The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 15, Issue 6: February 5, 2013

1. New Book Examines the ‘Risky Business’ of Insurance Regulation
2. War Chick Flicks: Coming to a Theatre Near You?
3. Mortality and Parental Behavior
4. Will U.S. Recognition and Aid Be Bad for Somalia?
5. New Blog Posts
6. News Alerts

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The Independent Review: Subscribe or renew today and get a free copy of the 25th Anniversary Edition of Crisis and Levithan: Critical Episodes in the Growth of American Government, by Robert Higgs.

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“Insurance is too important to society and to commerce to be left as a political pawn,” writes Lawrence S. Powell, the editor of the newest Independent Institute book, Risky Business: Insurance Markets and Regulation. Powell’s words are timely because, as with so many natural disasters, Hurricane Sandy has prompted calls for lawmakers to prohibit insurers from adjusting the premiums of homeowners insurance. But such restrictions ultimately harm the consumer because they prevent insurers from rebuilding their loss reserves after a catastrophe. For example, when regulators imposed premium caps in Florida after Hurricane Andrew struck in 1992, insurers were forced to leave the market, and a state-owned agency found itself underwriting policies for more than 50 percent of the houses in the state!

Another example of misguided insurance regulation is when regulators prohibit insurers from using certain information in pricing and underwriting risk—such as personal credit ratings. Because consumers who make their debt payments on time are less likely to file insurance claims, they are a better risk for the insurer. Consequently, in states where insurers are permitted to use credit-based insurance scores, insurers can offer coverage to automobile drivers they would otherwise deem too risky to serve, Powell explains in Risky Business.

One reason that counterproductive regulations are adopted is the extreme mismatch of the time horizons of politicians and insurers: the former typically focus on getting re-elected, whereas the latter must concern themselves with being able to pay claims after a catastrophe that strikes perhaps only once every few decades or once every century. The need to keep political impulses in check is therefore paramount to maintaining a health insurance industry—a guideline that reformers should keep in mind if the province of insurance regulation is shifted from the states to the federal government. Powell and his colleagues in Risky Business suggest that reformers look at the European Union, where lawmakers are allowing insurers more flexibility in managing risk than our politicized and stifling state governments often allow. Unless we study their example, we may end up creating a federal regulatory system that causes mischief that cuts across state lines. Insurance regulation is risky business indeed!

Risky Business: Insurance Markets and Regulation, edited by Lawrence S. Powell

Detailed book summary

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When U.S. Defense Secretary Leon Panetta lifted the Pentagon’s prohibition against women working in certain combat jobs, he opened up the possibility for a new cinematic genre—call it the war chick flick. In her latest piece for the Huffington Post, Independent Institute Senior Vice President Mary L. G. Theroux proposes several story ideas that filmmakers such as Kathryn Bigelow, the director/producer of Zero Dark Thirty, might wish to consider. Theroux’s unique twist is that her tales do not shy away from depicting the horrors and tragedies that women in the military will increasingly face.

First, Theroux introduces us to Sonia—a young Latina trapped in a dysfunctional VA hospital system, after she is sent home following a roadside bomb that makes her a paraplegic. Then there’s the story of Paige, whose escape from captivity involving gang-rape and torture prompts her unit to commit brutal acts of revenge. Finally, consider the tribulations of Jessica, who must place her young children in foster care while she’s deployed. Ironically, Jessica takes place in a military campaign in Afghanistan that results in the collateral deaths of children the same age as her own.

These storylines are not the stuff of your traditional chick flick, and no one will mistake them for far-fetched fantasies. Indeed, each one bears some semblance to real-world events—episodes that will likely multiply as more and more women are sent into combat. “Yes, this brave new world of women made, finally, ludicrously, fully ‘equal’ by virtue of having to equally blindly follow orders and engage in soul-searing combat opens up all kinds of fresh, new movie possibilities,” Theroux writes. “And just in time: chick flicks have really been getting stale, recycling the same old tired plots of women seeking true love and fulfillment.”

Women in Combat: Women’s Lib at Last?, by Mary L. G. Theroux (Huffington Post, 1/30/13)

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A recent study by the Institute of Medicine and the National Research Council concludes that Americans under age 50 die earlier than “their counterparts in other developed countries,” reports the New York Times. Rising inequality may be the key reason. But it’s not inequality of incomes or wealth that’s to blame, according to Independent Institute Research Fellow John C. Goodman. Instead, the culprit is likely an education-based disparity in the amount of time that parents spend with their young children.

“The time people invest in their children—reading to them, etc., but not including diaper changing time, etc.—shows a growth gap between those with more education and those with less,” Goodman writes in a recent op-ed. Although in the 1970s mothers who had attended college were spending slightly less time with their children than were moms with only a high-school education, in recent decades the reverse is true. “When you add in dads,” Goodman continues, “the gap grows even larger—with the advantaged children receiving up to an hour a day of more quality time with parents.”

Goodman suggests that this disparity may contribute significantly to growing rates of car accidents, gun violence, and drug overdoses—major contributors to years of life lost by Americans before age 50. He also criticizes proposals put forth by New York Times columnist Nicholas Kristof to commit more federal dollars to early childhood support programs. “A real war on poverty would attack the culture that produces poverty,” Goodman writes. “Kristof wants to surrender before the first shot has been fired.”

Bad Parents, Poor Kids, by John C. Goodman (Right Side News, 1/29/13)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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Last month, the U.S. government officially recognized the new government in Somalia. Although its new diplomatic status makes the incoming regime of President Hassan Sheikh Mohamud eligible for development aid—including grants from the World Bank, IMF, and USAID—there’s no guarantee that the aid would make Somalia more prosperous. In fact, if anything, research on the political effects of development aid suggests that aid dollars risk reversing the economic gains that Somalia has made in the two decades since the demise of its previous national government, according to Independent Institute Senior Fellow Benjamin Powell.

Yes, you heard correctly. In the two decades that Somalia was without a national government, the country improved on several indicators of economic and social progress—including life expectancy, which rose by five years. By 2005, Somalia ranked in the top half of African countries in six out of 13 measures studied by Powell and his colleagues, Ryan Ford and Alex Nowrasteh; only in three categories did it rank near the bottom. Somali society seemed to work better when it relied on its customary legal system and the judgments of clan elders than when it was ruled by a national government.

This is why Powell is skeptical that conditions in Somalia would improve with government-administered development aid. There’s little indication that Somalia’s new national government could withstand the strong pressure—evident in many African countries—to channel aid to politically connected elites who would strive to cartelize the economy and dampen grassroots efforts to strengthen civil society. “The United States government’s recognition of the Somali government opens the door to money that could help entrench the political elite of the new government,” Powell writes. “Unfortunately, it does not guarantee that the new government will provide the protection of individual rights and economic freedoms that are necessary for sustained development.”

U.S. Recognition Doesn’t Bode Well for Somalia, by Benjamin Powell (The Huffington Post, 1/23/13)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell

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From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language website here and blog here.

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