Category: economic thinking

Losing The Death Bet (aka Paying For Life Insurance)

It’s that time of year. No, not tax time (though it is that, too). It’s birthday season in my family. And with birthday season comes the annual renewal of life insurance policies–specifically, for two of my kids. When I opened the bill yesterday I realized I once again had lost the bet, and was now faced with ante-ing up for another round of the game.

Sounds crass, doesn’t it? But that’s the reality of life insurance (any insurance for that matter). Insurance is intended to cover the cost associated with a particular (bad) event–like your home burning down or your car being damaged. In the case of life insurance, the insurance purpose is to replace the economic value (i.e., present and future earning capacity) to the beneficiary of the person who dies. Taking out life insurance is effectively putting money down on a bet that the insured person is going to die in the next year (assuming annual premiums). If the insurance company loses the bet (the insured person dies), they pay the contracted benefits. If the person who owns the policy loses the bet (the insured person doesn’t die), then they are faced with re-upping the bet for the next round.

Now think about life insurance for your child. Continue reading “Losing The Death Bet (aka Paying For Life Insurance)”

Paid To Be 'Stuck'?

Words matter. So when a recent article in the Wall Street Journal Online proclaims “Workers Stuck in Disability Stunt Economic Recovery,” it sets off the incentive alarms. What do you mean by “stuck in disability” and what role do incentives play in that “stuck”-ness? I mean, if you choose to stay in a sticky situation, are you really stuck?

The quick background:
A very large number of people were disabled by the recent recession (i.e., the number of people who were placed on federal disability jumped dramatically, even by historical standards). The preponderance of this increase in “disability” came from people who were no more disabled than they had been previously. Rather, they are people who lost jobs that they were previously able to endure but jobs they were not able to replace. In short, the new “disability” was really the inability to find new jobs given whatever physical limitations individuals claimed to have, not the physical limitations themselves. This was compounded by States that were able to reduce their welfare and Medicaid costs by shifting people to Social Security disability (SSDI) and Medicare.

Now people are not getting off of disability as rapidly as they have after recessions past. While the official unemployment has been falling of late, it has more reflected a decrease in the labor participation rate than an increase in the number of jobs. The percentage of working-age adults who are in the labor market has decreased, and almost half of that decrease is a result of people moving into “disability” status. Fewer people in the labor market not only makes unemployment look better than it really is, but it also puts a drag on the economy as fewer workers are available to take jobs (supply of labor decreases) and make “stuff”. And “stuff” is what makes the market economy go ’round. If that wasn’t bad enough news, the high disability rate is now predicted to bankrupt the current SSDI system in the next three years.

So, are people really “stuck in disability”? Continue reading “Paid To Be 'Stuck'?”

Beginning With The Basics

The purpose More Is Better Than Less (MIBTL…I may have to think about that acronym) is to have a venue for sharing information and for sharing my perspective on various economic issues. So I figured it would be good to start with the basics. And I think these basics are so important that I also have a page devoted to them so they’ll be easy to find as the blog grows. If you think economics is too complicated, too mathematical, or just plain stupid, I hope I can convince you otherwise—and that you, too, are capable of wielding the sword of economics to cut through much of the muck and mire that muddles public discourse.

Economics, at its foundation, is simply a framework for understanding how people choose to use the resources available to them; whether money, raw physical goods, knowledge, talents or time. Economists can make it very complicated–to the point of losing the economic intuition in the mathematics of the models they use. But at its foundation economics is based on some very simple premises that don’t take a PhD in economics–or mathematics–to understand and apply to real life. Sadly, too few people understand that–and fewer still use that understanding.

There are three basic assumptions I propose at the beginning of every course I teach. I believe they are sufficient to understand the vast majority of human behavior. And they involve no math: Continue reading “Beginning With The Basics”