What is Moral Hazard?

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Moral Hazard is predominantly an insurance industry term to describe the actions of an insured party who acts differently than he would if there were no insurance to mitigate the effects of his actions. An example could be a homeowner who smokes in bed, lights candles in the house, and lights off flambé in a dining room close to flammable drapes, all because he knows that the insurance will pay if the house burns down.

Moral hazard is where one entity takes more risk because another entity will pay for mistakes. A common explanation for why this happens is called “informational asymmetry.” It occurs when the parties in a contract have unequal information and one assumes risk without fully understanding the extent of the risk.

The government is a master at creating moral hazards. Taxpayers bear the brunt.

Consider these examples:

  • Obamacare required insurance companies to provide benefits that they knew were not sustainable, but they provided coverage anyway knowing that the government would bail them out. Taxpayers take the hit.
  • Because Obamacare allowed people to sign up after they became ill, the scheme became too expensive to maintain and it failed.
  • Banks took huge risks claiming that they were too big to fail. Frightened politicians bailed them out to “save the economy.” Taxpayers took the hit.
  • Politicians in Illinois vote for generous defined benefit pensions for public employees. Public sector unions encourage their members to vote for the politicians. The unions claim that their members paid their fair share into the pensions, yet since 1998 the percentage actually paid by government workers has increase 75% and that of taxpayers by 427%.  Taxpayers are responsible for paying off current unfunded liabilities plus all future increases as well.
  • Heavy handed regulation encourages people to engage in lawlessness and behavior to circumvent the regulation when the cost of compliance is onerous.
  • Asset Forfeiture Programs in the states and by federal authorities encourage police to prosecute people, not solely because of the nature of a crime, but because of the value of property that potentially can be seized. Civil forfeiture is a proceeding brought against the property rather a person convicted of a crime and has been used to enrich police departments and municipalities, undermining the legitimacy of law enforcement.  Whether the laws that permit such seizures are an example of moral hazard or simply encourage government corruption is open to debate.

An interesting column about civil forfeiture laws by George Will can be found HERE.

Some federal rules have changed since this was written and somewhat reduce the federal government’s complicity under what is called federal agency adoption of property seized by state or local law enforcement. We hope the states take a lead in eliminating ill-conceived civil forfeiture laws.

An article written by Benson, Rasmussen, and Sollars in April 1995 points out:

The Comprehensive Crime Act of 1984 is shown to have altered the incentives of police agencies by allowing them to keep the proceeds of assets forfeited as a result of drug enforcement activities. Empirical evidence is presented which shows that police agencies can increase their discretionary budgets through the asset forfeiture process.

The United States is experiencing a crisis in police-citizen relations. We believe it is urgent that trust in law enforcement and the rule of law be restored. Civil Forfeiture laws, although not well understood by the general public, represent a clear moral hazard or at worse facilitate police corruption.  How can anyone trust the police in a simple traffic stop if the officer starts asking about how much cash the occupants of the car are carrying?  The answer is very chilling to the average citizen and even more chilling to minorities.

The Institute for Justice provides a state-by-state report on asset forfeiture called Policing for Profit. Access their web site HERE and watch the video:

Reform of forfeiture laws is a cause that seniors can take a lead in promoting at the local, state, and federal level. Contact your representatives and ask how they feel about the topic.

Nootropics

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According to Wikipedia, Nootropics are “drugs, supplements, or other substances that improve cognitive function, particularly executive functions, memory, creativity, or motivation, in healthy individuals.”

There are a few things you should know before wasting your hard earned money on anything that promises to make you smarter, more motivated, or reverses your impending dementia.  If you really are in the beginning stages of dementia, consult a good doctor and don’t buy stuff you see advertised heavily on Fox News Channel. The one that comes to mind is the jellyfish thing. We won’t mention the name because we are adverse to ugly tweets and lawsuits. If you are rich and healthy, give it a shot. Try ingesting strange things into your body to see how it works. You will be doing a clinical study with N=1.

Another word you should know, also defined on Wikipedia, is xenobiotic: “A foreign chemical substance found within an organism that is not normally naturally produced by or expected to be present within.” Drugs are xenobiotics as are many substances from so called natural supplements. Many things in food are xenobiotics. How your body processes these foreign substances and renders them harmless is very complex and not everyone handles them the same. Some people cannot handle gluten or lactose.

The next thing to learn about if you want to mess around with stuff to make you smart is the body’s cytochrome P450 mixed-function oxidase system.  It’s the body’s way of taking care of a lot of stuff the digestive tract, or other mechanisms didn’t handle completely. The P450 system is determined genetically. Something that you can handle well may kill someone else.  You can have genetic testing to see which isoenzymes you produce and how active they are, but it is largely a waste of time and money at this point.  Doctors deal with it empirically by trial and error, trying different drugs and adjusting the doses.

Let’s look at cytochrome P450 1A2, abbreviated CYP1A2. Its activity in the body helps detoxify xenobiotics such as caffeine, and acetaminophen.  Acetaminophen can kill you and you don’t know what a lethal dose is for you until you try it. Even then it may depend on what else you have been eating, if you are dehydrated, or if you eat your vegetables. Caffeine, like acetaminophen, can kill you and the lethal dose will vary. The median lethal dose (LD50) in humans is estimated to be 150-200 mg per kilogram of body mass.  Don’t depend on this number. It only kills half of those who overdose.

Back to nootropics, which we really never left:  Caffeine is a good one- pretty safe and a weak inhibitor and substrate of CYP1A2.  Some people can detoxify the stuff all day long and sleep like a baby. Others handle a cup in the morning. It’s not simply a matter of detoxifying it. Your genes determine sites in your body that it binds to, some well, others not so well. Boys don’t handle it as well as the ladies, generally.

What about modafinil?  It’s an inhibitor of CYP2C19, and inducer of CYP3A4 so if you are taking any drugs for therapeutic reasons you will probably mess up your treatment.  Besides it is a prescription drug and your doctor will need a diagnosis such as shift work-sleep disorder to feel good about giving you the prescription. But if you are old, have high blood pressure and are on a long list of drugs, the doctor will warn you about a myriad of drug interactions and suggest that you quit your night job.  Oh, but we forgot. You are over 50 and retired.  Right?

How does Donald (Trump) compare to Ronald (Reagan)?

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Trump is a Different Man for Different Times

I arrived in sunny Southern California in 1963 eager continue my studies in physics after suffering two years of university in the frigid climes of upstate New York. I cannot tell you who was governor of New York during that time except to say that Nelson Rockefeller comes to mind and he had a wife named Happy.   Students then, at least the ones I knew, didn’t pay much attention to politics. When asked by a USC admissions director what I thought about the assassination of John F. Kennedy that occurred on the day of my interview, I carelessly replied that I didn’t think it made a lot of difference. Luckily for me he was an Orange County Republican and he decided that I belonged at USC.

In those days, USC was a safe place for complacent Republican sympathizers.  Occasionally a professor would ask uncomfortable questions about why Ronald Reagan was qualified to be governor. The safe answer was, and it turned out to be truer than anyone imagined, that Reagan knew how to choose smart people to actually run the government. Reagan is now widely acclaimed as the great communicator. He apparently was good at negotiating with dangerous world leaders as his legacy attests. But most of all, he surrounded himself as governor of California, and later as President, with very smart people, good people, moral people, and he left the country in the safe hands of his Supreme Court appointments.

The reason for the above background is to demonstrate that I was a witness to the Reagan Revolution so it is part of me. I watched Ronald Reagan in public life for 16 years. In spite of Reagan’s desire to cut the size of the federal government, split government substantially limited his agenda. He excelled in foreign affairs but his domestic agenda was stuck in the Great Society.

Donald Trump is no Ronald Reagan. I miss the affable Reagan smile and easy retort.

So how does Ronald compare to Donald?  So far it is too early to judge although everyone is anxious to do so.

The thing that immediately comes to mind is the Internet.

Reagan had television, a limited universe of talking heads, newspapers whose political biases were tame but well known, and a bunch of news magazines that were still able to turn a profit. The volume of information was manageable.  Narcissism was a word used by psychologists. People took pictures of OTHER people and sent the film off to be developed.

With the Internet, the volume of information has reached astronomical heights and its dissemination is cheap. One can conclude from the laws of supply and demand that political opinion has depreciated to the point of being virtually worthless. News outlets publish trash on page one, and later rescind it on page 6 with no apology.   On the ropes now is Time Magazine!

Is President Trump is a narcissist as the selfie crowd and a bunch of disgrundled psychiatrists are fond of proclaiming? A good argument can be made that a lot of psychiatry and clinical psychology is not based on solid science. Medicine is based on chemistry,  biology, and physics. Medical research, experimental, clinical, and epidemiological, rely on hard data that are evaluated mathmatically for statistical significance. The so-called soft sciences, anthropology, economics, epidemiology, geography, policy, psychology, and sociology may use scientific methods of inquiry but their discipline identifies better with scholars in the humanities. Narcisism only exists as a medical diagnosis because of the profoundly chaotic state of medical practice in the western world. DMS-5 (Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition) is an example of the medical/government complex inventing diseases to treat. Narcissism is one such invented disease and would be better characterized as Greek mythology.

Political acrimony is either at an all time high or we just know about it because of the Internet and its handmaiden, cable news. A 24-hour news cycle repeats the same lame stories as if by repetition they will achieve credibility.

So far Donald Trump appears to be choosing good people, at least one great new Supreme Court justice, and he is slowly filling the ranks of circuit judges. Hopefully he will get it right.  Some of his excellent cabinet people are quietly laying the groundwork for the revolution Reagan was unable to complete.

In the meantime my European friends are turning their sophisticated noses up at our gaff and twitter prone President who is breaking all the rules of political correctness.

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Melania, we’re out of toilet paper. Bring me some more international agreements.

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The above cartoon appeared in the March 6, 2017 online issue of OBV Online and is used here as an illustration of German sentiments. The caption on the OBV Website reads, “International agreements are taken very seriously in the White House. Cartoon: Bengen”