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Uncle Sam coverage

July 29, 2007

Cowen responded to the question “Should government be considered as a natural disaster? In which case would it be possible to take out an insurance policy against, say, a tax increase?” by first reminding me that many government functions (e.g. protecting property rights, etc…) are good things (sunny weather), but that yes some aspects of government could be considered as natural disasters. He also talked about various “financial futures markets” which seem to have mostly failed, although I missed who is pushing “markets in index of real estate prices”, Schiller? They fail mostly because it is inherently difficult to launch new markets in general.

One of the problems is that most of the time one only wishes he be covered against the routine, fairly cheap, vagaries of government action. These poor folks in Indiana have recently seen their property taxes increase by 35%! Protection against catastrophic government action is much more difficult if for instance the whole country is going down, like during the Great Depression, or in case of war.

It is also true that society already has many mechanisms that insulate it from governmental forays: black markets, etc…and there could also be the danger that the government would deliberately target those who are covered against Uncle Sam, knowing that it’s the insurance that pays anyways. A bit like those doctors that charge over-insured patients more than the under-insured ones. I don’t understand why we let the insurance companies pay our bills. We should instead pay everything ourselves, have the insurance companies reimburse us, and keep our coverage secret. Is that difficult to do?

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