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19 October 2013

Why The Free Market is Not Made for Insurance Companies

Wealth is generated through innovation. And, it is impossible to create an innovative insurance company.

Think about it. Insurance companies make money by analyzing risk, and taking premiums that add up to more than the cost of acceptable risk. The problem is that there's no way to be innovative about analyzing risk. When you analyze risk, you hypothesize a certain event and count the number of times the event occurs over time. As an insurance company, you have no control over what the event is, or any aspect of it. What you get is reams of data about the event, and the knowledge that such an event is undesirable. Think a broken leg. Insurance companies all know exactly what a broken leg is, and they all have reams of data which count the number of times people tend to break their legs over a given time. Then they take everybody's money and pay money to the people with broken legs. That's all there is to it. Color me second-rater, but it doesn't take a John Galt to do that.

The only possible way for an insurance company to be innovative is to be innovative about analyzing risk. However, the innovation involved here is extremely insignificant. Everyone knows what a broken leg is. It's public knowledge. It's very obvious. And unless you're a Mafioso, it's really really difficult to be innovative about the way people tend to break their legs. The best you can do is count the number of times people break their legs, and factor that into your mind-blowingly simplistic equation for generating profit.

The idea that insurance companies can operate as businesses in the free market is insidious and stupid. Insurance companies calculate risk and take premiums that exceed the cost of acceptable risk. We've already discussed how it is impossible to be innovative about calculating risk. You calculate risk, and if you have enough money, you're correct. That leaves two ways to create profit. Either you 1) increase the cost of premiums, or 2) don't pay out the money you're supposed to. Surprise surprise; this is exactly what health insurance companies were doing before Obama passed the Affordable Care Act. Critics of the Affordable Care Act say that it will kill business. Hopefully, they're correct, because insurance companies shouldn't be businesses. The free market doesn't apply to them. They don't deserve to make profit, because they don't innovate.

A good way to think about it is the difference between reading a book and writing a book. You don't deserve to generate a profit by reading books. It's the writers who sold you the books who deserve to generate a profit. Studying the empirical world is like reading a book. Creating new products is like writing a book. And the moment you turn risk-taking into an innovative endeavor, and begin writing books, you're no longer in the business of insurance; you're in the business of investing.

05 October 2013

Mainstreamology (Or: Why I'm Committed to Being an Indy Filmmaker As Opposed to Hollywood)

The idea of being mainstream has a different conceptual geometry than independent. Consequently, I don't believe that independent people will ever become mainstream, nor will mainstream people become independent, at least not without giving up their former status as independent or mainstream respectively. The two are mostly mutually exclusive. Here's why.

When you make a choice to become mainstream or independent, you choose to adopt something and discard something. Choosing to become mainstream means you adopt quantity of audience and discard unity within the individual. Choosing to become independent means you adopt unity within the individual and discard either money or the thing which brings it—quantity of audience.

Unity within the individual can be seen as vertical. Quantity of audience, of course, is horizontal. Thus we have independent movies, for instance, which are very deep. The word "deep" is not a misnomer: they're deep because each idea expressed in them was very personal to the artist, and thus touches the artist very deeply. Unfortunately, what this means is that the artist cannot and will not be accessible right away to anyone who does not already think like the artist. That is why quantity of audience is sacrificed. It isn't because the artist is unwilling to make money, it's because the artist's commitment to him- or herself as an artist is greater than his or her commitment to money.

Hollywood movies, on the other hand, are made for the purpose of garnering a large quantity of audience, and also money. What this means, of course, is that the movie must resonate on some level with a large number of people, many of whom think very differently about just about everything. This is why Hollywood movies are so very collaborative. Hollywood is a business. People are measured by the amount they cause something to sell. And causing something to sell is determined not by how much you listen to your soul, but by how much you listen to other people. This is why Hollywood likes the apprentice system—climbing the Hollywood corporate ladder starting as a prop boy means you listened very carefully to a large number of salaried employees for decades, and now you know how to make money.

This is where it gets interesting. Observe: listening to your soul and listening to others are both virtuous. But they're different and complementary kinds of virtues. This means that it's possible and even desirable for two people to be in the same room, one of whom is very adept at listening to his own soul and the other very adept at listening to others, and for both of these people to be very virtuous, not lacking a whit in virtue. Obviously, if they both were film directors, the former would probably be an independent film director, and the latter a Hollywood director. The former would also probably sustain himself on a second source of income, while the latter may bring in millions of dollars. This is the natural way of things.

It is possible, though very rare, for an independent movie to make it big. But this will only happen one of two ways. Either 1) some big name with a lot of influence is somehow touched by the film because it speaks personally to her, and she uses her influence to manufacture an audience for it, or 2) it just so happens serendipitously and inexplicably to strike a nerve with a large number of people, probably in a way that the director and others making it could never have foreseen.

This creates a difficulty for directors in both camps (independent and Hollywood). Hollywood directors sometimes decide they want to be more independent, and independent directors very often want to be mainstream. But I wouldn't recommend expending too much energy in either respective direction. Hollywood directors should stick to Hollywood, and independent directors should stick to independence. Hollywood directors who try to be independent don't often succeed. Though there's no harm in making a foray into independent production, there's also no harm in sticking to Hollywood. I'm not saying that introspection as a spiritual quality is bad for Hollywood directors, but rather that introspection will probably just make you a better Hollywood director rather than a truly independent voice. Likewise, a foray into Hollywood may be great for an established independent director. But the "boulevard of broken dreams" is filled with people who unwisely tried to take on Hollywood while remaining true to their idiosyncratic independent commitments. And the idiosyncratic directors who make it big in Hollywood are never truly accepted as independent voices by the people whose opinions in this regard really matter.

Note that these ideas, I think, can be extended to every area where the independent vs. mainstream dichotomy applies, which is pretty much everywhere. Thus, in politics, we have people like Senator Bernie Sanders and former Senator Hillary Clinton. The Clintons are very mainstream, while Sanders is very independent. They're both good at what they do. But I don't think either of them could or would want to switch places. The fact of the matter is, if you want to be mainstream, you're going to have to cater to mainstream opinions as much as possible. And if you want to be independent, you're probably better off in the House of Representatives. Obama may be an "independent," but he got lucky. (This is, of course, my perspective as a lifelong independent-minded Democrat who voted twice for Obama.) (It's important to note, also, the reason why this political perspective is important. People often get the mistaken idea that being an independent voice is ipso facto better than being mainstream, most vehemently, I think, in the realm of politics. But this is not true, and nobody I've talked to seems to have the slightest hint as to why it isn't true. It's not true not because compromise is good, or because sincerity comes from introspection or long-held ideals. It's not true because either you're good at being mainstream, or you're good at being independent, or you're mediocre at both. There's really no middle ground here.)

Being independent requires a specific type of mind, as does being mainstream. Neither should switch spots too often. As far as filmmaking goes, the independents have a long history of very intriguing and high-quality art films which people should try to watch. Independents should, and probably do, study these. Hollywood directors, on the other hand, have a long history of films of equal but different quality. Hollywood was conceived as epic ("Birth of a Nation") and because of the Depression, they took on the role of national cultural therapists. I love independent art films, but they don't make me cry. Hollywood almost always does—even the low-quality low-art films. The problem is, I don't always want to cry about the state of our country. Sometimes, I need fulfillment in other areas. I'm sure that many other people feel the same, and this is why we need both the independents and the Hollywood folks.

Bottom line: stick to what you're good at. Hollywood directors: it's better to make people cry with low-art movies than go broke making independent films. Independents: it's better to blow people's minds with simple, low-budget, high-art films than go broke trying to make an action flick which you intend to sell to an uninterested Hollywood exec. An "independent" Hollywood film will leave the true art critics gasping for air (in a bad way). A "Hollywood" independent flick will run you out of business (and leave the true art critics gasping for air, in a bad way). Don't do it; stick to what you're good at. It's better that way.