Only then would they understand the colossal mess they have created. In fact while we’re at it, give them pencil and paper and calculator and make them do it that way. We’d have tax reform so fast …

In olden days people used to say that “The stock market has higher risk but higher expected return than bonds”. I have come to believe that since the financial services industry has fundamentally been unable to quantify risk any more, this is no longer a meaningful statement. I fully expect that the next crisis will occur in the bond market, since the bond rating agencies have constructed their own house of cards.

Ultimately investing depends on your estimate of the potential upside or downside for an asset that you intend to exchange for something else in the future. There is a surplus of advice on how to assess risk, and a shortage of trustworthy advice.

In reality, unless a company pays dividends to stockholders, the owner of a share of stock holds essentially nothing. It’s universally true that an asset is only worth what someone else is willing to pay for it. Some assets possess some intrinsic value (e.g., glittery stuff like diamonds or stuff that keeps you warm like oil or real estate that you can live on). By contrast, stock has no intrinsic value whatsoever. It’s like any other currency, and the people who create the currency have the power to devalue it at their own discretion.

All of my life I have heard the mantra that long term investments in the stock market will outperform other types of more conservative investments, but like many individual investors, I have recently come to regard such claims as untrustworthy and self-serving. By staying on the sidelines for the next ten years I may forego gains that flow to others who participate in the game, but I think I’m pretty much done with gambling. I have now seen two major collapses of stock markets in the last ten years, and I don’t care to participate in any more.

It’s not clear what all this mess and smell is supposed to accomplish other than to be a full employment act for tax professionals, accountants, and IRS employees. Whenever I hear calls for a “flat tax” I am baffled by why people think this will improve the situation, because it simply replaces one piecewise linear function with a second piecewise linear function. The problem is in figuring out what counts as income, and it seems like it should be a lot simpler than this.

1. We would have four different internets, with gateways that restricted what could flow through them.
2. You would have to buy your computer from your ISP, and you couldn’t switch ISPs and keep the same computer unless the remainder when you divided the MAC address by four was equal to the remainder when you divided the third octet of your IP address by four. (did you get that?)
3. Packets between ISPs would be billed at the rate of $125/megabyte if they carried email.

I’m hoping to see some of this change during my lifetime.

1. Go to primary care physician
2. If primary care physician refers you to an in-network specialist, then it will be covered.

In case of a true emergency (e.g., spurting blood), you can bypass this procedure, but the case should be clear cut.

Seems simple enough to me, and it’s a means for insurance companies to control costs by using a lower-cost physician to screen problems in a medically competent manner. I followed the rules, and the primary care physician said that he strongly suspected appendicitis and referred her to a nearby in-network surgeon to do further screening and possible surgery. He had her admitted to the hospital across the parking lot from his office, where she spent 24 hours but was ultimately released (she turned out not to have appendicitis).

The surgeon was probably annoyed by this since he didn’t get to charge his big fee for the surgery, and when he issued his bill a month later, it was for about $800 more than what the insurance+deductible would cover. When I called the insurance company, I was told that his contract with the insurance provider did not allow him to charge more, and that his acceptance of the referral constituted an agreement to whatever the insurance company would pay. I therefore refused to pay the excess to the doctor.

The surgeon’s office continued to send us bills for the excess charges, and after a couple of months started making constant phone calls to my home. I stood my ground and refused to pay, explaining it to the office manager that they were in breach of a contract that gave them the referral. The surgeon’s staff eventually referred it to a collection agency, causing it to show up on my credit reports. I stuck to my guns and refused to pay, and eventually they simply stopped trying to collect.

The dynamics of the marketplace were apparent to me at the time. The doctor wants as much money as he can get, but he can’t get patients without agreeing with an insurance company to get new customers. The insurance company doesn’t have any incentive to help me enforce the contract, and I’m not a party to that contract. They simply ignored the problem. I had no way to shop for a doctor, given that my daughter was in intense pain and might have a serious condition. The marketplace basically failed to exercise any cost controls, and I lay the blame squarely at the feet of the insurance company. They offered me no assistance in enforcing their contract with the doctor, and they took no punitive action against the doctor since the following year he was still listed as an in-network doctor. They behaved rationally, because they had no incentive to do so, either through regulation or through market forces.

So for those of you who tell me the marketplace works to control health care costs, please explain what market mechanism would work here. I concluded at the time that insurance companies need more stringent regulations, and I still believe it. Either that or a public option.