The Hunt For Gollum is a 40 minute independent film inspired by The Lord of the Rings.
Naturally I found myself most interested in the behind-the-scenes story of how they made the film.
The Hunt For Gollum is a 40 minute independent film inspired by The Lord of the Rings.
Naturally I found myself most interested in the behind-the-scenes story of how they made the film.
A recent paper by Alan Gerber and co-authors shows that personality and ideology are closely linked:
Liberals are markedly higher in Openness and lower in Conscientiousness. Gerber et al’s real contribution, though, comes when they distinguish social ideology from economic ideology. (It’s almost as if they were inspired by the World’s Shortest Political Quiz!)For social liberalism, they once again find that it is associated with higher Openness and lower Conscientiousness. For economic liberalism (in the American sense of lower support for free-market policies), though, they get a much more thorough profile. Economic liberals are less Extroverted, more Agreeable, less Conscientious, less Stable (i.e. more Neurotic), and more Open. Or if you flip the perspective, free-marketeers are more Extroverted, less Agreeable, more Conscientious, more Stable, and less Open.
Jack Hough argues that college is on its way to becoming a four-year pajama party intruded upon by the occasional group discussion on gender studies:
In 2005, the Department of Education created a commission to study the college system and recommend reforms. A year later, the Spellings Commission (named for then-Secretary of Education Margaret Spellings) reported a long list of shortcomings, including “a remarkable absence of accountability mechanisms to ensure that colleges succeed in educating students.” It found “disturbing signs” that degree earners “have not actually mastered the reading, writing and thinking skills we expect of college graduates.” Literacy levels among college graduates, the commission noted, fell sharply over the 12 years ending in 2003.
Harvard is emblematic of what has gone wrong with the system:
To be sure, Harvard graduates are bright. They were bright when they got accepted. Last year, Harvard’s undergraduate school accepted a record-low 7.9% of the record-high number of students who applied. Of these, 97% will earn degrees, and most will rightly go on to win plum jobs and coveted spots in graduate schools.But universities are meant to teach, just as hospitals are meant to heal. A hospital that turned away the sickest 92% of patients would have little cause to celebrate the recovery of the rest. Harvard, though, is called America’s finest college by US News & World Report.
“There’s almost a tyranny to it,” says Ohio University’s Vedder. “Somehow a good college has become one that turns people away.”
High cost isn’t a coincidence but a necessary outcome. The way to keep a thing valuable is to keep it scarce, so prestigious schools accept few. Government affordability initiatives — grants, loans, tax breaks and the like — puff up buying power against constrained supply, ballooning prices and creating the opposite of affordability. In the 10-year period ending in 2005, increases in tuition and fees outpaced inflation by 36% at private colleges and 51% at public ones.
Harvard’s own charter, engrossed on parchment in 1650, says nothing about keeping knowledge scarce. It simply promises, in welcoming language for the time, “the education of the English and Indian youth of this country.” I single out Harvard because it’s iconic, not because it’s more guilty than its peers. How sad that elite schools are reduced to machines that cull the bright from the dull and charge mightily to brand them for success –— which these students would have achieved anyhow, because they’re bright.
A more inclusive four-year degree isn’t the answer; the degree itself often obstructs learning. Consider the laid-off sales clerk who wishes to pursue a college education in hopes of finding a better job. If he wants to go to a name-brand school he must study for and take an admissions test and apply. He must also file a financial-aid application as long and complex as a tax return. He then must wait and cross his fingers. If accepted by the school, he must wait again for the right part of the academic calendar to come around and hope that the classes he wants aren’t full. Suppose all goes well. He’ll be sitting in front of a teacher a good 18 months after first deciding to learn. What folly.
As I write this, Google is putting every book ever written online. Apple is offering video college lectures for free download through its iTunes software. Skype allows free videoconferencing anywhere in the world. The Massachusetts Institute of Technology and many other schools have made course materials available for free on their Web sites. Tutors cost as little as $15 an hour. Today’s student who decides to learn at 1 a.m. should be doing it by 1:30. A process that makes him wait 18 months is not an education system. It’s a barrier to education.
The answer, Hough says, is to relieve schools of the job of validating knowledge and return them to a role of spreading it:
Colleges should no more vouch for their own academic competence than butchers should decide for themselves whether their meat is USDA prime.The Spellings Commission recommended that government push colleges to “develop interoperable outcomes-focused accountability systems designed to be accessible and useful for students, policymakers and the public, as well as for internal management and institutional improvement.” Unencrypted, that means schools should figure out a way to prove what students have learned, beyond the say-so of their degrees. The commission was correct on what’s needed. It was wrong on who should do it.
We need a national standard for certifying what students have learned. The easiest way is to simply test independently for course knowledge and compile the results on standardized knowledge transcripts.
We do similar testing now. Students at 1,400 colleges (about a third of such US institutions) can get credit for courses by passing tests created by the College Board. (Participating schools generally restrict the number of tests students may use toward degrees.) There are 34 subjects, including calculus, biology, US history, business law and Spanish language. Tests cost $70. Guide books cost $10. There are 1,300 test centers on college campuses.
Perhaps these tests are comprehensive enough, and perhaps they’re not. I’m not qualified to say. The nation’s professors are, and they should take up the task of defining this new national standard, even at a threat to their own power, because in truth, a teacher forced to amicably promote the few when he should be boldly teaching the many is robbed of power.
I can only guess what this knowledge transcript would look like — something like a résumé or credit report, perhaps. I picture a scrawny tree drawn on a page, with the branches representing the fields of learning and the student tasked with extending them. Perhaps vocational certificates would be listed, too. Maybe, once the tree reached a prescribed fatness, we’d call the student a bachelor of arts. But employers could select whatever tree shapes suited them, and college would no longer be a degree-or-nothing affair. Learning would be available everywhere and at a moment’s notice, and would be rewarded right away.
This knowledge transcript would care nothing about where a student had learned, how much he spent or how long he took. It wouldn’t care whether he was 12 or 60 when he proved he knew algebra or how many times he failed before succeeding, or whether he knew important people. Employers would have better proof of what students knew. Policymakers, too. Students wouldn’t pile on debt. They wouldn’t be misled by a college degree into believing they knew more than they did. They’d become true stewards of their own lifelong education.
Universities, I’m guessing, would look much the same. Students would always want to go on long learning sabbaticals at places with top teachers and well-appointed classrooms, and to be around like-minded people for collaboration, sports, fellowship and, not nearly least, mating. But schools would have to truly compete on price and teaching excellence. They’d no longer be able to charge students high prices just because of their ability to confer on them high pay. They’d teach as many students as would learn, since doing so would strengthen their brands, not dilute them. Whisperers would once again profess, and we’d all be better for it.
The biggest takeaway fact about the Sri Lankan war, Robert Kaplan says, is that the Chinese won:
And the Chinese won because over the last few years, because of the human rights violations by the Sri Lankan government, the U.S. and other Western countries have cut all military aid. We cut them off just as they were starting to win. The Chinese filled the gaps and kept them flush with weapons and, more importantly, with ammunition, with fire-fighting radar, all kinds of equipment. The assault rifles that Sri Lankan soldiers carry at road blocks throughout Colombo are T-56 Chinese knockoffs of AK-47s. They look like AK-47s, but they’re not.What are the Chinese getting out of this? They’re building a deep water port and bunkering facility for their warships and merchant fleet in Hambantota, in southern Sri Lanka. And they’re doing all sorts of other building on the island.
Now, why did the Chinese want Sri Lanka? Because Sri Lanka is strategically located. The main sea lines of communication between the Bay of Bengal and the Arabian Sea, and between the South China Sea and the Indian Ocean. It’s part of China’s plan to construct a string of pearls – ports that they don’t own, but which they can use for their warships all across the Indian Ocean.
Sri Lanka defeated, more or less completely, a 26 year-long insurgency. They killed the leader and the leader’s son. But there are no takeaway lessons for the West here. The Sri Lankan government did it by silencing the media, which meant capturing the most prominent media critic of the government and killing him painfully. And they made sure all the other journalists knew about it.
There are a thousand disappearances a year in Sri Lanka separate from the war. Journalists are terrified there. The only journalism you read is pro-government. So that’s one thing they did.
The Tamil Tigers had human shields by the tens of thousands, not just by the dozens and hundreds like Al Qaeda. They put people between themselves and the government and say “you have to kill all the people to get to us.” So the government obliged them. The government killed thousands of civilians. [...] It acted in a way so brutal that there are no lessons for the West.
Everyone should read Thomas Sowell’s A Conflict of Visions, Arnold Kling believes, but few will, so he summarizes its key points:
One is that the right thinks that social problems primarily reflect basic constraints, while the left thinks that they reflect the failure of good to triumph over evil.For example, on health care, I will say that as individuals we want unlimited access to medical services without having to pay for them, but that this desire faces the constraint that it is economically unsustainable. On the left, it is an article of faith that the main problem is, as someone once said to me in a Q&A session, a lack of political will.
The other difference is the left’s belief in what Sowell calls the “surrogate decision-maker”:
For the left, “society” should make decisions, and proper experts should make decisions for society. That is why Thaler is happy that the Obama Administration is going to dictate more strictly the types of mortgages people can have.
Those of us on the right think that knowledge is embedded in systems that evolve over time. The experts are not really smarter than markets.The left believes that wise and moral experts could solve problems if not for their evil opponents. The right believes that the so-called experts do not have nearly enough knowledge to be dictating to everyone else. Think of the late William F. Buckley’s remark that he would rather be ruled by a set of people randomly chosen from the Boston phone directory than by the Harvard faculty.
Kling is not optimistic:
From their point of view, it would be immoral for me to secede from their utopia. If Patri Friedman ever creates a seastead, its inhabitants will be imprisoned for tax evasion, treason against the planet, or somesuch.
American troops are training the Afghan Public Protection forces, known as the Guardians, and Patrick Devenny explains what they could learn from Captain Charles Trower’s 1845 British cavalry memoir, Hints on Irregular Cavalry:
Among Trower’s horsemen was a troop known as the “Khandahar Horse” — Pashtun recruits from modern-day Afghanistan and Pakistan, the direct ancestors of today’s “Guardians.” Recruited in cooperation with tribal chiefs, the Native Horse were not loyal to any form of government outside their British minders. Trower writes extensively on how to properly manage and maintain the support of these units, the members of which he describes as “generally illiterate, haughty and turbulent: but they are gallant and true, hard-working and zealous.” Of their martial skills, they were “first in excellence.”One hundred and fifty-five years later, the U.S. officer now charged with overseeing Afghan self-defense forces has more to learn from Trower than you might think. Trower’s treatise on advisory missions — the first of its kind — expounds on three main themes that are useful to this day.
- Incentivize
- Live and let live
- Go native
Salamanders can regrow amputated limbs, and they can grow them back so well that it’s hard to tell they were ever injured — which is why scientists have been studying salamander limb regeneration:
In salamanders, new tissues come from a tumorlike mass of cells that forms at the site of the injury, called the blastema. Until now, most scientists thought that the blastema contained a population of stem cells that had become pluripotent — capable of giving rise to all the needed tissues. But a new paper in the journal Nature provides evidence that this is not the case. Instead, stem cells involved in regeneration only create cells of the tissue that they came from. The finding suggests that regeneration does not require cells to reprogram themselves as dramatically as scientists had assumed.
Previous studies relied on imperfect methods of tracking cells, like fluorescent dyes that may have leaked out to other cells:
In the latest study, Tanaka’s team employed a novel method for tracking the fate of cells from different tissues in a type of salamander called the axolotl. The researchers first created transgenic axolotls that carried green fluorescent protein (GFP) in their entire bodies. When the animals were still embryos, the researchers removed a piece of tissue from the limb region of the transgenic animals and transplanted the tissue into the same location in nontransgenic axolotls. The transplants were incorporated into the growing body as normal cells, and when the limb of the transplant recipients were then severed, the researchers could track the fate of the fluorescent cells as the limb regrew.The researchers used this method to track the fate of cells of the inner and outer skin, muscles, and cartilage, as well as Shwann cells, which insulate nerve fibers. They found that, contrary to previous evidence, muscle cells at the amputation site only become muscle cells in the new limb. Other cell types also stuck to their previous identities; the only exception, Tanaka says, is that cells of the inner layers of skin and cartilage seem to be able to transform into one another. But for the most part, she says, the blastema is not a homogeneous mass of cells but “a mix of stem or progenitor cells from different tissues that stay separate during the whole process.”
On this Independence Day — or Secession Day — it only makes sense to revisit Sydney George Fisher’s The True History of the American Revolution, which Mencius Moldbug mentioned last year:
Here are some questions about the American Revolution for which you may find you have no good answer:
One: why do the American loyalists share a nickname with a British political party? Is this just a coincidence, or does it imply some kind of weird alliance? And what is on the other side of said alliance? If the loyalists are called Tories, why does no one call the Patriots Whigs?
Two: what on earth is the British strategy? Why do the redcoats seem to be spending so much time just hanging around in New York or Philadelphia? Valley Forge is literally twenty miles from Philly. Okay, I realize, it’s winter. But come on, it’s twenty miles. General Washington is starving in the snow out there. His troops are deserting by the score. And Lord Howe can’t send a couple of guys with muskets to go bring him in? Heck, it sounds like a well-phrased dinner invitation would probably have done the trick.
Three: if the Stamp Act was such an intolerable abuse, how did the British Empire have all these other colonies — Canada, Australia, yadda yadda — where everyone was so meek? Surely we can understand the idea that taxation without representation was the first step toward tyranny. So where is the tyranny? Where are Her Majesty’s concentration camps? Okay, there was the Boer War, I guess. But more generally, why is the history of America so different from that of the other colonies?
Four: why does no one outside America seem to resent these unfortunate events at all? I mean, the Revolution was a war. People got pretty violent on both sides. In some parts of the world, when people lose a war, they don’t feel that it was just God’s will. They feel that God would be much more satisfied if there was some payback. And they tend to transmit this belief to their offspring. In the American unpleasantness, a lot of people — loyalists — got kicked out of their homes. They had to leave with only a small travel bag. When this sort of thing happens in the Middle East, it’s remembered for the life of the known universe.
By all means, read more, but I’ll skip to this key fact: two of the leading British generals, Howe and Cornwallis, were Whigs — in fact, Whig MPs.
I must admit to a certain weakness for comeuppance stories like this:
A knife-wielding burglar had a shock when he attacked a pensioner in his home — and discovered his victim was a retired boxer.Senior citizen Frank Corti, 72, a former junior boxing champion is still a bit handy with his dukes.
And when he spotted the aforementioned intruder, Gregory McCalium, in his hallway he sprang into action and delivered two right hooks.

The blows were so powerful that McCalium, who had just lunged at Mr Corti with the knife, was left looking like he had been in ‘a car accident’.The pensioner then restrained him until police arrived. He was jailed for four and a half years yesterday after a judge told him he had ‘got what he deserved’.
After sentencing, Mr Corti said: ‘I was scared when he first drew the knife but most people would have acted in the same way. If you can’t defend what’s yours, where are we at?’
Oxford Crown Court heard the break-in was the culmination of a long-running dispute over noise between the neighbours, who live in Botley, Oxford.
McCalium, a barman, was having a rowdy party at his house on August 18 last year when police turned up after a complaint from a neighbour.
McCalium assumed it had been made by Mr Corti — who won the National Association of Boys’ Clubs Championship in Birmingham when he was 16 — and broke into his neighbour’s home at 8am the following day.

[...]
Mr Corti said: ‘The accused produced a knife. It was no ordinary knife, it was more like a six-bladed knuckle duster.‘He made a slashing movement at me. I stepped back. He missed me, fortunately.’
Mr Corti said that while McCalium was off balance, he grabbed both of his wrists and managed to pin his arms against the wall.
He added he asked McCalium to drop the knife but he wouldn’t.
Mr Corti said: ‘I shouted to my wife to ring the police.
‘I was absolutely petrified.
‘As I saw it, it was a matter of do or die so I let his wrists go. Fortunately the element of surprise was with me, so I adjusted my position and hit him with my right hand. It was just below the eye.
‘I did not knock him out, but he was stunned. I heard the knife drop. We grappled. I was trying to drag him out of the back door. We both fell to the floor. I had to subdue him by punching him, which I did not take a great deal of pleasure in.”
The jury heard he then lay on top of McCalium until the police arrived.
Frankly, I’m a bit surprised that an English court acted so sensibly, from some of the stories I’ve been hearing lately.
Thomas Jefferson was definitely the geek president. He and his mathematician friend Robert Patterson exchanged encrypted messages, and now, two centuries on, a cryptologist cracks the code:
To Mr. Patterson’s view, a perfect code had four properties: It should be adaptable to all languages; it should be simple to learn and memorize; it should be easy to write and to read; and most important of all, “it should be absolutely inscrutable to all unacquainted with the particular key or secret for decyphering.”Mr. Patterson then included in the letter an example of a message in his cipher, one that would be so difficult to decode that it would “defy the united ingenuity of the whole human race,” he wrote.
There is no evidence that Jefferson, or anyone else for that matter, ever solved the code. But Jefferson did believe the cipher was so inscrutable that he considered having the State Department use it, and passed it on to the ambassador to France, Robert Livingston.
The cipher finally met its match in Lawren Smithline, a 36-year-old mathematician. Dr. Smithline has a Ph.D. in mathematics and now works professionally with cryptology, or code-breaking, at the Center for Communications Research in Princeton, N.J., a division of the Institute for Defense Analyses.
[...]
The code, Mr. Patterson made clear in his letter, was not a simple substitution cipher. That’s when you replace one letter of the alphabet with another. The problem with substitution ciphers is that they can be cracked by using what’s termed frequency analysis, or studying the number of times that a particular letter occurs in a message. For instance, the letter “e” is the most common letter in English, so if a code is sufficiently long, whatever letter appears most often is likely a substitute for “e.”Because frequency analysis was already well known in the 19th century, cryptographers of the time turned to other techniques. One was called the nomenclator: a catalog of numbers, each standing for a word, syllable, phrase or letter. Mr. Jefferson’s correspondence shows that he used several code books of nomenclators. An issue with these tools, according to Mr. Patterson’s criteria, is that a nomenclator is too tough to memorize.
Jefferson even wrote about his own ingenious code, a model of which is at his home, Monticello, in Charlottesville, Va. Called the wheel cipher, the device consisted of cylindrical pieces, threaded onto an iron spindle, with letters inscribed on the edge of each wheel in a random order. Users could scramble and unscramble words simply by turning the wheels.
But Mr. Patterson had a few more tricks up his sleeve. He wrote the message text vertically, in columns from left to right, using no capital letters or spaces. The writing formed a grid, in this case of about 40 lines of some 60 letters each.
Then, Mr. Patterson broke the grid into sections of up to nine lines, numbering each line in the section from one to nine. In the next step, Mr. Patterson transcribed each numbered line to form a new grid, scrambling the order of the numbered lines within each section. Every section, however, repeated the same jumbled order of lines.
The trick to solving the puzzle, as Mr. Patterson explained in his letter, meant knowing the following: the number of lines in each section, the order in which those lines were transcribed and the number of random letters added to each line.
The key to the code consisted of a series of two-digit pairs. The first digit indicated the line number within a section, while the second was the number of letters added to the beginning of that row. For instance, if the key was 58, 71, 33, that meant that Mr. Patterson moved row five to the first line of a section and added eight random letters; then moved row seven to the second line and added one letter, and then moved row three to the third line and added three random letters. Mr. Patterson estimated that the potential combinations to solve the puzzle was “upwards of ninety millions of millions.”
After explaining this in his letter, Mr. Patterson wrote, “I presume the utter impossibility of decyphering will be readily acknowledged.”
Undaunted, Dr. Smithline decided to tackle the cipher by analyzing the probability of digraphs, or pairs of letters. Certain pairs of letters, such as “dx,” don’t exist in English, while some letters almost always appear next to a certain other letter, such as “u” after “q”.
To get a sense of language patterns of the era, Dr. Smithline studied the 80,000 letter-characters contained in Jefferson’s State of the Union addresses, and counted the frequency of occurrences of “aa,” “ab,” “ac,” through “zz.”
Dr. Smithline then made a series of educated guesses, such as the number of rows per section, which two rows belong next to each other, and the number of random letters inserted into a line.
To help vet his guesses, he turned to a tool not available during the 19th century: a computer algorithm. He used what’s called “dynamic programming,” which solves large problems by breaking puzzles down into smaller pieces and linking together the solutions.
The overall calculations necessary to solve the puzzle were fewer than 100,000, which Dr. Smithline says would be “tedious in the 19th century, but doable.”
After about a week of working on the puzzle, the numerical key to Mr. Patterson’s cipher emerged — 13, 34, 57, 65, 22, 78, 49. Using that digital key, he was able to unfurl the cipher’s text:
“In Congress, July Fourth, one thousand seven hundred and seventy six. A declaration by the Representatives of the United States of America in Congress assembled. When in the course of human events…”
That, of course, is the beginning — with a few liberties taken — to the Declaration of Independence, written at least in part by Jefferson himself. “Patterson played this little joke on Thomas Jefferson,” says Dr. Smithline. “And nobody knew until now.”
Billions of Argentine ants around the world all actually belong to one single global mega-colony:
Argentine ants (Linepithema humile) were once native to South America. But people have unintentionally introduced the ants to all continents except Antarctica.These introduced Argentine ants are renowned for forming large colonies, and for becoming a significant pest, attacking native animals and crops.
In Europe, one vast colony of Argentine ants is thought to stretch for 6,000km (3,700 miles) along the Mediterranean coast, while another in the US, known as the ‘Californian large’, extends over 900km (560 miles) along the coast of California. A third huge colony exists on the west coast of Japan.
While ants are usually highly territorial, those living within each super-colony are tolerant of one another, even if they live tens or hundreds of kilometres apart. Each super-colony, however, was thought to be quite distinct.
But it now appears that billions of Argentine ants around the world all actually belong to one single global mega-colony.
Researchers in Japan and Spain led by Eiriki Sunamura of the University of Tokyo found that Argentine ants living in Europe, Japan and California shared a strikingly similar chemical profile of hydrocarbons on their cuticles.But further experiments revealed the true extent of the insects’ global ambition.
The team selected wild ants from the main European super-colony, from another smaller one called the Catalonian super-colony which lives on the Iberian coast, the Californian super-colony and from the super-colony in west Japan, as well as another in Kobe, Japan.
They then matched up the ants in a series of one-on-one tests to see how aggressive individuals from different colonies would be to one another.
Ants from the smaller super-colonies were always aggressive to one another. So ants from the west coast of Japan fought their rivals from Kobe, while ants from the European super-colony didn’t get on with those from the Iberian colony.But whenever ants from the main European and Californian super-colonies and those from the largest colony in Japan came into contact, they acted as if they were old friends.
I for one welcome our new insect overlords.
The Fourth of July is commonly known as Independence Day, but a better term for it, Patri Friedman says, is Secession Day:
Secession almost always involves multiple groups of people, some small and local, others large and distant, who want to rule the same territory. And history tells us that large, distant rulers are often reluctant to grant independence. The word “independence” takes all the historical messiness involved in winning freedom from a hostile enemy and sweeps it under the rug, while the term “secession” puts this inherent tension right out into the open.So Saturday, July 4th is Secession Day.
Reihan Salam reiterates Henry George’s 130-year-old call to end all taxes — except one:
A staunch believer in laissez-faire economics, George found it perverse that we tax productive activities like work and innovative investment while letting landowners grow rich simply because they scooped up property at the right time. In that spirit, George called for a “Single Tax” on the unimproved value of land. There’s a certain compelling logic to the Single Tax that stands the test of time. When you tax income, aren’t you punishing people for working hard? But when you tax an asset like land, you’re simply encouraging the most valuable use of that land. In the years since George faded from the scene, a number of economists, from Milton Friedman to Paul Romer, have found virtue in the Single Tax, not least because it creates the right incentives for government. Simply put, the better you govern, the more valuable the property. The more valuable the property, the more revenue you raise.
This would make even more sense if governments were for-profit corporations.
The board game Monopoly was created by Georgists, by the way.
If insurance companies can’t tell the difference between high-risk consumers and low-risk consumers, then the low-risk consumers will drop out of the market and go uninsured. Low-risk consumers won’t pay what the insurance companies ask, because they don’t expect to lose anywhere near as much as the insurance companies expect them to lose:
Suppose there are two equally common types of people who buy insurance:High-Risk Consumers: They have a 20% chance of losing $2000. Since they’re risk-averse, they value full insurance at $1000 ($600 more than the actuarially fair premium of $400).
Low-Risk Consumers: They have a 1% chance of losing $2000. Since they’re risk-averse, they value full insurance at $50 ($30 more than the actuarially fair premium of $20).
If insurance companies can’t distinguish high- from low-risk consumers, an actuarially fair premium for an average consumer would cost (0.5*$400) + (0.5*$20) = $210.
If consumers purchase insurance voluntarily, though, the low-risk will drop out of the market — they won’t pay $210 to get a policy worth $50 to them. With only high-risk consumers in the market, the competitive price of a policy is $400. The market fails to realize $30 worth of consumer surplus per low-risk consumer.
If, on the other hand, we make insurance mandatory, then we can actually improve the efficiency of the insurance market — by making the low-risk consumers pay more than they would pay, but less than the high-risk consumers gain through the rigmarole:
The regulation is efficiency-enhancing, because it takes $160 from every low-risk person in order to give $190 to every high-risk person.
Some people will see the mandatory-insurance scenario as more fair; others will see it as much, much less fair.
Bryan Caplan takes a closer look at adverse selection and mandatory insurance though, and he finds something very different from the theoretical model:
When you actually look at these regs, you’ll notice some peculiarities:
- Mandatory insurance is most prominent in the auto insurance industry. But these regulations don’t target low-risk drivers. Their main purpose, contrary to the adverse selection model, is to make sure high-risk drivers get insurance.
- Even more shocking: The regulations usually go on to somehow subsidize the rates that high-risk drivers pay. This is necessary because, contrary to the adverse selection model, insurance companies are able to detect high-risk drivers, and do not want to cover them at a loss.
- Economists usually mention adverse selection in the context of health insurance. But in the market for individual health insurance — precisely where you’d expect adverse selection problems to be most severe — governments very rarely mandate insurance coverage. Instead, they focus on mandatory employer-provided health insurance, where the adverse selection problem is likely to be milder.
- When governments do mandate health insurance, they almost always subsidize the rates that high-risk buyers pay. This is once again necessary because, contrary to the adverse selection model, insurance companies are able to detect high-risk customers, and do not want to cover them at a loss.
Bottom line: Real-world insurance regulation has little or nothing to do with economists’ “moral hazard and adverse selection” mantra. The “intellectual” bases of real-world regulation of insurance are rather populism and paternalism: Big bad insurers won’t cover people unless it’s profitable, and simple-minded consumers don’t care enough about their own health to pay for it themselves.
Contrary to e.g. Krugman, insurance isn’t a “special” market where laissez-faire doesn’t work. Instead, it’s a normal market where democratic politics doesn’t work, because both the public and economists remain wedded to populism and paternalism.
To an entrepreneur, Steve Blank says, being asked to join a venture firm with an Entrepreneur-in-Residence title means you have been tapped on the shoulder by the VC gods:
It means you get to sit at a venture capital firm (some even pay you for the privilege) and stay until you have come up with an idea for your next company or have joined a company you’ve met as they passed through the VC’s offices. Depending on the size of the venture firm they may have one to three EIR’s who stay an average of a year or so. It really means that the VC’s would like to own a piece of you.To a VC it’s a cheap investment, and if they somehow don’t bind you to their firm, someone else will. In reality an EIR is a set of wonderful golden handcuffs. Of course no VC firm will come right out and say, “If you’re an EIR for us you can’t do your next deal with any other firm.” Hmm… You’ve taken their money, eaten their food, sat in their meetings and you are going to take money from someone else? They have your soul. It sounded like a great deal. I had no idea what I wanted to do next, and would get paid to think about it? How could it go wrong? Little did I know.
Read the whole story, but I’ll skip to his lessons learned: