From: riaedwards@halls1.cc.monash.edu.au (AUDREY EDWARDS)
Subject: Re: Currency problems
Organization: Halls of Residence, Monash University 
Date: Thu, 8 Oct 1992 11:28:07 GMT

In article <26625@castle.ed.ac.uk> fofp@castle.ed.ac.uk (M Holmes) writes:
>From: fofp@castle.ed.ac.uk (M Holmes)
>Subject: Re: Currency problems
>Date: 7 Oct 92 12:35:54 GMT

>smee@bristol.ac.uk (Paul Smee) writes:

>[...re the social economic costs of paying welfare for workers made
>unemployed and how it'd sometimes be cheaper to subsidise them ibn their
>current jobs...]

>>However, I question the criteria used for closure.  In simple
>>economist's jargon, I believe that the financial criteria should include
>>the externals, both cost and benefit, as well as the internals.
>>Applying *my* criteria, the coal industry should be supported at
>>present because the TOTAL cost of closure is actually higher than the
>>total cost of staying open.  The catch, which is why the Government
>>doesn't see it my way, is that the internal book-keeping indicates
>>that, for the coal industry in isolation, it is cheaper to close the
>>pits.  

>>The added costs which tip the balance in my favour (by my accounting)
>>are external to the industry itself -- increased unemployment benefit
>>spending and decreased tax revenue, both made worse by traditional
>>market multiplier effects -- and so don't show up in British Coal's
>>balance sheets.  They do, however, come directly out of MY pocket.

>Libertarian ideas would cover this situation. It's part of the theory to
>make the external costs internal. For instance, rather than welfare
>there might be unemployment insurance and charities.

>In the above situation, an insurer, rather than pay out money to have
>someone unemployed, might offer to pay the employer a retainer to keep
>someone employed until a recruiting agency, hired by the insurer, had
>found alternative employment. It'd depend on the insurer's own
>calculation of minimum cost, which would pretty much match the equation
>you are alluding to above.

Moving off the subject slightly, your suggestion regarding insurance 
companies replacing the role of the welfare state with regard to 
unemployment benefit both interests me, and raises alarm bells. In view of 
the insurance companies' recent heavy losses (resulting from their inability
to forecast the heavy claims resulting from mortgage default, and the U.S. 
asbestosis cases, and/or get their sums right in assessing likely claims), 
what would the situation for the unemployed be if the insurance company was 
forced to cease trading (like Municipal Mutual Insurance Co. did recently) 
and refused to pay out further claims?

Would the 'free market' prevail, with the claiments as unsecured creditors, 
on the 'you pays your money, you take your choice'? (as it would seem the 
Maxwell pensioners will have to accept). Or would you have government 
intervene, on the 'occasional disaster' basis, to ensure that the 
unfortunates did not starve? Or, thirdly, would they become entitled to 
income support, throwing them back into the welfare state the 
libertarians wish to replace, (or finally, is that where charity 
intervenes - the "Bail Out Disabled Insurance Company Fund" :-)  ) 

Seriously, at what stage does the 'free market' (with its benefits and 
pitfalls) end, and the state commence basic protection of those it considers 
in need?

Audrey.