1. Ask if anyone would like to volunteer a definition of what insurance is. (Answers will vary.) Explain that all types of insurance are essentially contracts—a promise from the insurer of compensation for specific potential future losses (of life, health, property, or almost anything else) in exchange for a periodic payment from the insured. It is a calculation of risk on behalf of both parties. Tell students that over the next few class sessions they will be learning about insurance and the role it has played in world history, economics, and politics using clips from the PBS series THE ASCENT OF MONEY, hosted by Niall Ferguson.
2. For the first clip, provide students with a FOCUS FOR MEDIA INTERACTION by asking which three options Ferguson offers for “deal[ing] with the risks and uncertainties of the future?” WATCH Clip 1, “Who Bears the Risk?”
3. Review the focus question: What are the three options Ferguson suggests for who should bear the risks of the future? (1 – The individual, by purchasing private insurance; 2 – the community, through voluntary charity; 3 – the state, through compulsory taxes.)
4. Distribute the “Who Should Pay?” Student Organizer (PDF) (RTF). After explaining that there are no “correct” answers, give students a few minutes to read the organizer’s list of expenses commonly incurred over the course of a lifetime and mark on the organizer—according to the options established by Ferguson—which ones they feel should be 1) paid for by the individual, 2) paid through charity, or 3) paid for by the government. When students have completed their organizers, ask for a show of hands indicating how they categorized each expense, asking students who responded differently to explain why they feel as they do. Tabulate the results on a blackboard or whiteboard, also noting the results on your own copy of the organizer. Ask the class what they think the results say about their collective politics and philosophy? (Accept all answers.) Put your own copy of the organizer aside for later use in the lesson’s Culminating Activity.
5. Explain that disagreement about how various types of insurance should be paid for is one of the defining aspects of the political landscape both within the United States and the world at large. Explain that those who tend to favor Option 1 probably regard insurance as a privilege to be purchased like any other service, whereas those who tend to favor Option 3 probably regard insurance as a right of citizenship—if not a right of humanity itself.
1. Ask students what they currently do (or should be doing!) to prepare for future financial needs? (Most will answer that they save money.) Explain that saving is indeed the oldest method of providing for the future, and that it is still a basic element of modern economics, but that insurance is a more recent financial invention that puts a more profitable twist on saving for the future by introducing the element of risk. Tell students that they will now be looking at a clip that explains the origins of the modern life insurance fund. Provide a FOCUS FOR MEDIA INTERACTION by asking students how Robert Wallace and Alexander Webster’s Scottish Ministers’ Widows and Orphans Fund worked. PLAY Clip 2 “The Birth of Insurance.” PAUSE the clip a little more than 3 minutes in, after Professor Ferguson says “…the widows and orphans henceforth would be paid out of the returns on that money, leaving the premiums to accumulate.”
2. Review the focus question: How did Robert Wallace’s and Alexander Webster’s Scottish Ministers’ Widows and Orphans Fund work? (Premiums were paid by the insured into the fund, which was then invested by the insurers for profit; payments were made from the returns on the investment, leaving the premiums to accumulate.) Tell students that this remains the basic premise for insurance companies to this day, including Scottish Widows—the present day incarnation of Wallace and Webster’s original fund.
3. Explain that all types of insurance are essentially contracts—promises from the insurer of compensation for future losses (of life, health, property, or almost anything else) in exchange for a periodic payment (or “premium”) from the insured. Insurance can also be described as a type of gamble—a calculation of risk and probability in which both parties bet against each other: the insured weighs the possibility (or relative imminence) of possible losses against the certainty of paying premiums over time, while the insurer makes exactly the opposite wager. Premium rates are set based upon the insurer’s calculation of the insured’s risk—the higher the risk, the higher the premium. Provide students with a FOCUS FOR MEDIA INTERACTION for the remainder of the clip by asking them what Professor Ferguson means when he says that “size matters” in calculating insurance risk? PLAY Clip 2 through to the end.
4. Review the focus question: What does Professor Ferguson mean when he says that “size matters” in determining insurance risk? (The more people who pay into an insurance fund, the easier it is to predict how much will need to be paid out.) Ask students why they think this is? (Accept all answers.)
5. Have students log on to the “Ken White’s Coin Flipping Page” (available at http://shazam.econ.ubc.ca/flip/). Ask students what the statistical probability of a flipped coin landing heads up is. (50%) Have each student predict whether a tossed coin will turn up heads or tails, and then have each student flip a coin. Ask how many students predicted incorrectly? (Probably around half the class.) Explain that this is a pretty high rate of unpredictability—you certainly wouldn’t want to bet your life (or life savings) on it!
6. Next, have each student flip 10 coins and ask how many got within 10% of an even split (i.e. between 4 and 6 heads results)? (This will probably be well over 50%.) Finally, have each students flip 100 coins and ask how many got within 10% of the statistical average (i.e. 40 to 60 heads results)? (This will probably be closer to 100 %.) Have students note the almost exact split between heads and tails between the many millions of coins flipped on “Ken White’s Coin Flipping Page” since the site was established in 1995 (these numbers are given on each flip results page). Ask students why they think this is so? (Accept all answers.) Explain that this “law of averages”—also known as Bernoulli’s Law—states that a large number of independent measurements of an uncertain quantity tends toward the theoretical average of that quantity; in other words, the larger the number of measurements, the more precisely average the results. Explain that this law of averages is more than a game of nickels and dimes—it’s a fundamental principle of the entire world’s insurance economy.
7. Ask students what possible problems they might detect in a premiums-based system of private insurance such as Wallace and Webster’s Scottish Ministers’ Widows and Orphans Fund. (Accept all answers.) Tell students that they will now be looking at a clip that examines the primary shortcoming of private insurance: not everyone can afford it! Provide students with FOCUS FOR MEDIA INTERACTION by asking them how Japan addressed this problem, and why. PLAY Clip 3 “From the Cradle to the Grave.” PAUSE clip about 3 minutes in, after Ferguson says: “The wartime slogan ‘all people are soldiers’ was adapted to become ‘all people should have insurance.’”
8. Review the focus question: How did Japan address the issue of insurance affordability, and why? (It “nationalized” insurance—i.e. had the government pay for it—with the aim of creating a large and able-bodied population of soldiers and workers to help realize its imperial ambitions.) Ask students what they think this policy led to? (Answers will vary, but should mention Japan’s defeat and near destruction in World War II.) Explain that very similar policies of nationalized insurance were adopted by other nations of this era—including Nazi Germany—for similar militaristic reasons.
9. Tell students that the next part of the clip will explain why the end of Japan’s “warfare state” was just the beginning of what would become known as the “welfare state.” Provide students with a FOCUS FOR MEDIA INTERACTION by asking them what economic lesson the Japanese and other exhausted combatants drew from the wreckage of World War II? RESUME PLAYING Clip 3. PAUSE after another 3 minutes, after Ferguson says “and when they died, the state would pay their dependents.”
10. Review the focus question: What economic lesson did the Japanese and other exhausted combatants draw from the wreckage of WWII? (They determined that the modern world was too dangerous and unpredictable for private insurance, so risk had to be nationalized. A minimum standard of living for all citizens “from the cradle to the grave” would be guaranteed by the state, including education, unemployment, health care, retirement, and death benefits.) Explain that this policy of “nationalization” is also commonly understood as a form of “socialism,” and that it was a system adopted not only in Japan, but throughout much of the western world after World War II.
11. Ask students what they think would be the pros and the cons of this modern “welfare state.” (Accept all answers.) Provide students with a FOCUS FOR MEDIA INTERACTION for the remainder of the clip by asking them what Professor Ferguson believes was the fatal flaw of the modern welfare state. PLAY Clip 3 through to the end.
12. Review the focus question: What does Professor Ferguson believe was the fatal flaw of the modern welfare state? (That the safety net of the welfare state stifled the incentives and disincentives of capitalism: reward for industriousness and hardship for idleness.) Explain that the result was “stagflation”—low growth combined with high inflation—while welfare states’ treasuries were steadily drained by “entitlement” payments to citizens who had come to expect government insurance as a right.
13. Explain that in the 1970s, Chicago economist Milton Friedman proposed a solution that was first tested in Chile, which had been bankrupted in part by the welfare state benefits offered under the recently deposed communist regime. Provide students with a FOCUS FOR MEDIA INTERACTION by asking them what Friedman’s economic advice was for Chile’s new right wing military dictator, General Augusto Pinochet. PLAY Clip 4 “Trickle Down Economics.” PAUSE after Ferguson says “Friedman found himself denounced for acting as a consultant to a military dictator, responsible for the executions of over 2,000 real and suspected communists, and the torture of over 30,000 more.”
14. Review the focus question: What was Friedman’s economic advice for Chile’s new leader, General Augusto Pinochet? (Cut governmental budget deficit—i.e. government spending—to control inflation, then running at 900%.) Explain that Freidman’s economic theory was based on the principle that government spending increases the money supply, which in turn increases inflation. Tell students that despite Friedman’s political condemnation for having worked with the brutal Pinochet, he was eventually awarded a Nobel Prize in economics for the success of his economic theory—commonly known as “Monetarism.”
15. Provide a FOCUS FOR MEDIA INTERACTION for the next part of the clip by asking students how Friedman’s Chilean protégé Jose Panera took Friedman’s principle of smaller government a step further. PLAY Clip 4 from where it was previously paused. PAUSE after Ferguson says that “in the 20 years since 1987, the Chilean stock market has gone up by a factor of 18.”
16. Review the focus question: How did Friedman’s Chilean protégé Jose Panera take Friedman’s principle of smaller government even further? (By effectively replacing the national retirement pension system with private retirement plans, in which a portion of an employee’s paycheck is paid into his or her personal account, which then is invested for profit in the market.) Ask students if they think this was successful? (Accept all answers, but encourage an understanding that Chile’s economy, built around a new middle class of private pension owners created by Panera’s reform, has prospered.)
17. Ask students if Panera’s system of private retirement pension funds invested for profit reminds them of anything they’ve learned about earlier in this lesson? (Wallace and Webster’s original Scottish Ministers Widows and Orphans fund.) What was the central failing of Wallace and Webster’s brand of insurance? (Not everybody could afford coverage.) Explain that Chile’s system—like that of many nations, including the United States—essentially has the same shortcoming: not everyone has a full-time job that offers a pension or benefits, so many have neither.
18. Explain that Professor Ferguson doesn’t consider modern Chile’s lack of universal pensions to be a major problem; like Friedman and Panera, he believes that Chile’s rapidly growing economy—largely driven by private retirement pensions—ultimately benefits everyone. Explain that this “free market” economic philosophy of smaller government and greater privatization of services and industry was embraced (at least in principle) by conservatives in other nations, notably Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. Modern economic conservatism came to be defined in the 1980s by the notion that “a rising tide floats all boats” (i.e. a strong economy benefits both rich and poor), and its corollary of “trickle-down economics” (in which the prosperity of the wealthy “trickles down” to benefit the middle class and the poor).
19. Explain that this view is vehemently opposed by many other economists and policy-makers, who argue that this free-market philosophy is fundamentally unjust—widening the disparity between rich and poor and failing to provide what they regard as basic socioeconomic rights of citizenship. They also argue that the market is an unreliable guarantor of pensions, health care, and other forms of social insurance—a view that many feel has been validated by the 2008 collapse of worldwide financial markets, which has wiped out many pension funds.
20. Ask students to discuss which economic philosophy they agree with: 1) the “small government,” free market, anti-welfare state approach that regards pensions, health care, and other types of “social security” as privileges to be paid for by the individual, or 2) the “big government,” regulated welfare state approach that regards pensions, health care, and other types of social security as basic rights of citizenship? (Accept all answers, encouraging discussion and debate while emphasizing that there is no “right” or “wrong” answer.)
1. Divide the class into five groups, and have each group log on to “The Uninsured in America: The U.S. vs. Other Nations” website. Assign each group one of five nations featured on the site—Canada, China, Japan, Mexico, or the United Kingdom. Allow 20 minutes for each group to read the website and compile a brief report comparing and contrasting the relative strengths and weaknesses of the insurance model of their assigned nation with that of the United States.
2. Give each group five minutes to present their findings to the rest of the class. Encourage discussion of the pros and cons of each system.
3. Ask the class which system they consider the most “free market?” Which is the most nationalized? What might the nature of a nation’s health care system say about that nation’s culture and society as a whole? Have the class vote on which nation’s system of insurance they consider the best. Why? (Accept all answers.)
4. Pull out your copy of the “Who Should Pay” Student Organizer, and review for the class their earlier tabulated responses from the Introductory Activity. Based on those responses, ask students which of the five national systems they’ve been looking at most closely resembles their own collective attitudes to insurance? (Accept all answers.) Ask if anyone would now respond differently to the Student Organizer based on what they’ve learned in this lesson? If so, why?
5. As a supplementary homework assignment, have each student write a brief research paper on the nation they were assigned earlier in class, focusing on how that nation’s history may have shaped its approach to healthcare.