The NYT Comes Out Against Taxes

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July 20, 2006

...Of course it's one that they've made up, but it's a start.

An NYT article today discusses the "ghetto tax," a term employed by the Brookings Institution to mean the added insurance costs of living in a high risk areas, which frequently are correlated with poor socioeconomic conditions.

If you live in any of the cities in which auto theft is prominent, you're probably going to end up paying more because of it. That's just how car insurance works. It's the same principle that says a speedy sports car will cost more to insure than a safe family sedan. And if you purchase a vehicle with a high theft rate, you're probably going to end up paying for that, too.

Part of the problem, the study found, is a discrepancy between the poor and the middle class in consumer skills and mobility: people who comparison-shop, especially on the Internet, tend to pay hundreds less for the identical car than those who walk onto a city lot and buy.

I'd go so far to say that poor consumer skills are much of the problem. Nevertheless, the notion of a "ghetto tax" is wrong, and the implications are dangerous. Even if consumers get bitch-slapped by the invisible hand, that's still the free market at work.

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See all 47 comments | Leave a comment

Jennifer|7.20.06 @ 9:35AM|#

I read the article last night and thought it was ridiculous, the way they talked about a person buying a $200 TV from a rent-to-own place for a total of $700, and then immediately discussed how unfair it was that poor people must pay more for "life's necessities." The editor must have been sleeping through that one.

But I'd say the higher car-insurance rates would count as a "tax," because buying car insurance is often mandated by the government.

|7.20.06 @ 9:46AM|#

Strong point Jennifer.

I should work that idea into how and why I am against the government mandating insurance.

Jennifer|7.20.06 @ 9:49AM|#

Kwais, I'm just pissed off because I was going to blog this myself, tonight. Now I can't. Damn.

|7.20.06 @ 9:56AM|#

Yeah but Jennifer, when you don't buy insurance I pay for it. Look, if you hit me and destroy my car and cause me bodily harm, I can never get any satisfaction from you if you don't have insurance. I have to have insurance on my car because it has a note. If you drive a hoopdie that you own and don't buy insurance, that is just more risk for the rest of us. We pay for your driving risk through higher insurance premiums. My insurence in Texas was significantly higher than it was in Virginia because Texas is full of uninsured illegal immigrants. Someone has to pay for the harm that they do and since they don't have insurance, it is the rest of us. Mandated liability insurance just prevents you from forcing the rest of us to bear the risk of your driving.

|7.20.06 @ 9:57AM|#

1990 figures for top stolen vehicles. Hardly informative in 2006. Who drives Camry any more? How about this one:

http://autos.msn.com/advice/article.aspx?contentid=2891&src=Ins

Number 1, Caddy Escalade would point me to the flashy set of thieves, the ones you see hugging the corners to make a sale in certain areas
Number 2, Mitsubishi Lancer Evolution points to the "need for speed" type of kid thief.

|7.20.06 @ 9:57AM|#

Two magazines can't blog the same thing?

And how come I have to keep waiting five minutes to post a message, and the dude in the Hummer thread posted the same message 5 times in a row?

Warren|7.20.06 @ 9:59AM|#

Even if consumers get bitch-slapped by the invisible hand, that's still the free market at work.

What sort of rhetoric is that? Who is this Taylor W. Buley? And what are his libertarian bona fides?

|7.20.06 @ 10:03AM|#

Oops, broken keyboard, correct 1990 to 1999.

Jennifer|7.20.06 @ 10:03AM|#

Yeah but Jennifer, when you don't buy insurance I pay for it. Look, if you hit me and destroy my car and cause me bodily harm, I can never get any satisfaction from you if you don't have insurance.

I actually agree with you on this, John; I've argued in favor of mandatory car insurance in the past for that reason. Still, though, the fact that poor people must pay more for car insurance is an actual "tax," something they can't avoid paying without facing legal consequences. I don't know what to do about it--maybe a scheme to differntiate "accidents you cause" insurance from "my car's been stolen" insurance--but a poor person does have to pay more for car insurance these days than does a middle-class or rich person with an identical driving record.

Jennifer|7.20.06 @ 10:07AM|#

Two magazines can't blog the same thing?

Considering the huge percentage of my readership that comes here first, no. Trying to blog libertarian stuff without duplicating Hit and Run--yeah, I'm a bottom-feeder.

|7.20.06 @ 10:10AM|#

but a poor person does have to pay more for car insurance these days than does a middle-class or rich person with an identical driving record.

Is that because of where the poor person lives? I think it would help if insurance companies would stop figuring rates by where you live. If I am a safe driver, I am just as safe of a driver if I live downtown as I am in the suburbs. The insurance industry basically penalized for living in an area of unsafe drivers. I think that is where poor people are hurt the most.

|7.20.06 @ 10:14AM|#

Part of the problem, the study found, is a discrepancy between the poor and the middle class in consumer skills and mobility: people who comparison-shop, especially on the Internet, tend to pay hundreds less for the identical car than those who walk onto a city lot and buy.

Sounds plausible. If I go to one of the ubiquitous shade tree used car lots around here and try to negotiate a cash deal on an overpriced older model, they won't even listen. They make all their money on financing for the cash-strapped.

What is the first question a West Virginia used car buyer asks the dealer?
"Y'all finance?"

|7.20.06 @ 10:14AM|#

Hmm... I always thought that the point of 'No Fault' car insurance was that you were insuring yourself against the other guy that didn't have insurance. You get into an accident, your insurance covers you. The other guy is supposed to be SOL for his costs and harm if he was stupid enough not to insure himself.

Then the personal-injury lawyers got into the game.

|7.20.06 @ 10:15AM|#

Being a safe driver is only part of the equation. Insurance only cares about liability, not typical (non-legal) notions of fault. If you live where a lot of bums cross the street hoping to get hit, your insurance will be higher because the insurance company has to pay out claims to bums who get hit. Jennifer is right that insurance is a tax and it isn't a terrible one. I don't think it's anti-libertarian to say that people should pay for the things they do. Whenever you're on the road, you are creating a risk that you should pay for, not society at large.

Jennifer|7.20.06 @ 10:19AM|#

You get into an accident, your insurance covers you. The other guy is supposed to be SOL for his costs and harm if he was stupid enough not to insure himself.

But that leads to the problem of personal responsibility: why is it my responsibility to pay for damages you have caused? If you're some poor schmuck with no money or assets, does this mean that if you crash into me and cause me serious injury, I or my insurance company should be the ones left holding the bag?

|7.20.06 @ 10:26AM|#

John, I agree with you. The companies started adding in all sorts of correlation factors rather than sticking with causality. I suspect they did this for their own convenience and profit. If I cause a lot of claims, I'm a high risk. A theft is not caused by me unless I leave the car unlocked with the key in it.
To me the whole car insurance thing became incomprehensible when no-fault came around. I have never understood it. It seems to turn the shared risk idea of insurance on its head. Or am I missing something?

|7.20.06 @ 10:37AM|#

The companies started adding in all sorts of correlation factors rather than sticking with causality.

I'm not here to say that this is a nice way to do things, but what else do you expect? Causality is hard. They want to earn money, not earn a Fields Medal for their contributions to statistics, or earn applause for being the nicest, most thorough actuaries around because they get every possible relevant detail on you before making a rate quote.

They ask "Given the info that we have, the info that wasn't too expensive or time-consuming to acquire, and given the level of coverage that he's requesting, what can we expect to pay out as a result of insuring this guy? OK, let's charge more than that. Next!"

Say what you will for or against mandatory insurance, but let's not act all shocked and awed that insurance companies play odds rather than trying to get the best possible causal model of each and every driver.

|7.20.06 @ 10:43AM|#

But that leads to the problem of personal responsibility: why is it my responsibility to pay for damages you have caused?

Exactly my question too.
Enter no-fault.

Isn't it that we have capitulated to the fact that there are plenty people who can't/won't pay for insurance? Or are horrible, incompetent, irresponsible drivers. Forbidding them to drive is unrealistic, they're gonna do it anyway. They need to get to work. Providing better education and demanding better behaviour is too much work and not easy.
Seems to me this is a problem like illegal immigration. We know it exists, but we are caught between necessity, reality and complexity.

thoreau:
Add to the list: "And given that we can get the regulators to let us get away with it"

|7.20.06 @ 10:43AM|#

I think the California commissioner of insurance is contemplating forcing insurance companies to put little or no emphasis on the location variable. This is a horrendous idea, for sound market reasons. Insurance companies should be able to rate on whatever variables they want. If they pick the wrong ones (the ones that inaccurately predict losses), they're at a competitive disadvantage. The whole point of insurance is to assign risk accurately to insured parties, while building up enough reserves to pay out in cases of catastrophic loss. If, as Jennifer suggests, an insurance company's actuaries could build a model that would more accurately assign fault and thus insure good drivers at a better rate, that company would have a huge advantage over competitors.

If, on the other hand, an insurance company is forced to eliminate a predictive variable (location), rural drivers will simply end up subsidizing urban drivers. The biggest difference, as it turns out, isn't between suburban and urban drivers, but between rural drivers and everyone else. Which makes a great deal of sense when you think about it.

Thus ends the lesson in insurance math.

|7.20.06 @ 10:43AM|#

Here's what it boils down to: if I am a safe driver, why should I have to pay for the risk created by someone else? I insure myself for the damage I cause. You insure yourself for the damage you cause. No-fault was create amidst the chaos of insurance companies spending more money on avoiding claims than just paying them. Any idea how much money is wasted on lawyers trying to avoid claims?

|7.20.06 @ 11:06AM|#

Last comment, go to get some work done ;)

S.R. Chamberlain,

For the sake of argument, I know I'm dreaming.
As long as insurance is just another industry that exists to maximise its profits, the math you explain is totally understandable.
If, however, insurance is a pooling of resources to share a common risk, like the fire insurance Franklin proposed in colonial Philadelphia, the math changes. Individual risk factors become the focus.
It would, of course, still require a lot of oversight and coercion (Sorry, sir, you can not build this wooden structure on Market Street 5 feet from your dwelling and fill it with casks of 160-proof rum and lamp oil.)

|7.20.06 @ 11:06AM|#

All I know is that I'm pretty sure I'm getting screwed here in MD on all things related to cars:

1) When my wife and I moved from CA to MD, we got rid of one of our cars. Our insurance quote barely changed. No, I didn't expect it to drop by exactly 50%, but I was hoping for more than 20%.

2) Enterprise car rental (compact) in MD: $36/day
Enterprise car rental (compact) in CA: $36/day
Driving on PCH, listening to a good radio station, enjoying the view: Priceless.

Yeah, I know, there are probably better prices with other companies, but this remains an apples-to-apples comparison.

3) Oil change at dealerships in Oxnard: $30.
Oil change at dealerships in Rockville: $50
Being able to eat at Carl's Jr. while I wait: Priceless

Yeah, I know, I should change my own oil, but I take it to the dealer so that a competent professional is popping the hood open and taking a look around every 3 months.

And no, I'm not calling for a coercive remedy, yadda yadda yadda. I'm just bitching, is all.

|7.20.06 @ 11:07AM|#

Jennifer,

That's the reason why 'No Fault' policies were created, if I remember correctly. If the poor schmuck who T-boned you by running a red light doesn't have any insurance or any property to go after in a civil suit, you're left holding the bag anyway. It isn't about responsibility, hence the name 'No Fault.'

I'm not saying this is the insurance model to follow, mind you, I just thought this was the model that was supposed to be in place now. At least here in CT. A model based on assigning blame is a different argument. (And I'm not even making an argument. I was just asking for clarification of my notions.)

|7.20.06 @ 11:56AM|#

I agree with jcavar. No Fault sounds like a bad idea from a moralistic standpoint, but practically it works better for all involved.

You don't have to deal with someone elses insurance, nor get your company to go after someone elses insurance, which saves everybody money.

hit and runs are no longer a civil matter, only criminal, saving more money.

so what sounds rediculous reduces the overall cost.

|7.20.06 @ 12:03PM|#

Let's clarify some definitions:

"No-fault" insurance means you need not prove you were not at fault to recover from your own insurance carrier; all you need to prove is that you were injured in an accident.

"UIM" (uninsured or under-insured motorist) insurance provides extra insurance from your own carrier if you were hit by (a) another person, who (b) had inadequate insurance to pay for the harm inflicted.

If you want more, ask Wikipedia. Here endeth the lesson.

|7.20.06 @ 12:25PM|#

I live in the ghetto -- I really do -- and while it may be true that some costs are higher because of it other things -- like really low property taxes (mine are about 4% of of what a rich neighborhood resident pays) or the low cost of commuting to the office -- help to offset them.

|7.20.06 @ 1:13PM|#

If you want more, ask Wikipedia. Here endeth the lesson.

Heh - you're right, I shoulda looked there first.

And CT isn't a no-fault state. We were for 20 years though, between '73 and '93.

grylliade|7.20.06 @ 1:25PM|#

Just for a different perspective, if you benefit from my having car insurance, why aren't you paying for it? Seriously, as someone who has been making near minimum wage his entire adult life, I can tell you that car insurance is one of the biggest expenses for poor people, which is why I've been uninsured most of my adult life and just prayed that I wouldn't get pulled over. And rates are just increased by mandatory car insurance schemes. It seems to be a case of the rich passing off their expenses to the poor by legislation (and crony capitalism on the part of car insurance companies), then justifying it with rhetoric of "personal responsibility."

In a free market, you can decide for yourself whether the utility of not worrying about large settlements in case you get into an accident is worth a large proportion of your income. Uninsured driver insurance is probably more worth the added expense to a rich person than car insurance is to a poor person, but instead we mandate, by law, how people should spend their money, mostly benefiting the rich. And this is libertarian how?

|7.20.06 @ 1:40PM|#

No, grylliade, insurance benefits you by removing from you the obligation to sell a kidney to pay for the Mercedes you t-boned last night.

You're basically giving the looter's argument -- "I can't afford it, which isn't my fault, so I'm not going to pay for it, even though I did the damage."

|7.20.06 @ 1:45PM|#

The only insurance for a car that's mandated by the state (at least where I've lived, and as far as I know, everywhere else), is liability.

There's no state mandate (see above caveat) to purchase theft insurance.

Gryll: See above. How are the "rich" passing off costs to the "poor" by requiring that the poor, just like the rich, have a minimum amount of liability coverage for the massive injury risks entailed by driving?

(Saying "well, the rich could just buy uninsured driver insurance!" doesn't help - liability insurance covers pedestrians, too, and there's the problem of a poor person hitting another poor person.

And a "huge settlement" against a poor person is not a remedy to the injury caused to the victim, since the poor person can't pay it.

Suggesting that the risks entailed by driving can be ignored because the person causing them is inconvenienced by covering them has no rational (or libertarian!) basis either.)

Nozick justifies mandatory insurance schemes for risk-causing behaviour quite handily in Anarchy, State, and Utopia, and his libertarian bona-fides are unquestionable, no?

|7.20.06 @ 1:51PM|#

At the risk of drawing flamage, I've always thought if you can't afford car insurance, don't drive. If that doesn't work for where you live, move. I've been poor and not kept a car, and I've been well-off and lived where I needed to drive.

|7.20.06 @ 1:54PM|#

In a free market, you can decide for yourself whether the utility of not worrying about large settlements in case you get into an accident is worth a large proportion of your income.

Problem is, you're also deciding for the other people on the road. Even good drivers can have accidents for which they are at fault.

As I've said before, in the "legalize drunk driving" debate, so long as the govt owns the roads, it has to make and enforce the rules a reasonable private owner would. If a practical scheme for privatizing roads comes around, I'm all for it, but till then we have to work with the system we've got.

|7.20.06 @ 1:58PM|#

Just for a different perspective, if you benefit from my having car insurance, why aren't you paying for it?

This is likely to be the stupidest statement I have read yet in the H&R.

No one gets any benefit from you carrying insurance. They only get compensation after you have already caused them harm. And this compensation can never replace state they were in before you harmed them.

|7.20.06 @ 2:02PM|#

So why did this turn into the car insurance thread and when is it going back on topic?

James Anderson Merritt|7.20.06 @ 2:08PM|#

"Bitch-slapped by the Invisible Hand." If this isn't already the title of a best-selling book, it should be. A must-read, whichever side of the economic ideology line you occupy.

Jennifer|7.20.06 @ 3:53PM|#

And rates are just increased by mandatory car insurance schemes.

Actually no--the highest insurance rates I ever paid were in Alabama, which did not make insurance mandatory. My rates were higher on the theory that if I got hit, there's a greater chance it would be by someone with no insurance.

So why did this turn into the car insurance thread

I think that would have been my fault.

|7.20.06 @ 4:21PM|#

John, if I don't have insurance, and I hit you (my fault), that doesn't mean you have no recourse, though. If I have a job, you can sue me and have some of my wages garnished.

It would actually be cheaper for me to have insurance in the long run, most likely.

|7.20.06 @ 5:09PM|#

Everyone knows that if you banned insurance of any sort, that traffic injuries and damage to cars would drop to just about nothing. When you require, by law, that the disincentive for driving crazy (a deductable) be smaller than the incentive (fun, get there faster), you know that you will encourage unsafe behavior.

Manditory insurance was lobbied by and for the big insurance companies, to force you to purchase their product. It makes people less safe, steals their money, and the only people who think it good are statist suckers who thing that every Byzantine legal code with more pages than the Bible is good.

|7.20.06 @ 6:44PM|#

If the mandatory insurance is only for liability insurance, it probably isn't going to encourage crazy driving any more than non-mandatory insurance. If I choose not to buy collision insurance, I'm still going to lose a ton of money if I ram my car into another driver or a tree, so I'll drive carefully to avoid an accident.

|7.20.06 @ 7:35PM|#

I think we all know the proper solution (chant with me here):
"Debt-or's pris-on, debt-or's pris-on,..."

You pays yer money, you takes yer chances... or you go to debtor's prison. Boo ya.

|7.20.06 @ 7:58PM|#

"Considering the huge percentage of my readership that comes here first, no. Trying to blog libertarian stuff without duplicating Hit and Run--yeah, I'm a bottom-feeder." (said Jennifer)

You picked up the story about Six Flags in New Orleans; that was a good one, that I had not seen anywhere else. That deserves an "attaboy."

Er- "attagirl"

Mike Rael|7.20.06 @ 9:27PM|#

Hi folks:)
I see you don't get the Big Picture here. If everyone pays for insurance, that means that everyone must have a social security number including (gasp) illegal aliens!! I mean, can't you see the horror of it?! People climbing over fences here from Mexico, not legals, and yet ALLOWED TO DRIVE! Why the thought of it turns my skin pink!!!
Any other colorful thoughts about this?
best always,
Mike

|7.20.06 @ 11:55PM|#

Rather than mandating a levelled playing field, it seems to make more sense to fix the problem at source - by removing as much as one can the problems causing insurance in poorer areas to be higher, and at an individual level, understanding how to reduce one's risk.

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