Sunday, February 21, 2010

What planet is this Obama guy from?

Pretend for a second that you are President Barack Obama. You don't just want to reform the nation's health care system; you want to fundamentally overhaul the nation's health care system to benefit generations to come. Yet, for some reason, the Republicans aren't going along with your plans. The Republicans keep complaining about too much government control, too much government waste, job-killing tax cuts, health care rationing, and death panels. You don't really want any of those bad things, and you don't think your health care reforms will produce any of that stuff, but your health care reforms still can't pass Congress in the face of Republican opposition.

You decide that the way forward is a game-changing new proposal that will bridge the Republican-Democrat divide and finally win bipartisan support for passage of health care reform. What new proposal do you announce?

The real Barack Obama decided to propose price controls:
President Obama will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies, as he rolls out comprehensive legislation to revamp the nation’s health care system, White House officials said Sunday.
Nothing could possibly better prove that the President of the United States is utterly not competent to reform health care than the fact that he put price controls on the table. Price controls are not a serious reform because they represent "Pee Wee Herman" economics: if we all just close our eyes, the problem disappears. The unfortunate reality is that we can't all keep our eyes closed forever. Sooner or later, the price controls are going to fail and the original problem is going to be much, much worse than before.

Or think about it this way. The Baby Boom generation is currently in the process of retiring. As that generation ages into retirement, they are going to put a new, increased demand for medical care onto the existing system. The health care system will need to raise rates in order to produce the profits necessary to expand the amount of care available to meet the upcoming demand for care. If the government imposes price controls onto health care, those profits won't exist, which means that the supply of care will lag behind demand and produce substandard care and/or health care rationing. If the government doesn't get health care prices exactly right -- and it is absolutely guarenteed that the government will bungle them -- the ramifications will be catastrophic.

The real problem with health care in the United States is very simple if one looks at it in economic terms. Health care is an industry in which very large increases of capital input are required to expand and improve the health care output to the consumer. Putting government bureaucrats in charge instead of private-sector CEOs will not fix the problem. Rationing care will not fix the problem. Subsidizing care will not fix the problem. Throwing government money at the problem will not fix the problem.

The only possible way to fix the problem is to increase the efficiency of the system! That requires free market economics, competition, accurate pricing, and trust that the common private-sector economic agents across the economy can do their jobs correctly. If we want the health care system to be reformed, this is what we're going to need.

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