Archive for October, 2009



One of my favourite blogs is the Money Illusion written by Scott Sumner. He’s risen to some prominence in the blogosphere because he’s giving a coherent, convincing narrative and counter-factual narrative of the crisis. Great stuff and highly recommended.

Except that he wants to destroy insurance companies.

Basically it seems that his point is that we need to avoid a nominal decline in GDP, even when real GDP growth is negative. I’m not an economist, so I won’t get into the macro here, but suffice it to say that he presents a very convincing argument. Tyler Cowen says this is the “best free lunch I’ve seen in years”. Yikes.

My comment is that because inflation is a transfer of wealth from creditors to debtors, insurance companies, the backstop of the world, get screwed. Massively. See here [warning, boring insurance press alert].

What’s one to think of this?

Well, I can think of a few consequences:

1. Insurance premiums go up, especially for long tail lines of business

2. Maybe we’re finally going to find that hard market.

3. There’s going to be no refuge, because Scott wants everyone to inflate simultaneously.

4. Maybe bank-insurance mega-conglomeration is the optimal strategy. The banks go mental and nearly bring the system down while old fogey insurance companies, being the last outpost of solvent capital, lose their shirts in the ensuing inflation. If they merge, at least nobody goes down.

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