Why Doesn't the Market for Annuities Work So Well?

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Annuities are just the flip side of an insurance policy. Why doesn't the market for annuities work better? It's because of what economists call adverse selection. Annuity buyers have a distinctly longer mortality experience than the general population. They know that they are going to live longer. Once that becomes clear, then the sellers of annuities have to price the annuities not on the assumption that their customers will be ordinary americans, but that their customer will be long lived Americans. Well, that just makes the annuities even less attractive for ordinary people and makes the adverse selection even worse....

Benjamin Friedman has been a leading macroeconomist since the 1970s, whose accomplishments include writing 150 papers, producing more than dozen books, and teaching Tyler Cowen graduate macroeconomics at Harvard in 1985. In his latest book, Religion and the Rise of Capitalism, Ben argues that contrary to the popular belief that Western economic ideas are a secular product of the Enlightenment, instead they are the result of hotly debated theological questions within the English-speaking Protestant world of thinkers like Adam Smith and David Hume.

Ben joined Tyler to discuss the connection between religious belief and support for markets, what drives varying cultural commitments to capitalism, why the rate of growth is key to sustaining liberal values, why Paul Volcker is underrated, how coming from Kentucky influences his thinking, why annuities don’t work better, America’s debt and fiscal sustainability, his critiques of nominal GDP targeting, why he wouldn’t change the governance of the Fed, how he maintains his motivation to keep learning, his next big project on artificial intelligence, and more.

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Recorded December 4th, 2020 Other ways to connect

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