Felix Salmon:
How insurance improves living standards : Imagine a world where the Japanese government did not insure its population against extremely low probability events like the recent earthquake — this is Greenspan’s example, not mine. The toll of death and suffering in one of the richest countries in the world, which was catastrophically high to begin with, would soar, and the Japanese government, through inaction, would be killing thousands of its own citizens, in a heartless and entirely avoidable decision. Meanwhile, the broader Japanese economy would suffer much more greatly than it already is.
In other words, the Japanese government doesn’t need to be “pressed” to save its citizens’ lives in the event of a disaster; that’s its job.
What’s more, the second part of Greenspan’s thesis is equally incoherent, if not quite as morally monstrous. According to Greenspan, things like “expensive building materials whose earthquake flexibility is needed for only a minute or two every century” are “idle resources” and therefore in economic terms a waste of money. But a significant part of the Japanese economy is comprised of companies and individuals engaged in manufacturing and installing precisely those expensive building materials. It’s hard to see how the production of goods and services means that the economy is not engaged in the production of goods and services.
And it’s simply not true that the insurance industry acts as a brake on the economy, an area where otherwise-productive resources go to be wasted and squandered. Indeed, there’s a strong case to be made that when we remit our insurance premiums to someone like Berkshire Hathaway, they’re invested rather better than if they remained sitting in our checking account.
