From: scottj@gumedlib.georgetown.edu (John L. Scott)
Subject: Re: Libertarianism vs. government
Organization: Georgetown University Medical Library
Followup-To: alt.activism,talk.politics.misc,alt.individualism
Date: Thu, 23 Jul 1992 21:03:58 GMT
X-Posted-From: iamac-1.georgetown.edu
X-Posted-Through: sol.ctr.columbia.edu

In article <MATT.92Jul23124358@physics.berkeley.edu>,
matt@physics.berkeley.edu (Matt Austern) wrote:
> 
> In article <scottj-230792150731@iamac-1.georgetown.edu> scottj@gumedlib.georgetown.edu (John L. Scott) writes:
> 
> > did, another insurance company would be insane not to take advantage
> > of the situation and offer you (and *millions* like you) a contract
> > with no such clause.  This goes double in a libertarian society with
> > no government mandated insurance where insurance companies would be
> > forced by the market to provide maximal services for minimal fees.
> > An insurance company in such a marketplace would be committing
> > suicide if even a small percentage of their potential customers
> > refused to sign their bizarre contract.
> 
> An interesting theory.  Maybe even a true one.  Still, I'm a
> physicist, and I like to see empirical evidence for theories.  Has
> this actually been the case in societies with pervasive racism?  In
> such societies, has economic competition between insurance companies
> actually worked to eliminate the damage done by that racism?  

Well it is hard to set up nice clean laboratory experiments in social
science.  To test my theory we would need to find a racist insurance
company in a country with a laisse faire government.  Not likely to
happen.

Is it possible that all insurance companies would put such clauses in
their contracts if they could?  Yes, I suppose.  Would that be likely
to happen or likely to last if it did?  See below.

> A related question: free-market economics makes a certain set of
> simplifying assumptions about human behavior.  What is the evidence
> that humans actually do behave in this way?  And if, as I believe to
> be the case, these assumptions turn out to be a poor approximation to
> the way that humans actually do behave, how does this affect the
> conclusions that are based on those assumptions?

The primary simplifying assumption is that people would act in their
self-interest.  There is, of course, a lot of evidence that some
people decidedly act against their self-interest.  But remember, in the
absence of the government assisting them in their irrational acts or
bailing them out when they get into trouble, they would have to bear
the full consequences of their actions.  In other words, a lot of people
get away with a lot of irrational acts because of the government.  In a
liberatarian society, if you act too irrational you will die as the result
of your own behavior.  This would include starving because the
insurance company you own goes under.  This is a strong incentive to
behave rationally, at least in your dealings with others.

There will, of course, still be people who will behave as irrationally as
they feel they can get away with.  What would happen if all the owners of
insurance companies were such people and all of them put a racist clause
in their contracts?  People like you and me would be disgruntled.  You
are a smart man, a physicist.  If you wanted to start a new insurance
company with me and many others like us as investors,
you could do it, especially in the libertarian absence of restrictive
government regulations.  Why not?  You would have a guaranteed market of
like-minded insurance users.  No matter how many irrational people there
are, don't you think that there would be enough rational people to take
advantage of the markets irrationals would deny themselves?  Most of my
friends would be rational enough to do so.  Remember, this would be in
an environment where the irrational element would not be able to pass
a law or regulation or use violence to stop us.  They could only beat us
in the marketplace.  And no matter how irrational they were, wouldn't
they learn this after a while--enough to not bother putting racist clauses
in their contracts no matter how much they wanted to?  If they are not
that rational, mightn't their stockholders be?  In such a free market,
I doubt somebody that irrational could even rise to the point where
he could do something that stupid.  And I really can't imagine enough such
people rising to that point where all insurance companies could do it.

You personally, and I, and all of our respective rational friends are my
answer to your concerns.  Since we exist, a free market could work.

-John L. Scott
Xref: sparky alt.activism:13386 talk.politics.misc:35676 alt.individualism:4517