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Thursday, July 31, 2008

Random Jesus Question

It is often said that "Jesus died for our sins" and this "fact" is used by religionists to imply the need for a certain reverence or even guilt amongst followers. However, if Jesus is the son of God, why would it have been such a big deal to die? Again, he's the son of God - he's going to live for eternity, right? So he can't roam around anymore in the desert and tell a dozen people what to do? (I would have been eager to get out of that one.)

The broader question is why any immortal entity would care about anything? Afterall, it is the alternative of life and death that gives rise to the concept of value. Quoting a famous passage from Ayn Rand's Virtue of Selfishness quoted here:

“Value” is that which one acts to gain and/or keep. The concept “value” is not a primary; it presupposes an answer to the question: of value to whom and for what? It presupposes an entity capable of acting to achieve a goal in the face of an alternative. Where no alternative exists, no goals and no values are possible.

I quote from Galt’s speech: “There is only one fundamental alternative in the universe: existence or nonexistence—and it pertains to a single class of entities: to living organisms. The existence of inanimate matter is unconditional, the existence of life is not: it depends on a specific course of action. Matter is indestructible, it changes its forms, but it cannot cease to exist. It is only a living organism that faces a constant alternative: the issue of life or death. Life is a process of self-sustaining and self-generated action. If an organism fails in that action, it dies; its chemical elements remain, but its life goes out of existence. It is only the concept of ‘Life’ that makes the concept of ‘Value’ possible. It is only to a living entity that things can be good or evil.”

To make this point fully clear, try to imagine an immortal, indestructible robot, an entity which moves and acts, but which cannot be affected by anything, which cannot be changed in any respect, which cannot be damaged, injured or destroyed. Such an entity would not be able to have any values; it would have nothing to gain or to lose; it could not regard anything as for or against it, as serving or threatening its welfare, as fulfilling or frustrating its interests. It could have no interests and no goals.

Large Profits Mean Large Investment and Larger Supply

If you want cheaper gas, then the news that an oil company is reaping record profits should come as welcome news. This is because high profits in an industry cause investment capital to flow to that industry. This investment capital increases supplies in that industry until profit margins begin decreasing. If an industry is unprofitable, the opposite occurs and capital begins flowing out of that industry. In fact, over time the rate of profit tends to be uniform across all industries. This principle is known as the "uniformity of profit principle" and is explained in great detail in Chapter 6, Part A.1 (p.172) of Capitalism: A Treatise on Economics by Dr. George Reisman previously linked here. Such increased capital investment and increased supply will translate to cheaper prices. Or, as Shell CEO Jeroen van der Veer states very succintly:

"If we do less investment there will be less supply for consumers" which would drive prices higher."

"The world needs energy."

Further illustrating this principle in action:

He said the company was reinvesting profits and now expects capital spending of between $35 billion and $36 billion this year, up from the last previous estimate of $24 billion to $25 billion. That figure includes the company's $5.8 billion bid for Canada's Duvernay Oil Corp., launched earlier this month.

Petercam analyst Alexandre Weinberg:

"Though the sentiment toward the majors (major oil companies) has weakened in the past weeks due to the oil price decline, we believe that Royal Dutch Shell will continue to generate massive cash flows," he wrote in a note on the earnings."The following 18 months should see significant production capacity increase," he said, citing a large project on Sakhalin island in Russia expected to begin production at the end of the year.

So, it stands to reason that proposed "windfall profit taxes" on oil companies would decrease their profits, reduce capital spending and therefore reduce future supplies which would translate into even higher prices. Unfortunately, logic and reality will not stand in the way of Congress.

Wednesday, July 30, 2008

Environmentalists Crack Down on Water

Here is yet more evidence to refute the claim that environmentalists are concerned about human life. In this case, environmentalists have sued to keep the Nestle company from opening a water bottling plant in California and have delayed the plant opening for years. Now, the attorney general of California has intervened and threatened the company with more legal action unless they perform more costly studies to evaluate the impact of bottles on global warming.

Let's put aside the fact that scientists can not even demonstrate that global warming exists much less demonstrate its causes, so that compliance with such a demand would be literally impossible. Let's also put aside concerns about the laborers who will never be employed by Nestle and the customers who will never drink their water and ask an even more fundamental question: Under the philosophy implied by the environmentalist's actions, since any action man takes affects the environment, what action would any company be allowed to take in order to produce anything of value to human beings ? Under their philosophy, would man be able to take any action in regard to his survival?

Tuesday, July 29, 2008

What Does Conservation Really Mean?

I keep hearing calls for more conservation as a "solution" to the so-called energy crisis. But what does "conservation" mean? Here is the definition according to the Oxford Dictionary:
• noun 1 preservation or restoration of the natural environment and wildlife. 2 preservation and repair of archaeological, historical, and cultural sites and artefacts. 3 careful use of a resource: energy conservation. 4 Physics the principle by which the total value of a quantity (e.g. mass or energy) remains constant in a closed system.

So, if the environmentalists are calling for conservation does this mean they want us to "preserve" crude oil deposits? Do they mean that we should "preserve" them so that little children who now ride bikes will someday be able to access them? In other words, are they saying that they are not against consumption of crude oil per se but only present consumption? Are they saying they are all for consuming crude oil as long as it is not us doing the consuming? Do they really believe that people that do not yet exist should be the ones who consume it? Why should we save it for people that don't exist yet? Why not just use it? If we run out, the price will increase and people will find another source of energy.

Of course, this is not what the environmentalists mean by "conservation." A more accurate term to describe what environmentalists mean by "conservation" would be the term "destruction" or better yet "sacrifice".

They want us to live more like cavemen than modern man. In other words, they want us to use less earth to survive. But, humans can only survive by using the earth. Therefore, to argue that we should use less earth to survive is tantamount to arguing that we should live a poorer quality of life now. Furthermore, they do not want us to live poorer so that future men can live better as the term "conservation" implies. They want humans to adjust to simply living a poorer quality of life which in turn will lead to less humans. This is entirely consistent with the philosophy of intrinsic value. The environmentalist sees nature as intrinsically valuable, i.e., valuable apart from man's standard of living and therefore, man's nature is the logical enemy of the environmentalist as man must alter nature to survive.

It is time to challenge the Orwellian term "conservation" and force the environmentalists to define their terms explicitly.

Wednesday, July 23, 2008

The Function of Commodity Speculation by Dr. George Reisman

In recent posts, I have discussed the ridiculous argument that commodity "speculation" is to blame for higher oil prices. No better argument refuting this claim can be found than the one offered in Chapter 6, Part A.3 (p.191-192) of Capitalism: A Treatise on Economics by Dr. George Reisman. A fully downloadable and searchable version of the book appears on the author's site and can be downloaded by clicking this link.

(You will need Adobe Acrobat Reader. It will allow you to go directly to the pages referenced above.)

Further links to the work of Dr. Reisman can be found at:


Saturday, July 19, 2008

Friday, July 18, 2008

United Nations Is Logically Futile And Evil

Imagine you wish to have a neighborhood that is free of crime - so you gather a committee of neighborhood leaders to discuss various plans and settle disputes before they escalate. In this meeting, you take the position that "compromise" is paramount and that anything is negotiable. You take the position that no one type of person is better than any other and therefore you welcome any type of leader to discuss crime, including criminals. In fact, you give the largest and most powerful criminals veto power over any proposed resolutions. So, for example, say a crime is committed and a member of the committee wishes to take action by working with the police department to procure evidence and encourage witnesses to come forward, but to no one's surprise, it is immediately vetoed by the criminal leaders. Out of frustration, the committee member proposes a "resolution" stating only that the committee opposes the crime, but the criminals, not wishing to set an anti-crime precedent, logically veto it. How effective would such a committe be? How is this fictitious committee any different than the United Nations?

Note that justice is not virtuous in and of itself. It is virtuous because without it you could not survive. If one refused to acknowledge evil or even the possibility that evil exists, how long would one survive? If life is your goal, judging what is good and what is bad for you and acting accordingly is a matter of life and death. This is yet another example of why when morality is defined objectively, that is, based on life as the standard of value, the moral is the practical. In other words, justice is practical and the decision not to judge is not only immoral but impractical. This principle explains why the United Nations can only further evil. The organization is predicated on the idea that no nation is better than any other and that compromise with evil is necessary.

For the latest example, see this article which reports that opponents of Robert Mugabe's murderous dictatorship in Zimbabwe have been the victims of violence and intimidation in the wake of protests of the latest phony election:

Reports of violence and intimidation by backers of the ruling ZANU-PF party have been rising as the government tries to quell opposition to Mugabe's rule after years of harsh treatment for his foes and an economic crash that has left the one-time breadbasket short of food.

"There has been a high increase in abductions, beatings and rapes since ZANU-PF claimed it had won the 'election' with a resounding victory," the opposition said in a
statement. At least 80 opposition supporters were killed before the run-off,
and the opposition says more than 10 have been killed since.

Men in army uniforms abducted opposition lawmaker-elect Naison Nemadziva at gunpoint Monday and his whereabouts remained unknown, an opposition statement said. Nemadziva was seized outside a court that was to hear a ruling party challenge to his winning of a legislative seat in March 29 national elections.

Among nations that value life, liberty and the pursuit of happiness should such a scenario cause even a moment's delay in denouncing Mugabe's tactics as the epitome of evil?

In New York, the U.S. set the stage for a potentially caustic debate at the Security Council by proposing U.N. sanctions that would require nations to freeze the financial assets of Mugabe and 11 of his top officials and to bar their travel outside Zimbabwe.

The draft resolution would also call on Mugabe's government to immediately begin negotiating to form a unity government with the opposition and to lift restrictions on humanitarian aid. But Tsvangirai said Wednesday that he wouldn't participate in talks under current conditions.

The council has adopted nonbinding resolutions condemning Zimbabwe's election violence and intimidation of opposition supporters. But South Africa and two members with veto power_ China and Russia — have opposed tougher action.

Such futility is logically necessary, and the United Nations like our imagined neighborhood organization is doomed to failure because it is predicated on a contradiction. The contradiction is the idea that principles and morality do not matter. The contradiction is the idea that ideology is irrelevant and that nations must somehow seek "peace" at any cost, i.e., by abandoning principle and moral judgment and accepting compromise and appeasement as the only virtue. The United States should immediately pull out of the United Nations, cut off all funding, and send these tin-pot dictators back to live in their own miserable countries. It is a matter of life and death for Americans to demand that our government not abandon its sovereignty to this deadly organization.

Thursday, July 17, 2008

Follow Up on "Free to Kill"

In my last post, I argued the Israeli appeasement "will embolden their enemy and hasten their collapse." Here is a follow up article about the Lebanese reaction that demonstrates this exact point.

Critics of Israel's lopsided prisoner exchange with Lebanese guerrillas said Wednesday that such deals only encourage more hostage-taking - a fear underscored by Gaza militants who said the swap proves that kidnapping is the only language Israel understands.

"What we've done now has made kidnapping soldiers the most profitable game in town," said Israeli security expert Martin Sherman. "There is absolutely no reason why Hezbollah should not invest huge resources now, along with Hamas, in the next kidnapping."

Note the sentiment here that it is a foregone conclusion that there will be more kidnappings. Referring to an Israeli solidier currently being held by Hamas militants in the Gaza strip, Construction Minister Zeev Boim says

"No one should be surprised if Hamas will now raise the price for freeing him," he said. Hamas made it clear Wednesday that it intended to do just that.

Here is the predictable "man in the street" reaction:

"Nobody would have expected that Israel would give up the likes of Samir Kantar. Hezbollah has shown that they are mighty people, and Israel is afraid of them and had to meet their demands," said Samar Mohammed, a 23-year-old architect in the West Bank city of Ramallah.

The most telling quote from this article is the justification offered by the Israeli government:

"This painful process exemplifies Israel's moral commitment to secure the return of all of their soldiers sent out on operational missions," said a statement Wednesday from the Israeli Defense Forces. "It demonstrates a compelling moral strength which stems from Judaism, Israeli societal values and from the spirit of the IDF."
In what sense can a policy of appeasement be considered "moral"? Wouldn't a "moral" policy be one that results in no kidnappings? Wouldn't a moral policy be one that states that the Israeli government will not negotiate with terrorists and that any kidnappings will be met with overwhelming force? Wouldn't a moral policy be one that asserts Israel's moral right to exist and that identifies and destroys its enemies in the first place? Pursuing a policy that encourages and supports your enemy is self-sacrificial and the height of immorality.

Wednesday, July 16, 2008

Free to Kill (As Long As You Return A Body)

In yet another outrageous example of seemingly unending appeasement by the West to totalitarian Islam, Israel agreed to "swap" five Lebanese prisoners including a notorious murderer in exchange for the bodies of two dead Israelis. So, the Israelis apparently consider the exchange of dead bodies for live murderers to be a fair deal. Not surprisingly, Hezbollah considers this a victory and is using it to embolden their reputation.

Israel freed a notorious Lebanese attacker and four others Wednesday after Hezbollah handed over two black coffins with the bodies of Israel soldiers, a dramatic prisoner swap that closes a painful chapter from the 2006 war in Lebanon.

The five — including Samir Kantar, who had been serving multiple life terms in Israel for a grisly 1979 attack — were brought home in International Committee for the Red Cross vehicles and received a red-carpet welcome at this coastal border town.

In Lebanon, a hero's welcome was prepared for Kantar, a Lebanese Druse who acted on behalf of the Palestine Liberation Front, a small faction of the PLO. The swap is likely to provide a significant boost to Hezbollah, which is trying to rebuild a reputation tarnished when it turned its guns on fellow Lebanese in May.

Consider the following description of Kantar (one of the murderers released):

In the dead of night on April 22, 1979, Kantar and three other gunmen made their way in a rubber dinghy from Lebanon to the sleepy Israeli coastal town of Nahariya, 5 miles south of the Lebanese border. There, in a hail of gunfire and exploding grenades, they killed a policeman who stumbled upon them, then burst into the apartment of Danny Haran, herding him and his 4-year-old daughter outside at gunpoint to the beach below, where they were killed.

An Israeli court found that Kantar shot Danny Haran in front of his child, then smashed her head with his rifle butt.

Haran's wife, Smadar, who had fled into a crawl space in the family apartment with her 2-year-old daughter, accidentally smothered the child with her hand while trying to stifle her cries. Kantar denies killing the older child, saying she was killed in the crossfire as he battled Israeli police, and has never expressed remorse. He was 16 years old at the time.

To get some understanding of the nature of the enemy we face (note that Hezbollah is backed by Iran and Syria), after reading the above consider the reaction in Beirut to the release of these monsters:

As fireworks lit the night sky, tens of thousands of people waving yellow Hezbollah flags gathered in Beirut for the rally to celebrate the release of Qantar and four Hezbollah fighters. Crowds threw rice and mobbed the cars carrying the men to the rally in the southern suburbs, a stronghold of Hezbollah.The ex-captives waved Hezbollah and Lebanese flags at the crowds before Nasrallah's brief appearance sent them wild.

As logic and history show us, such appeasement by the Israelis will embolden its enemies and hasten its collapse.

Tuesday, July 15, 2008

Alex Epstein: Take Responsibility for Your Decisions

An Open Letter to Borrowers and Lenders: Take Responsibility for Your Decisions
by Alex Epstein

Throughout the housing crisis, we have heard demands from spokesmen for desperate homeowners, banks, and investors for every variety of government bailout. But there is one group from whom the nation has not heard: the millions of Americans who, like me, had nothing to do with the crisis, who entered into mortgage contracts they could meet or who refused to buy at exorbitant prices, but who will be forced to pay the bills for these bailouts. If we had a spokesman, this is what I wish he would say.

"Dear Struggling Borrowers and Lenders,

"Every day, the government is offering a new intervention for your sake: to protect the borrowers among you from foreclosure, to protect banks and investors from ruinous losses, and to protect all of you who bought houses during the boom from declining home values.

"The government is allowing taxpayer-backed, trouble-ridden Fannie Mae and Freddie Mac to add even more risky subprime loans to their trillion-dollar portfolios while holding even less cash in reserve. It is 'guaranteeing' more and more risky mortgages with taxpayer money through the Federal Housing Administration (FHA). Through the Federal Reserve, it is continuing to inflate the currency to give cheap money to struggling banks. And it is floating several proposals to allow courts to slash valid mortgage contracts, assaulting the sanctity of contract.

"All of this is profoundly unfair to those of us who will pay the price for your bailout.

"It is universally recognized that when you invest in stocks, you are taking a risk--and just as you deserve the profits if the investment goes well, so you must accept the losses if it doesn't.

"The same holds true for real estate. Whether you are an investment bank holding mortgage-backed securities, a borrower with an adjustable-rate mortgage facing foreclosure, or an 'underwater homeowner' who owes more than your home is worth, the essence of your situation is the same: you chose to enter into a real estate transaction that has gone bad. And just as you had every right to any gains that might have ensued--so you must bear full responsibility for your losses.

"Taking responsibility does not necessarily mean resigning yourself to foreclosure or to huge, irreversible write-downs. You should do everything possible to make the best of the situation by making voluntary offers to other market participants. A borrower can seek refinancing, a bank with a large mortgage portfolio can try to find a buyer, lenders and borrowers can renegotiate loan terms that are cheaper than foreclosure. But what is intolerable is to force us to bail you out--which is exactly what the government is doing more by the day.

"Your representatives blithely ignore the injustice of their bailout schemes, claiming that the health of the entire financial system is at stake--just as they did with Long-Term Capital Management in the '90s and Savings and Loans in the '80s. But if the financial system ever does need these bouts on government life support, it is only because of decades' worth of government interventions that have radically distorted private investments and camouflaged and shifted risks. To unwind these uneconomic policies and practices will be disruptive. But it is the only way to restore genuine financial health.

"The question we face today is: Do we let the market function, penalizing primarily those who made bad investments--or do we unfairly foist damage on those who did nothing to cause it, while gifting boom-era borrowers and lenders with propped-up housing prices, lower mortgages, and easy credit?

"There is no conflict between individual responsibility and a functioning housing market; to the contrary, the second requires the first. If we let the market function, home values would fall to some market bottom, new buyers would eagerly seize on lower home prices, borrowing from lenders who would have learned to lend rationally--and mortgage-backed securities would be valued accordingly.

"The bailout policy, on the other hand, is creating indefinite uncertainty about home values and mortgage-backed securities, exposing taxpayers to trillions of dollars in future risks, further devaluing our savings through inflation, encouraging more irresponsible behavior in the future, and creating destructive new government interventions that destroy the vital protection of contracts.

"Clearly, the just and the American solution is for all of us to tell the government that we will take responsibility for our decisions, and that no one has the right to make anyone else pay for his mistakes."

Alex Epstein is an analyst at the Ayn Rand Institute, focusing on business issues. The Institute promotes Objectivism, the philosophy of Ayn Rand--author of Atlas Shrugged and The Fountainhead.

For more articles by Alex Epstein, and his bio, click here.

Monday, July 14, 2008

Orren Boyle and James Taggart Surface

Paul Blair writes an excellent refutation of the hideously irrational argument that "speculators" are to blame for higher oil prices. In this case, the argument is not being put forth by socialist university professors as you might expect but by the CEO's of a dozen airlines. This is yet more evidence of Ayn Rand's reoccuring argument that philosophically ignorant businessmen are their own worst enemy:

Today I received a message from United Airlines pushing a particularly misguided political agenda. It is one of the most disgraceful public displays of incompetence and evasion by American business in recent memory.

According to the airlines, speculators are to blame for high oil prices, and should be squelched. This ignores a number of obvious facts.

Saturday, July 12, 2008

Environmentalists Block Lower Gas Prices

Quoting AP news:
A federal judge has overturned a decision by the U.S. Forest Service to allow oil and gas drilling near a forest and a river in Michigan's northern Lower Peninsula.

... Leaders of the environmental groups urged the company and the government to look for other places to explore for oil and gas.

"We've said from the beginning we didn't want to stop them from drilling," said Marvin Roberson, a forest policy specialist with the Sierra Club. "We want them to drill from a place that won't be harmful to the old-growth forest or the recreational experience."

And where exactly would that be? Given that environmentalists value nature intrinsically, i.e., apart from man, and given that man by his nature must change the environment to survive , environmentalists must oppose human survival on principle. This is why in every case where human progress is pitted against trees and bugs, the environmentalists favor the bugs. In addition, the sacrificial aspect of their philosophy renders an idealistic aura to their movement which resonates with a culture steeped in altruism as its dominant morality.

Environmentalism must be opposed in principle if it is to be stopped. That is, environmentalists must be opposed on philosophic grounds and both the premise that nature is intrinsically valuable and the premise that human sacrifice is virtuous must be replaced with a moral code that upholds human life as its standard of value. Unfortunately, if we lose this battle, the meek will literally inherit the earth and in thousands of years these bugs and snails will not even be able to analyse why western civilization fell.

Thursday, July 3, 2008

July 4th

While working on some very gloomy posts, I figured I needed something positive to post on the Fourth of July. After all, despite all the bad right now, we must remember that the demise of America and Western Civilization is not a foregone conclusion. As human beings have freewill and are not determined, a collapse can be stopped if rational ideas are adopted.

To put our current situation in perspective, try to imagine yourself living at the beginning of July 1776. After chasing the British out of Boston over the preceding year, Washington and his rag-tag army sat in New York City and within a week the largest assembled fleet of warships in world history up until that time would enter the New York harbor carrying thousands of British Regulars and Hessian mercenaries intent on decimating the rebellion. Washington's untrained, disunited, and poorly equipped army would get virtually annihilated by the British in the Battle of Long Island and his battered army only narrowly escaped New York. Throughout the fall of 1776 and the beginning of winter, Washington's troops began leaving in droves through desertion or when their enlistment's expired. This prompted Thomas Paine to pen the pamphlet "The Crisis" on December 23, 1776, in which he famously wrote:
THESE are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as FREEDOM should not be highly rated. Britain, with an army to enforce her tyranny, has declared that she has a right (not only to TAX) but "to BIND us in ALL CASES WHATSOEVER" and if being bound in that manner, is not slavery, then is there not such a thing as slavery upon earth. Even the expression is impious; for so unlimited a power can belong only to God.

Washington had this read aloud to his men. It was a few days later, on Christmas night 1776, that Washington would famously cross the Delaware River and defeat a Hessian garrison in the Battle of Trenton. This victory and the victory a week later at the Battle of Princeton, would inspire the Continental Army and the nation and ultimately help turn the tide of the Revolutionary War.

Although John Adams was the most strident and most important advocate for independence in the Continental Congress he also understood that a severe price would have to be paid for it. And although no one, not even Adams, could ever truly imagine the misery and horror of war, as a principled thinker, he could still see past the short term suffering and imagine the glory and happiness of living in a country free of despotism. The dream of such a world was worth risking everything he held dear and his actions and those of our Founding Fathers should serve as inspiration to us today as we carry on our fight for Adam's vision and our own.

Here is John Adams' famous letter of July 3, 1776, in which he writes to his wife Abigail about his thoughts on celebrating Independence:

The Second Day of July 1776, will be the most memorable Epocha, in the History of America. I am apt to believe that it will be celebrated, by succeeding Generations, as the great anniversary Festival. It ought to be commemorated, as the Day of Deliverance by solemn Acts of Devotion to God Almighty. It ought to be solemnized with Pomp and Parade, with Shews, Games, Sports, Guns, Bells, Bonfires and Illuminations from one End of this Continent to the other from this Time forward forever more. You will think me transported with Enthusiasm but I am not. I am well aware of the Toil and Blood and Treasure, that it will cost Us to maintain this Declaration, and support and defend these States. Yet through all the Gloom I can see the Rays of ravishing Light and Glory. I can see that the End is more than worth all the Means. And that Posterity will tryumph in that Days Transaction, even altho We should rue it, which I trust in God We shall not.

The Book of Abigail and John: Selected Letters of the Adams Family,
1762-1784, Harvard University Press, 1975, 142

Tuesday, July 1, 2008

To Model or Not To Model

According to this WSJ article, insurers are boosting premiums based on models of "climate change" that predict more severe hurricanes in the future. This is in turn leading to a "glut of houses" for sale in some markets as homeowners are unable to bear the cost of the rising premiums. The basis of these increased forecasts are computer models:

Helping to drive these developments is a little-known tool of the insurance world: Computerized catastrophe modeling. Crafted by several independent firms and used by most insurers, so-called cat models rely on complex data to estimate probable losses from hurricanes.But regulators and other critics contend that the latest cat models -- which include assumptions about various climate changes -- are triggering higher insurance rates.

In other words, the same models which are causing global warming hysteria throughout the world and inducing the government to pursue economically destructive policies are being questioned and criticized by other government regulators since they are leading to increased insurance premiums! So, if based on these models, the government acts to increase energy and food costs by promoting ethanol it is considered prudent policy. But, if a private insurer uses these same models to increase insurance premiums, it triggers a regulatory backlash.

State insurance regulators and consumer groups are beginning to push back, saying that some insurers are relying too heavily on their use of cat models. Such critics note that the industry managed to realize huge profits in recent years -- despite record damages from back-to-back hurricanes in 2004 and 2005. (The Insurance Information Institute, the industry's trade group, says profitable years help offset bad spells when claims can exceed premiums. That happened in 2001, when insurers lost $7 billion.)

In May, Massachusetts officials denied a 25% rate increase that had been sought by the state-administered FAIR plan, its insurer of last resort. The request was "based in large part on a hurricane model that is not calibrated for Massachusetts weather patterns," state Attorney General Martha Coakley said in a statement. It "predicts the type of storms that have never made landfall in Massachusetts."

Last fall, Florida rejected Allstate's request for a 43% rate increase. In the process of investigating the proposed rate hike, officials learned that Allstate's cat model didn't comply with the state's rules against using a short-term model.

"They were using five-year projections [in their cat modeling] even though they had not been approved, and our concern was that it was because it generates a higher loss cost," said Kevin McCarty, the state's insurance commissioner.

So, the government is now actually regulating the types of models these companies can use and in fact, Florida objected to Allstate's "unapproved" model because it had the audacity to project out only 5 years. (I wonder what the commission's reaction would have been if the model projected a lesser "loss cost"?) Of course, aren't these the same models which are leading the United Nations-Al Gore-etc. to predict Armageddon? Does the government have an "approval" process for Al Gore's model (especially since his model is leading to a "higher loss cost")?

This is yet another example of how government intervention leads to massive market distortions. In a free market, an insurance company could offer an insurance policy at any premium they choose. If the premium they charge is too low then they would be taking the risk of having to pay out more than they take in and therefore would be risking bankruptcy. If the premium charged is too high, then a competitor (with a better model) could charge less premium and take their customers away. In other words, the market would operate in such a way to insure (pardon the pun) that companies would use the most objective models possible as possessing the best model would lead to the maximization of profits. (In fact, in the absence of government interference, I would bet all day that the insurance companies would have the best forecasting models as they have real money on the line versus government scientists whose incentives lie in alarming the public to procure more government funding.) Also, note that market-based home owner's premiums would act as a deterrent to those who wish to live in high risk areas. If it is true that a certain area is more prone to hurricanes either generally or due to "climate change" then higher premiums (or no possibility of insurance in extreme cases) would deter people from inhabiting these areas. As I noted in a previous post Can Evil Knievel Get a Free Lunch:
Furthermore, insurance premiums are one of the free market's defenses against irrational behavior. If you build your house on a volcano, it is unlikely anyone will insure you. To the extent that the government underwrites insurance policies that would not otherwise be offered, it encourages people to engage in risky behavior. In economic theory, this is known as "moral hazard." (The most notorious cases are those in which homeowners continually build on ocean frontage and receive a new home from the government every time it washes away.)

Of course, in reality, the government regulates premiums and/or sets up state (taxpayer) underwritten pools to insure people who can not get private insurance. As noted in the previously quoted post, such regulations forced many insurers out of Florida often leaving smaller, poorly rated insurance companies or no insurance companies in their place. Furthermore, when the state underwrites policies it encourages people to live in high risk areas which cause further increases in premiums or risk to the taxpayers who must underwrite the pool. In accordance with reality's law of "no free lunch", someone will pay. No company is going to underwrite policies where the premiums they receive are likely to be lost to claims (if they did that the government would prosecute them for defrauding their shareholders). And if the government takes the risk, then ultimately the taxpayers will foot the bill.

I have no doubt that many of these companies are using the uncertainty and pliability of these computer models to project results which then justify requesting the regulators to allow higher premiums to be charged. Of course, in the absence of a truly free market, we will never know and instead of the simplicity and objectivity provided by a free market, such disputes will always end up being fought over by pressure group lobbyists and opportunistic politicians with the final bill going to honest, hardworking people who least deserve it. And, finally, when the smoke clears, capitalism and the free market will be blamed thus leading to calls for more government regulation.

Oppose Internet Regulation

"In the wake of an online advertising partnership between Yahoo! and Google, a House subcommittee held a hearing on the possibility of increasing Internet regulation to prevent the companies from gaining dominance over that area of the Internet. Small Business Regulations chairman Charles Gonzalez worried that the partnership could be bad for online competition."

I wrote the following to my representatives using http://www.congress.org/ (the quote I use is taken from "Antitrust" in "Capitalism: The Unknown Ideal")

I OPPOSE regulation of Internet commerce.

"The necessary precondition of a coercive monopoly is closed entry—the barring of all competing producers from a given field. This can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises. Without government assistance, it is impossible for a would-be monopolist to set and maintain his prices and production policies independent of the rest of the economy. For if he attempted to set his prices and production at a level that would yield profits to new entrants significantly above those available in other fields, competitors would be sure to invade his industry."

The idea that the Yahoo!, Google partnership will be "bad" for competition is a red herring designed to justify ever more government intrusion into the marketplace. Rather than increasing regulation of business, the House should hold hearings on decreasing regulation of business. Specifically, the Congress should repeal the Sherman Anti-Trust Act and various other "antitrust" laws which arbitrarily punish successful businesses for being successful and stifle efficiency and productivity by preventing mergers and acquisitions.

If the government is truly concerned about lack of competition, it could start by investigating the U.S. Post Office, the Department of Education, and the Department of Transportation which restrict competition in mail delivery, education, and the ownership and maintenance of roads and bridges respectively. If "fair competition" is truly the goal then why has the government granted monopoly privileges in these areas - areas which so obviously are in need of the benefits of privatization and competition?