Links to Consider, 7/3
on the origins of insurance; Helen Andrews on American decay; The Zvi on higher ed; Alice Evans on Boomer hanger-ons compressing gender pay differences
When did the first recognizably modern markets for insurance emerge? Maristella Botticini delivered the 2023 Presidential Address to the European Economic Association. Drawing on a research paper written with Pietro Buri, Massimo Marinacci, she argues that insurance markets were born in 14th-century Italian maritime trading
For Charles Kindleberger’s economic history class in graduate school, we had to write a paper. Mine was called “A Theory of the Origins of Insurance.” I looked into the origins of marine insurance in the UK. I argued that insurance emerged to address problems of lending on collateral that could disappear. Marine insurance protected the lender in case the ship sank.
In finance, the suppliers of funds earn a time premium and a risk premium. Insurance allowed for the separation of the two. A lender could now earn the time premium without bearing as much risk.
I thought it was a brilliant paper, maybe even worth submitting to a journal. Kindleberger gave it a B.
The essence of a late Soviet economy is not that the state plays a big role. It is that the average citizen looks around and thinks, This can’t possibly continue forever. The whole system is fake and insane. That is why Ferguson is wrong to look for evidence for his thesis in budget projections rather than the industries like health care and higher ed, which are neither capitalist nor socialist but mutant combinations of the worst of each.
Pointer from Oliver Wiseman. I began my conversation with Moses Sternstein by asking which economic trends are sustainable. In fact, I think that the attempts by Alan Blinder and other Biden supporters to make the case that the economy is good are missing this issue of sustainability. How long can the government keep exponentially increasing its debt? How much farther can price/earnings ratios rise in the stock market? Can we really devote more than 20 percent of our economy to medical services?
Andrews adds,
The fertility decline is a much bigger problem. It can be seen everywhere liberalism touches. It is apparently a fundamental side effect of our system. It represents a deep nihilism and desire for oblivion no less than alcoholism or suicide. And no one has any idea how to fix it.
One interesting note is that when people in their twenties are asked why they are not having children, the number one reason is money worries. I don’t know what to make of that. It could be the fear that our economy’s current good performance is unsustainable, as I just discussed. But my guess is that there are many more psychological factors involved, and the easiest thing to say to a pollster is that you are putting off having kids for financial reasons.
Most students care primarily about things other than political activism. The problem for them is that college is a package deal. (Almost?) all the selective colleges have lots of political activism and force you to care deeply about things that are neither fun nor going to be useful to your future or part of getting a traditional education. And at least faking those things is deeply tied to your admission to those schools and to your social life and experience in class and administrative rules set once you arrive.
Later, he points to signs that the University of Waterloo is going Woke. That would be too bad. I came across some Waterloo students last October, and they were outstanding.
Jaime Arellano-Bover, Nicola Bianchi, Salvatore Lattanzio, and Matteo Paradisi reveal the importance of demographic aging. As older workers remain in the workforce longer, they retain top positions, inadvertently stalling younger men’s upward mobility. The gender pay gap has narrowed because young men struggle to get ahead.
Oh great. Later, she writes,
The child penalty clearly matters, but a major issue is that young women are still specialising in subjects that ultimately pay less. This decision may be entirely rational: money isn’t the only source of fulfilment! But for those who seek financial parity, progress is clearly conditional on women’s educational choices.
Tyler Cowen was impressed by the paper Evans cited.
substacks referenced above:
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"And at least faking those things is deeply tied to your admission to those schools and to your social life and experience in class and administrative rules set once you arrive."
So selective schools are at least in part selecting for people who excel at faking certain emotions and lying about their beliefs, or at least can tolerate doing so. I'm sure that has no negative implications for the future.
Moses had a truly outstanding post on the effects of healthcare inflation on employment. Linked below.
I will add something to this analysis. When I look at fertility rates they are replacement at the bottom and replacement at the elite level. They fall as income rises until you reach "fuck you money".
My own view is that not just healthcare but everything is designed to ring as much value as possible out of middle class people who have enough to be worth stealing from but not enough to make the system work for them. So they all get two jobs and try to buy the right real estate and keep their heads above water and its so exhausting that they have fewer children to try and get an edge over on the other people doing the same.
In general we need to:
1) Stop exploiting this group so much (to rich for poor people welfare, to poor for rich people welfare).
2) Normalize the after tax income of the child bearing and childless within this group so that the decision to have children is based on wanting/not wanting children rather then a backdoor way have higher take home income.
I don't have an easy solution though because its just really easy to exploit middle class families, they are too busy to do politics all day.
https://substack.com/home/post/p-146052503
"Employers do, in fact, see those rising insurance premiums because they have to pay those premiums as part of employer-insurance plans. But since employers can’t exactly force people to “consume less healthcare” (or be better, smarter or more discerning about the healthcare they consume), what can they do to push back on rising prices?
Employers can fire people, when premiums get too high, that’s what they can do."
"Researchers claim that a 1% increase in local hospital prices lead to ~40 lost jobs, $5M in reduced wages, and ~$1M in reduced tax revenue:
Higher coverage costs had a far greater impact on middle income workers than anyone else (so says the research).
The reason is pretty straightforward: from the employers perspective, the cost per employee is the same, so insurance premiums reflect a far larger tax on lower income workers, as a percentage of salary. If premiums are ~10K/employee, than that is a 20% tax on a $50K worker, while only a 10% tax on a $100K worker, so naturally the middle income worker gets the ax.
Why not the lowest income workers? Well, they’re covered by Medicaid, so the taxpayer handles those.
So, to summarize, as a result of higher healthcare costs—which are rising because more and more people consume a relatively dwindling healthcare supply without any idea of how much it costs—people simply get fired, for no other reason than their share of the cross-subsidy was too high.
Yup, that’s going to solve the problem, for sure."