Progressive Competition

The real magic of the invisible hand is based on two pillars: self interested action to motivate people, and competition. Without competition, self interest leads to monopolies and sloth, but workers compete with other workers, and companies compete with other companies, we get better workers and widgets.

So one would think that opening up states for real competition would be an obviously good idea. Yet it is highly instructive what progressives think about competition and markets, that they approve of only highly constrained competition that basically neuters it. In Minnesota, we have 3 health care providers, and they all have highly regulated choice offerings. We have 68 mandates, meaning, I am paying for things I would not pay for because I can’t imaging it affecting me (osteopathy, chiropractor, port-wine stain elimination). Insurance means exchanging a certain small payment for an uncertain large payment; in this case, I’m paying for many things I am convinced I’ll never need. Now, if provider all have to provide identical service menus, entitling consumers all they can get from that list, this is not competition.

It’s as if the state decided that food was too important for the mere market, and so gave us all food insurance. We paid a special food contribution (not tax!), and we were all entitled to a buffet offered by 3 different private companies. The buffet has to include traditional American fare, as well as Chinese, Mexican, Italian, Korean (dog), etc.–68 mandates in all. Most people don’t want all the choices they pay for, but as they don’t pay when they eat most people do not notice they are paying for things they don’t eat. Now, as the food budget as a percent of GDP in America grows, and Americans are not any healthier than other developed countries, people ask, hey, can I just buy what I want to eat? The government tells you ‘no’, that is just a race to the bottom, and your stupid, irrational inclinations will cause you to buy the medical equivalent of a pet rock.

So we have 3 buffets but the same menus, no out-of-pocket spending, and no real competition. This is what progressives think of as ‘the market’. They convince themselves things will get better if they have even more top-down control (single payer) because then they could implement technological and logistic innovations (cutting out the darn middle man) that will lower costs, all the while keeping health care employment levels and compensation rates the same. One might be tempted to say, it can’t get worse than the status quo, but that what the Russians said in 1917, and boy were they wrong.

About Eric Falkenstein 136 Articles

Eric Falkenstein is an economist who specializes in quantitative issues in finance: risk management, long/short equity investing, default modeling, etc.

Eric received his Ph.D. in Economics from Northwestern University , 1994 and his B.A. in Economics from Washington University in St. Louis, 1987

He is the author of the 2009 book Finding Alpha.

Visit: Eric Falkenstein's Website

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