The Humble Libertarian

Mind your business.

Thursday, July 23, 2009

"Public Competition" Is Not Competition

In yesterday's post, I laid out the economic argument that dictating lower prices to the health insurance market from Washington will necessarily create shortages (and therefore long lines and rationed care), but that opening the market to competition would shift the dynamics at work on the supply side, resulting in lower prices and more health care.

As President Obama pushes forward on his proposed health "reforms," advocates of H.R. 3200 may respond that the "public option" does just that- create more competition. They are very mistaken! Greg Mankiw, a professor of economics at Harvard University, exposes the critical flaw in this argument:

"[M]ost discussion of the issue, leaves out the answer to the key question: Would the public plan have access to taxpayer funds unavailable to private plans?

If the answer is yes, then the public plan would not offer honest competition to private plans. The taxpayer subsidies would tilt the playing field in favor of the public plan. In this case, the whole idea of a public option seems to be a disingenuous route toward a single-payer system...

If the answer is no, then the public plan would need to stand on its own financially and, in essence, would be a private nonprofit plan. But then what's the point? If advocates of a public plan want to start a nonprofit company offering health insurance on better terms than existing insurance companies, nothing is stopping them from doing so right now."

Exactly! The public option does not offer real competition and therefore, will not really bring down prices. Instead, it will shift them around, transfer them to taxpayers, hide and obscure them even worse, and result in a greater cost to Americans for less quality, less privacy, less liberty, and less care.

What will create real competition is 1) ending government policies that enforce employer-based insurance, and 2) allowing Americans to purchase insurance policies across state lines.


  1. You have hit the nail right on the head. This argument is true across the board. When government gets involved in any area, the market is not free and liberty is compromised. When winners are chosen and subsidization occurs (whether that subsidization occurs in economic or legislative support), there must be losers--not losers based on sound principles, but losers created and propagated by the State. Collectivism destroys individual liberty and competition. Plain and simple.