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A Planned Economy Again?
This article appeared in the February 16th Sunday-edition of the Frankfurter Allgemeine newspaper during my last trip to Germany. "Plan-Wirtschaft in Kalifornien" describes the homeowner-insurance crisis in California, which the spate of devastating fires has thrust into the limelight. Because the California Department of Insurance controls the homeowner-insurance business in the State and limits the premiums that insurance-carriers can charge homeowners to insure their homes most insurance-carriers could not make a profit, or even survive if faced with a catastrophe like the recent wildfires. They had already left the state's insurance market before the fires even started. They would only lose money, if they tried to play by the Department's silly rules.
California voters made Ricardo Lara the head of the Department of Insurance. Lara has tried to lure the insurers back; but as an elected official, he has to answer to his voters, who clearly do not want to cut the insurers any slack. What an insane idea, to make the insurance-commissioner post a political position! You might as well make a bank-president a political office. To make their point, California voters also passed Proposition 103 in 1988. They voted by a majority of 51% to place restrictions on how much insurers could charge homeowners. But with private insurers leaving California, the State Government has to pick up the costs of issuing policies itself. Now that the devastating fires have leveled entire cities, the State Government has to fork out a whole lot more money than it planned, in order to compensate homeowners for their lost homes; only it doesn't have enough money to pay out so much. The homeowners have to fight the State Government in order to recoup the cost of rebuilding.
The State Government has applied for Federal Disaster Relief to keep from going bankrupt. This does not please Republicans in Congress, who feel that the politicians in California have brought this disaster on themselves. The State of California wanted to, practically speaking, assume responsibility for its citizens' insurance coverage. America's Founder James Madison believed that there is method to this madness and wrote about it in a letter to Thomas Jefferson, describing the process as "the old trick of turning every contingency into a resource for accumulating force in government." If the State of California allowed market-forces to set the price for insurance coverage, the premiums would rise above what the government's unrealistically low premium limits; but the insurers would come back, which hopefully the State Government has accepted as an economic necessity. Surely it comprehends that it does not have the expertise to try to set the premium rates arbitrarily.
California's simple-mindedness reminds me of an occasion, years ago, when I had to do jury-duty. I was assigned to a simple-assault case against an older, rural farmer. He came to court in cut-off overalls and work-boots. It turned out, the court had also charged with being in possession of an unregistered firearm, which he had used to threaten a neighbor. Against the advice of his court-appointed attorney, he decided to represent himself. During jury selection, he struck off eight of the first nine jurors. The judge, the attorneys, and the court staff could hardly hold in their laughter. The poor, uneducated farmer thought that, if he dismissed all the jurors, the court would let him go free!