening is very slim, then it wont be very expensive to hedge against it. On the other hand, if there is a great danger of, say, a flood destroying your house, then it is a good thing that insuring it will be expensive. People will have to pay the price for their choice to live in unsafe areas. If government pays for rebuilding houses in unsafe areas, it actually does society a disservice. It distorts market activity towards more people living in unsafe areas. Building houses that regularly have to be rebuilt is an inefficient allocation of societies resources. So it is not necessarily a good thing that government insures against everything. People fear private insurance companies going bankrupt, but practically all government insurance plans, like state pension funds, are bankrupt. For some reason we dont hold that against them. To protect agasint the bankrupty of private insurers, their financial stability of private insurers could be rated by private agencies. Or you could simply buy insurance at another insurance company that protects you against your insurance company going bankrupt. Maybe insurance companies would start to offer that as an extra safety to compete for customers. Electricity: How can we make sure that natural monopolies will not gouge prices? First of all, there always is competition, even in a natural monopoly. An electricity company, for example, has to compete with you getting a generator. Also, a market with huge returns attracts competitors, so they cant gouge prices to the point where a competitor will lay another electricity line. So their price gouging will always be in relation to the actual value of the service they offer. If you live in a place where nobody else wants to run an electricity cable, then the alternative for you is not getting any electricity at all. The natural monopoly offers you a service that you will pay for if it wil make you better off. If they are making you better off, how can we say that they are price gouging? The electricity company had to build that connection, now they are getting paid for it. If you live in an area where it is so expensive to get electricity that nobody else wants to bring it to you, then the service they are offering you is worth what it costs. If it simply is too expensive to get electricity there, then maybe there shouldn't be any electricity there. If the government brings those places affordable electricity, that means that it forces all of society to subsidize the electricity bill of people who chose to live places that are expensive to live in. It would again distort the market toewards an inefficient allocation of resources. Fires: Yes, forests should be privately owned. That does not mean that they have to be closed off to the public, forests could be owned by foundations that are owned by anyone who likes to maintain forests for the public.
As for special airplanes that extinguish fires, if having those airplanes ready is an efficient allocation of societies resources, then private fire services will have them. They would extinguish fires those places that sign up for the service. Forests that aren't signed up could pay to borrow the planes in case of a fire, or maybe get them as charitable aid if lives are at stake. And of course there is always insurance.
Total insurance
It can be done. The point is whether it would be marketable at the price required. But let me tell you one thing: it will always be cheaper than taxes. If that will be too much for them market, well this tells us much about taxes.
Perhaps (I don’t think electric grids require monopoly providers, but this is besides the point here), and that would be no problem. My country’s grid operator just got privatized. Prices are still regulated and the operator enjoys a legally sanctioned monopoly but one can feel a huge rise in the quality of service. So, even if that would be the case, it would be no big deal.
Insurance, or specifically CAT insurance. As above, if the market will take the price, it can be done, and surely in a cheaper fashion than through taxes. Isreal could purchase CAT bonds on the market right now and asure itself help in any such future circumstances. That it doesn't is only a testament to the fact that teh Isreali government just doesn't give a damn.
counterarguments against natural monopoly in utilities. I will say that monopoly theory is DRASTICALLY overstated. The monopoly price is just higher than the equilibrium price. So what? How much higher? Donno. Monopolies don't charge $10000/product because they wouldn't move any.
You're probably right about this Sieben....
And that's the problem
In States a fresh law is looked upon as a remedy for evil. Instead of themselves altering what is bad, people begin by demanding a law to alter it. ... In short, a law everywhere and for everything!
~Peter Kropotkin
I am confusion.
Thank you guys, you've been tramendously helpful. Special thanks to EmperorNero.
Now I have a few questions.
1. What do you think about roads building?
2. Sieben said:
You mean like, if a fire is going to burn down a neighborhood? Well neighborhoods are already organized as neighborhood associations, which are kind of like voluntary-governments. So they can in theory perform all the same functions as a government no problem.
Can you please describe these voluntary neighborhoods? How are free riders dealt with these neighborhoods? How will these neighborhoods provide water, sewage systems, build roads?
3. What do you think about things such as global warming? Let's say we all agree that it is a real problem that has the potential to destroy all humanity if it wouldn't be dealt with. Surely there has to be a government effort here. What about car pollution? Surely we wouldn't expect people to sue every vehicle owner in the city. Shouldn't there be a government measure against that?
4. How do I quote other people on this forum?
Let me tell you how I, as an insurer under anarchy, would deal with this. If someone would come to me asking for reparations claiming that my client is causing global warning, I’d ask for proof.
If proof would be satisfactory, than I’d pay reparations, and I’d discontinue coverage to my client unless he stopped doing what he was doing. That how, assuming the market would value proof of global warming as satisfactory, this could be averted.
Eugene: Can you please describe these voluntary neighborhoods? How are free riders dealt with these neighborhoods? How will these neighborhoods provide water, sewage systems, build roads?
Hi,
Here's a post on private fire departments:
http://www.uncwlibertarians.com/2010/06/what-about-fire-department.html
That's how fire departments started. If you take a drive around Philadelphia, you can still see the medalions people put above their doors to show which service they subscribe too.
Here's another thing showing government subsidies of roads isn't a good thing. (Look for the quote from Thomas DiLorenzo.):
http://joshfulton.blogspot.com/2010/08/10-statist-myths-debunked.html
Then Thomas DiLorenzo again mentioned how there was intially competition, within towns, for electric service, then people started using antitrust suits to bar their competition. That's how the myth of the 'natural monopoly' came about.
I believe it's in here, but if not it's in another presentation in the same series:
http://www.youtube.com/watch?v=hMT_3kq15Yc&feature=related
If anyone else has info demolishing this electric utility natural monopoly myth, I'd be glad to see it.