Before getting to the Chinese aircraft carrier issue, let me point out one very important thing missed by almost all commentators.
Osama Bin Laden triumphed, even though he was dead. His secondary goal, after helping to defeat the old Soviet Union, was to defeat the United States. He never expected to invade the U.S. and force everyone to wear beards and turbans. He used his followers' minimal resources to cause an economic and military collapse. The downgrading of U.S. debt (bonds) by Standard & Poor's was a public assessment of the success of Al Qaeda. Americans spent too much energy on global military dominance, too little energy on building a sustainable national economy. We lost, and everyone intelligent now knows we lost. We could still retrieve the situation by using our democratic system to take power away from the ruling corporate security state, but it looks like we are too stupid and lethargic to even do that. So, on to Chinese aircraft carriers.
The cry babies at the Pentagon, led byLeon Panetta, don't want the Chinese navy to have any aircraft carriers. In their minds Chinese aircraft carriers would shift the balance of power in the China Sea and require a buildup of the U.S. Navy in the Western Pacific. Which would require a bigger Navy budget.
The real question should be, given the history of China and aircraft carriers, why don't the Chinese already have a half dozen aircraft carriers? The answer is that China has not been a global military aggressor [Yes, I know, Tibetian nationalists and Vietnamese would disagree]. Of course, any country with a military is in some danger of becoming a military aggressor, but the Chinese Communist Party has a much better history of restraint than the United States Democratic Party does.
China, in the later 1800s and early 1920s, was being torn apart by the Great Powers. In 1914, During World War I, a Japanese proto-carrier, the Wakamiya, lowered 4 seaplanes in the sea, which then attacked German forces in Tsingtao (Qingdao), a German colony in China. No matter how you define the term "first aircraft carrier," by the 1920's these ships were being built by all the great powers, including the United States, Britain, Japan and France. By World War II naval battles were largely won or lost by aircraft launched from the carriers. The Barbaric U.S. attacks on Vietnam were also largely carrier-based.
The United States has been bullying nations with its aircraft carrier based terror bombing for closing in on a century now. Who are Barack Obama and Leon Panetta to tell the Chinese they can't have their own aircraft carriers for defense?
If Chinese aircraft carriers are not for defense, why should U.S. aircraft carriers classified as "defensive?" Aren't they inherently aggressive vessels, used only for war crimes? Including the current war crimes in Afghanistan?
If Panetta and the corporate security state he so proudly serves had half a brain left, they would negotiate a global treaty to decommission all aircraft carriers. Then China would not need to build new ones. Then the U.S. might have some money for schools or to invest capital to create jobs. Or to pay off those bonds that Standard & Poor's and others have suggested are less than sterling investments.
See also: history of the aircraft carrier
Showing posts with label investments. Show all posts
Showing posts with label investments. Show all posts
Wednesday, August 10, 2011
Monday, June 29, 2009
Insurance and Casinos
Health insurance is the big issue of the moment. All kinds of politicians made all kinds of promises to all kinds of people during the 2008 elections, and now they are pretending to act on those promises. An improved health care insurance system was promised by many to many. My own expectations are low. But I am happy to debate the issue.
It helps to look at insurance in general, as well as looking at the specifics of insuring people's health.
And to understand insurance, you need to look at it outside the box. A good way to look at something outside its box is to take a look at a similar box, then compare and contrast. The ideal other box to look at, when considering insurance, is the casino, or gambling industry. This is not just my being satirical. It has to do with statistics and probability, which were originally studied and understood by considering games of chance.
Most people know, when they walk into a casino, that the casino is not really in the business of philanthropy. Casinos make money, they don't lose money. People suspend that knowledge by overriding it with another idea. They may get lucky. An individual, going to a casino and playing games of chance for any given period of time, may gain money.
But the money that individual makes is not, except in very unusual circumstances, a concern for the casino. Because other individuals, who are also there hoping to get lucky, are losing a whole lot more money than the individuals who are winning.
Casinos are set up that way. They were set up that way in ancient times before probability and statistics were developed forms of mathematics. Each game in a casino has a return ratio. Over a series of games, the individual outcomes have predictable percentages. This is most obvious in a roulette wheel, where each of the outcomes is equally lightly. Given that, for the casino to win over time the betting odds are simply set to slightly favor the casino. I won't go into the details, but you can find some at Roulette at Wikipedia.
Other games are more complicated, but work on the same principle. In poker the fact that the casino always wins is even more obvious, since a certain amount of each pot is raked off by the casino.
Insurance is remarkably similar. In its simplest form, it is a pool of money. Some people make money (they get more out than they put in); their are expenses for managing the money, and also profits taken out by the owners. As a result, most people get paid back less than they put in. You could argue that as with casinos, if people were rational no one would patronize an insurance company.
But the world is complex, and fear is a primal human emotion. There is an argument that some forms of insurance do make sense for the people who pay for them. This is because decreasing risk has a value to individuals.
Look at auto insurance, for instance. If you get into a car wreck the expenses from it could be enough to bankrupt most people. You probably won't get into a car wreck on any given day or even year, but there is a good chance you will get into one eventually. You fear bankruptcy, so you buy automobile insurance every year. It is expensive, and you are unlikely to come out ahead unless you get into a wreck (make that an expensive collision, not a fender bender) within a year or two after you first take out insurance. Yet it is worth it to many people because it protects them from being impoverished by a random event, an accident.
One can fairly ask, how much is it worth, this diminishment of risk? The auto insurance company has administrative expense and takes out a big chunk of the cash flow as profit to distribute to its investors. So all the people who buy insurance, together, will get paid back less than they pay in. Insurance companies hire actuaries to calculate their long term pay out risks, and set rates high enough to cover that plus administrative costs plus profits. Individuals are not in a position to hire actuaries. All they can do is shop for auto insurance, hoping to find the insurance company that takes the least bite out of the pie.
One other aspect of insurance should be carefully considered: insurance as investment. We see this in some forms of life insurance. The insurance company pays out more in aggregate to the people it insures than they pay in! Even so, the insurance company covers its administrative costs and pays its investors a profit. How can this be?
When an insurance company knows it can hold its incoming revenue stream for a long time (because its actuaries told it so), it can invest its balance of money in bonds, stocks, and real estate. So from an individual insured's perspective, the insurance company resembles a sort of mutual fund. Your family gets paid when you die if you have life insurance, or you get payments from a set starting point until the time of your death if you purchase an annuity policy.
In theory Social Security works like this, as do most old-fashioned (defined benefit) pensions. You pay your social security taxes during your work life. The government invests this money in interest-bearing government bonds. The average person gets more than they pay in. Those who die early are out of luck. Those who live long get far more money than they put in. Of course in reality money put in today goes out today to those who are already drawing Social Security. But it shows the idea of insurance that not only spreads risk, but creates additional income for the entire pool of insured people.
Not that anyone in Congress is going to listen to you unless you gave at least $2000 to their election campaign, but given all this, what kind of federal health insurance would you like?
Should it provide roughly equal benefits for everyone? Should it funnel almost all the money to care for those with the most expensive medical conditions? Should the money that goes in the first year be paid out it once, or should it be accumulated, with interest, for the benefit of those who are doing the paying? Should it be subsidized by taxes, or should it generate a profit to the government that pays for non-medical budget items like the military budget?
It helps to look at insurance in general, as well as looking at the specifics of insuring people's health.
And to understand insurance, you need to look at it outside the box. A good way to look at something outside its box is to take a look at a similar box, then compare and contrast. The ideal other box to look at, when considering insurance, is the casino, or gambling industry. This is not just my being satirical. It has to do with statistics and probability, which were originally studied and understood by considering games of chance.
Most people know, when they walk into a casino, that the casino is not really in the business of philanthropy. Casinos make money, they don't lose money. People suspend that knowledge by overriding it with another idea. They may get lucky. An individual, going to a casino and playing games of chance for any given period of time, may gain money.
But the money that individual makes is not, except in very unusual circumstances, a concern for the casino. Because other individuals, who are also there hoping to get lucky, are losing a whole lot more money than the individuals who are winning.
Casinos are set up that way. They were set up that way in ancient times before probability and statistics were developed forms of mathematics. Each game in a casino has a return ratio. Over a series of games, the individual outcomes have predictable percentages. This is most obvious in a roulette wheel, where each of the outcomes is equally lightly. Given that, for the casino to win over time the betting odds are simply set to slightly favor the casino. I won't go into the details, but you can find some at Roulette at Wikipedia.
Other games are more complicated, but work on the same principle. In poker the fact that the casino always wins is even more obvious, since a certain amount of each pot is raked off by the casino.
Insurance is remarkably similar. In its simplest form, it is a pool of money. Some people make money (they get more out than they put in); their are expenses for managing the money, and also profits taken out by the owners. As a result, most people get paid back less than they put in. You could argue that as with casinos, if people were rational no one would patronize an insurance company.
But the world is complex, and fear is a primal human emotion. There is an argument that some forms of insurance do make sense for the people who pay for them. This is because decreasing risk has a value to individuals.
Look at auto insurance, for instance. If you get into a car wreck the expenses from it could be enough to bankrupt most people. You probably won't get into a car wreck on any given day or even year, but there is a good chance you will get into one eventually. You fear bankruptcy, so you buy automobile insurance every year. It is expensive, and you are unlikely to come out ahead unless you get into a wreck (make that an expensive collision, not a fender bender) within a year or two after you first take out insurance. Yet it is worth it to many people because it protects them from being impoverished by a random event, an accident.
One can fairly ask, how much is it worth, this diminishment of risk? The auto insurance company has administrative expense and takes out a big chunk of the cash flow as profit to distribute to its investors. So all the people who buy insurance, together, will get paid back less than they pay in. Insurance companies hire actuaries to calculate their long term pay out risks, and set rates high enough to cover that plus administrative costs plus profits. Individuals are not in a position to hire actuaries. All they can do is shop for auto insurance, hoping to find the insurance company that takes the least bite out of the pie.
One other aspect of insurance should be carefully considered: insurance as investment. We see this in some forms of life insurance. The insurance company pays out more in aggregate to the people it insures than they pay in! Even so, the insurance company covers its administrative costs and pays its investors a profit. How can this be?
When an insurance company knows it can hold its incoming revenue stream for a long time (because its actuaries told it so), it can invest its balance of money in bonds, stocks, and real estate. So from an individual insured's perspective, the insurance company resembles a sort of mutual fund. Your family gets paid when you die if you have life insurance, or you get payments from a set starting point until the time of your death if you purchase an annuity policy.
In theory Social Security works like this, as do most old-fashioned (defined benefit) pensions. You pay your social security taxes during your work life. The government invests this money in interest-bearing government bonds. The average person gets more than they pay in. Those who die early are out of luck. Those who live long get far more money than they put in. Of course in reality money put in today goes out today to those who are already drawing Social Security. But it shows the idea of insurance that not only spreads risk, but creates additional income for the entire pool of insured people.
Not that anyone in Congress is going to listen to you unless you gave at least $2000 to their election campaign, but given all this, what kind of federal health insurance would you like?
Should it provide roughly equal benefits for everyone? Should it funnel almost all the money to care for those with the most expensive medical conditions? Should the money that goes in the first year be paid out it once, or should it be accumulated, with interest, for the benefit of those who are doing the paying? Should it be subsidized by taxes, or should it generate a profit to the government that pays for non-medical budget items like the military budget?
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