Hedging Your Bets

When I started reading economics, long, long time ago, I was taught the cliche about there ain’t no free lunch. Now in high toned circles of the Econ profession, I understand that there is some debate about that. Good. Intellectual differences sharpen thinking, although you’d never know that from a lot of modern American universities. But, I digress. I have come to understand in conservative circles there is something that you might term “a quasi-free lunch,” mostly one you can eat if you are a market fundamentalist. I’ve been mystified by this paradox for some time, because you’d think those for whom supply and demand are a religious icon of sorts might flee in terror from any such notion. Nope. They sure don’t. But I have a theory. Oh, oh.

Now the idea here isn’t very complicated. The future is basically unknowable, but it isn’t unpredictable. A ghoulish example. Since I am mortal, I will die. The probability is 100 percent, sniff. Now, ask me to pick a date. My primary care physician tells me she thinks I’ll make it into my 90s, so that gives me roughly 20 years to fool with. That’s 7,300 days. If we hopelessly oversimplify and say one day is as likely as the next (don’t try this on an actuary), then I have a 1/7300 chance of being correct about the exact date. That is, I have a .0001 chance of being correct, or one in ten thousand. More or less. Are you feeling lucky? Not that lucky, I’ll bet. Me neither.

Not to extend this depressing conceit too far, but the point is, I will die, I just have no idea when. And precisely because of this mix of certainty and uncertainty, I buy life insurance. I make a bet with my insurer each year that I may well cash in my chips before the term of my policy expires. I lose, right, but I win. Or my beneficiaries do, because my insurer has to pay off. My insurer loses, right? But look at this way. For thirty years or so, my insurer has been winning, for real, because I pay the premia, and get nothing in return. But when I do lose–er, win–my insurer has been winning for years, but can afford to lose. And this particular gamble involves not just me, but millions of other people who buy life insurance. The insurer is a bit like a bookie who use the losses of some to pay the winnings of the other, while keep a small slice of the handle for him or herself. Not for the faint of heart, but that’s why you only read about this stuff. It’s very risky.

But you know what else is very risky? Screwing with the lives and well being of people to whom you have a social, if not a fiduciary obligation. You are the governor of a state, or some other public official, you have a duty of care. Somewhere you probably swore to protect and defend the people of the great state of Whatever, so help you God. Quite. And when you manifestly fail in that duty, well, like Truman said, that’s where the buck stops. You can’t say “This is unacceptable” when something goes horribly wrong. Of course it’s unacceptable, you weasel. You didn’t do your job, but you want to posture and to strut around as if you were somehow the victim. Right. Welcome to Texas, and to the Republican party of Texas. The well of crocodile tears never, ever runs dry.

As so many other writers have emphasized, Texas is governed by a party that is really not interested in government, much less governing. They have been in power for over two decades, and, honestly, I’m hard pressed to think of a positive accomplishment to their name. They like guns, true enough. They think everyone should have one and in almost any venue you can think of, including churches and schools. They don’t much like women, it seems, especially outside of janitorial and reproductive functions, just as the Lord intended. To be honest, they don’t seem to like anyone other than white people, and when you come right down to it, I don’t think they much like Southern Europeans with olive skin. Which would include people like me, whom they confusingly label “Yankees.” Go figure. Logic doesn’t seem to be a strong point with them.

Now they claim to like honest-to-God capitalism and free markets, which, of course, make free people. It’s why Texans (the right kind) are free: free of income tax; free of other power grids; free of social capital; zoning; planning–you name it, they don’t want it. No sir. Now this sort of cowboy capitalism really confuses me, because it doesn’t appear to have much to do with reality. Since the future is uncertain and things do happen, it is hardly socialism to plan on having extra capacity in any business. Just in case. Like when I was a kid, Al the Barber always seemed to have an extra chair, because, as he patiently explained, you never knew when a wedding party was gonna show up. You didn’t want to turn away customers, so you made provision–you took out a form of insurance–knowing you could call a brother barber and have a station for him (it was always him in those days). Besides, what did it cost? Once the chair was there, it was there. You just had to make sure you could pay your bills at the end of the month, and it wasn’t like that chair was gonna make or break you. Since Al had been in the business forever, he had a feel for these things. They happened, he just couldn’t predict exactly when. He was a prudent businessman. And a good barber, too, as I recall.

Now, you’d think in the business of providing basic public services like water, gas, and electricity, you’d know there were times when demand was going to surge. Some pretty predictable, and some not. And you might even, if you paid attention, have some idea of when your productive apparatus might be likely to fail, especially if you had been around the business for years. So you hedged, right. You planned for the worst case, and then said “but what if it’s even worse than that? What could I do, within reason, to say the worst case might not be the worst case?” Don’t laugh. It happens. It happened at Chernobyl in the Ukraine in the old Soviet Union in 1986. The unthinkable happened. The “that’s impossible” wasn’t. And as a result, the world came very, very close to seeing large parts of Western Europe uninhabitable for God knows how long. How close? Go read Midnight at Chernobyl. But not before bedtime.

What happened there happened under the aegis of a corrupt and incompetent Communist Party and a bunch of apparatchiks whose job was to praise Lenin first, lie second, and then worry about the results. It happened that some of the very well trained engineers and physicists had actually worried that what sent the reactor (No 4) to kingdom come could actually happen. But no apparatchik let science get in the way of politics or their careers. Now doesn’t that sound familiar? We’ve known for some time that the Texas grid was vulnerable to extreme cold. We just chose not to do anything about it. Why? Well, it was unlikely to happen, as if the very meaning of “unlikely” wasn’t changing at the same time. Climate change is, in part, about extreme events, but we weren’t gonna worry about ordinary extreme events, let alone the possibility that something even worse could happen. And did. The extra capacity that might have prevented the disaster was–and isn’t–there, in any form, including weatherproofing wind turbines. But, hey, Texas Republicans bragged about cheap electricity. They still do. Maybe the benefit that came from paying a higher price, the clear ability to afford extra capacity without squeezing nickels, would have made for a greater margin of error. But, no, we don’t really have to pay for things here–any more than we have to wear masks to prevent viral transmission. The Lord provides: the quasi-free lunch is the Texas Miracle. God, like Lenin at Chernobyl, will watch over us.

And taxes. Ugh. As if taxing anything the market incorrectly overvalued–like the products of internal combustion engines–could ever be justified. Nope. There are no market failures in Texas, only a touching in faith that no “deadweight loss” from a tax could be compensated for by using the revenue raised for a more valuable social purpose. Like weatherizing Alamo Grid. Nah. Just like the guy here who refused to wear a mask in a Walmart by shouting “I’m a godly man.” Right. Faith-based market economics. Somehow, I’m glad I’m a heretic. And at this rate, I may end up as an agnostic.

Published by RJS El Tejano

I sarcastically call myself El Tejano because I'm from Philadelphia and live in South Texas. Not a great fit, but sometimes, economists notwithstanding, you don't get to choose. My passions are jazz, Mexican history and economics. Go figure

5 thoughts on “Hedging Your Bets

  1. Yo Bro, great entry. I was particularly impressed by the tone. You were measured, even keeled and wrote for a simple mind like mine to easily pick up the drift. I get it, it isn’t rocket science. Rainy day planning has been around since forever. What is not to get about that? Well, Gov. Abbott and an awful lot of not just Texans seem to have a blind spot there. When ignoring the possible, even the unlikely, is part of your value system, you have lost me.

    Like

  2. Nice write-up. Of course, the Texas markets are not free markets. They’re manipulated and infected with unconscionable greed, and they surely aren’t free to the outsiders. Well, they are free in this sense: they are free of intelligence, common sense, critical thinking, careful analysis, empathy, and long-term perspective.

    Like

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