Health Care: Where’s The Competition?

The chaotic nature of our legislative process demands that we all ignore the day-to-day political infighting and wait to see what emerges as the various sides take turns in slamming each other.

But among the side issues is the ongoing emergence of the depth to which some people have no clue about the economy or health care.

Paul Krugman deals with some of this in his op-ed piece today. Apparently there are many folks who don’t understand that our current system only works because of the extent of government intervention. That intervention is needed to prevent the wheels falling off, which is what would happen were we to let the market take over completely.

Given that this is common knowledge to anyone who has taken a look at how free markets actually work – rather than being taken in by the beguiling Reagan/Bush era mythology that markets always work – I find it depressing to come across analysts who clearly misunderstand their own subject. No wonder the myth is perpetuated. Some of our ‘experts’ believe it too.

For instance, and I tip my hat to the Baseline Scenario for pointing this out, a Yale professor wrote an op-ed piece for the Washington Post that totally muddles up free market economic theory: he seems to think that the strength of the system is that it enables profit, so therefore we should protect profitability – hence no attempt by the government to intervene and ‘artificially’ create downward pressure on insurance company profits. Profit, according to him, exists as a sign the system is working on behalf of consumers.

Ummm. No.

Actually, profit means that the market is not working.

Why?

Because, according the free market theory, profits can only exist where there are inefficiencies like a monopoly. If the market is working well the tussle between supply and demand will bid prices down to a point where businesses cover their costs, but make no profit.

This means the crucial aspect of a free market, the thing that makes the whole thing worthwhile, is not profit, but that ‘tussle’. It’s competition that is the centerpiece of a free market. Red blooded, good old fashioned all-American competition. So we should be doing all we can to inject competition and eliminate duopoly, monopoly, and any other source of profit.

Unfortunately, in the current debate over health care we are being bombarded by the Blue Dogs and other defenders of business with the false claim that we should be defending the insurance company’s profits. This is exactly the opposite of what the theory says we should be doing. We need to create more competition: even if that means having a government plan to light a fire under the butts of the monopolists.

And these folks claim to be the defenders of free markets from government intrusion?

They don’t even understand what a free market is.

Ugh.