By Stephen W. Hiemstra
The first steps to re-open the economy have begun in many localities. We all recognize that the number of infections and deaths will rise, but the grim reality is that we have no choice. The cost of shutting down the economy fall too heavily on those unable to work from home.
Co-Pays Lower Risk
Christians are not fatalistic. We believe the God works through us and with us to determine our fate (Risk Takers for Christ). What we do with our lives has eternal significance because we are created in the image of a sovereign and powerful God.
A helpful parallel exists in the world of insurance. Being fatalistic implies that nothing we do matters; everything is determined by God. The Islamic expression—if God wills—captures this fatalistic concept. So during the annual Hajj to Mecca, it used to be that accidents, like tent fires, would occur during the Hajj because the tents employed did not include fire extinguishers. True fatalism allows no precautions, like insurance, to mitigate losses because they are the will of God should they occur.
The alternative to fatalism is to allow God’s influence to work through us. The insurance world employs this principle in the case of a co-pay. A co-pay reduces the cost of insurance by recognizing that the insured can affect the probability of a loss occurring by their behavior. The co-pay motivates the insured to take precautions and lower their risk. Fewer accidents occur, which lowers the overall cost of insurance.
The application of the principle of co-pays to the corona virus pandemic is to practice social distancing, use face masks and gloves, and stigmatize anyone that does not not take precautions. The government can help in this process by ticketing offenders and publicizing cases where people sue those that infect them, should the anti-social behavior be egregious. A further step might be to assign liability to those practicing anti-social behaviors.
No Risk-Free Life
There is no such thing as a risk-free life, but some are more prudent than others about their risk taking. An example can be made from the investing world.
A truly risk-adverse person often has trouble making money in investing. If you keep your money in cash or things like savings bonds, it is hard to earn a good rate of return. But how do you learn to invest if you are too risk-adverse? The short answer is that you need to read about investing, practice making investments, and make a few mistakes.
A prudent risk-taker takes small steps to learn about new investment ideas. My rule-of-thumb is to limit new investment ideas—risky ideas—to less than five percent of my portfolio. You will never become rich following my five-percent rule, but you will also never miss out on the opportunities that arise. What works in stock investing also works in career choices.
In a stock market today, fortunes will be made and lost on such principles. I have several friends who lost their retirement savings in the 1990s betting on tech stocks and ignoring my five-percent rule. In the Great Depression, an uncle of mine bet everything on purchasing a section of farmland (one square mile of land) in Northern Iowa and, as a consequence, was able to live comfortably the rest of his life. The bottomline in investing is that you have to take your chances and live with the consequences, both good and bad.
The question of how to re-open the economy is no different. Allowing governors to manage the response of states have shown that not all of them have the same risk-management skills and approaches. Some governors are taking baby steps to re-open while others are betting the farm on an all-or-nothing approach. Germany has taken the former approach while Sweden has taken the later—Germany currently has a 4.4 percent mortality rate while Sweden’s is 12.3 percent.
No one honestly reporting corona virus statistics has a mortality rate of zero.
Water Cooler Observations, May 13, 2020
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Author site: http://www.StephenWHiemstra.net
Publisher site: http://www.T2Pneuma.com.