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When has government intervention increased private sector competition?

Politico reports this morning that “supporters [of the public option] are working hard this week to bring it back, against the odds, with a series of high-profile votes in the Senate Finance Committee on Tuesday.”  While various Democrats are sending mixed signals about whether or not the final bill will include this option, the President clearly wants it in, having told Univision, “I absolutely do not believe that it’s dead.”

Now, oftentimes when I debate health care reform with friends and talk about my experiences getting health care, I tell them that what we need is more competition.  And many of my liberal friends, those most familiar with the Democrats’ talking points quickly reply that, well, that’s what we need a public option.

And that leads to my invariable reply, “When has a government program lead to increased competition, especially one that involves a government entity offering the same product as one already available in the private sector?”

My interlocutors are clearly unaware of the combination of provisions in the proposed health care bills which push people toward the public option (penalties making it cheaper for private companies to drop health care coverage, the requirement that people buy an “accceptable” plan, the government’s ability to offer cheaper plans, given that it is not subject to market forces.)

Not since Teddy Roosevelt’s trust-busting policies of  the first part of the last century perhaps has any government policy served to increase the number of businesses in a given industry offering goods and services.  With more private sector enterprises able to compete, they struggle to offer the best product at the best price so as to increase their market share (and profit margin). As a result, we see lower prices and increased innovation.

That’s what we need to see in health insurance, private companies freer to offer a diverse array of coverage and not just packages acceptable to the federal government.



  1. Has anyone besides me been thinking along these lines: Public Schools are a “public option.” By looking at our over-priced, under-performing public schools, we get an idea how public health care will work.

    Comment by V the K — September 29, 2009 @ 1:33 pm - September 29, 2009

  2. Well Prohibition did encourage individual production of alcohol, but I don’t think that’s what you meant.

    Comment by The_Livewire — September 29, 2009 @ 1:45 pm - September 29, 2009

  3. VtK: Yes. I’ve been using that one lately. Those Chicago Public Option Schools are doing just GREAT!

    And look how Obama *eliminated* competition to the DC Public Option Schools.


    Comment by John J — September 29, 2009 @ 1:48 pm - September 29, 2009

  4. Public universities compete with private ones. The USPS competes with FedEx and UPS. These all work to varying to degrees of success, but the notion that public entities cannot compete with private ones is silly.

    Comment by Elrod — September 29, 2009 @ 1:49 pm - September 29, 2009

  5. Elrod, please note that the Postal service (gov’t option) predated UPS and FedEx. It was the relaxing of restrictions on parcel delivery that allowed those two to flourish.

    As per universities, their costs do increase well above the rate of inflation.

    Comment by B. Daniel Blatt — September 29, 2009 @ 2:06 pm - September 29, 2009

  6. But does the USPS really ‘compete’?

    It has a monopoly on one service (mail) and ‘competes’ with others, but it is hemoraging money.

    Comment by The_Livewire — September 29, 2009 @ 2:24 pm - September 29, 2009

  7. TL, exactly. The USPS should be out of business. But it won’t go out, because it has government-enforced monopoly in a particular area which lets it dictate prices and services to customers. Since the USPS can never go out of business, very very few other companies are willing to compete with it – only two – and only in one or two other very particular areas. Is that really how we want health care to be run? It would be a radical step DOWN from what we have now (flawed as that is).

    Comment by ILoveCapitalism — September 29, 2009 @ 2:36 pm - September 29, 2009

  8. the notion that public entities cannot compete with private ones is silly.

    Of course public entities are capable of competing with private ones! Public entities are backed by taxpayer money – and often by government-licensed monopoly in certain area. So it doesn’t matter how bad public entities are, they can still always compete.

    The real question is, can private entities compete with public ones? As just explained in the previous comment: Just barely. ONLY to the extent that the bloated, inefficient, but taxpayer- and government-backed public entity is willing to tolerate the competition.

    Comment by ILoveCapitalism — September 29, 2009 @ 2:39 pm - September 29, 2009

  9. Public universities compete with private ones… These all work to varying degrees…

    And I challenge that as well. Look at university education costs – they’re a crime. More because of subsidies than anything, but also because – again – the bloated, inefficient public institution never can go out of business. Which cripples the operation of market forces in the market as a whole.

    Look at public schools, as V pointed out. In CA, they’re awful. Private schools “compete” with them – but just barely. The public schools can never go out of business, the competition from private schools is therefore limited and barely tolerated, and as a result, market forces are crippled and the entire industry is crippled with it: filled with bloated, inefficient institutions that do generally an awful job.

    I don’t want health care run like that. To some extent it is already, because of the government interference we already have in the health care sector. Going further in that direction is nucking futs.

    Comment by ILoveCapitalism — September 29, 2009 @ 2:50 pm - September 29, 2009

  10. why do you treat competition as an end? the goal of the market should be to produce efficient outcomes, not to promote competition for competition’s sake. a good case can be made that insurance market, as it exists today, produces inefficient outcomes.

    Comment by Chad — September 29, 2009 @ 3:31 pm - September 29, 2009

  11. the goal of the market should be to produce efficient outcomes

    …and competition, or more accurately the *threat* of competition, is how markets do it. (You can have a so-called “monopoly” company that has no privileges or regulatory barriers created by the government, it simply does a terrific job and fends off all competitors. Low “barriers to entry”, i.e., low barriers to the possibility of new competition coming into existence and stealing your lunch, is the key. The company need not have competitors this minute, but if it got lazy, then it might have several, in this example. The threat is what prompts the efficiency and innovation.)

    a good case can be made that insurance market, as it exists today, produces inefficient outcomes

    …and, not by coincidence, insurance is one of the MOST competitively restricted industries. In some cases, government bans competition outright, e.g. States who forbid interstate competition. But in most cases, government strangles competition through mountains of regulation that make it very costly to innovate or for a new competitor to come into existence – aka, barriers to entry.

    Comment by ILoveCapitalism — September 29, 2009 @ 4:20 pm - September 29, 2009

  12. UPS and FedEx do not compete with USPS. The US Postal Service delivers mail from Guam to Alaska to the remote islands of Maine and to Puerto Rico, in a uniform manner at a uniform price, just as the Constitution demands. This has obvious benefits, just as a national highway system does.

    Some parts of mail delivery, namely package delivery, can be done at a profit. That’s worked out well for the private companies and pushed the USPS to offer similar service. Everyone benefits there.

    Is anyone ignorant enough to think that mail delivery from Guam to Maine can be accomplished at a profit, at prices people are willing to pay? Cherry-picking profitable parts of the system is one thing, providing comprehensive and uniform service is another.

    The only question is whether we need a postal system today with electronic communication so common. While it will probably be scaled back, we still need it, and the Constitution requires it.

    Now, as for health care … the government is bound and determined to destroy one of the great success stories in the history of civilization. Competition will improve it, the government will destroy it.

    But in a generation or two, we’ll all come to love our HealthAmerica. It will be an institution that, like little school children, we’ll look up to with a tingly patriotic feeling. We’ll never know anything different, never expect anything better. But for most of us, we’ll think of it as an entitlement, something we get for ‘free.’

    The drugs that were never developed, the advances never made, costs never reduced, the pie that’s never expanded … we’ll never know. The proponents of HealthAmerica will always have their heart-warming, though irrelevant, anecdotes. ‘HealthAmerica saved my mother’s life!’ In a nation of economic (or complete) illiterates, anecdotes carry the day. As former US Rep. Joe Kennedy once said, ‘anecdotal evidence is all the evidence I need.’ (paraphrased)

    Oh Lord, we get the government we deserve!

    Comment by Joe — September 29, 2009 @ 4:33 pm - September 29, 2009

  13. Ironically, I imagine the postal service would be a hell of a competitor to FedEx and UPS if they didn’t have the congressionally-mandated burden of mail service to every address in the United States. Out of the billions of pieces of mail that get sent, how many really get lost? Does anyone think twice about whether or not it will arrive before sending a check to pay a bill? I’m guessing very few.

    The postal service is incredibly good at what it does. But it can’t compete financially because of it’s federal requirements. If it were on the open market, it would be bankrupt. To Livewire’s point, it doesn’t really compete, not completely.

    I have to add that I think the public schools argument is a bit of a red herring, although I understand it. I think that if parents had vouchers, private schools would end up being just as bad as public. Although the teacher’s unions wield far too much power, there are also far, far too many parents who expect the schools to parent their kids, and who take no responsibility for discipline or results. Those same parents would send their kids to a private school on a voucher, the kid gets expelled because the private school doesn’t have to keep pains-in-the-a$$ enrolled, and then those kids end up in other schools or back in public. The solution to the school problem is to get parents to take some damn responsibility. (But perhaps I’m biased because I watched one of my parents have to deal with kids telling her to f**k off in the high school where she worked. ;-))

    Comment by Neptune — September 29, 2009 @ 5:05 pm - September 29, 2009

  14. #12, 13: thanks for making the points about the USPS. Comparisons between the USPS and FedEx/UPS are apples and oranges. For 44 cents, they will take a letter from my doorstep to any place in the US within a 2-3 days… not a bad deal, IMHO (subsidies and all).

    Also, Neptune, you’re on my wavelength when it comes to gummint schools. The problem is that teachers aren’t allowed to control their classrooms; they’re under the thumb of dumbass lawyers, cowardly administrators, and derelict parents. Given the terrible conditions, a lot of good teachers (and people who would be good teachers) decide it’s not just worth the trouble.

    I went to a Catholic high-school. I know for a fact that a student who told a teacher to F.O. would stand a decent chance of getting the crap knocked out of him and would certainly have been expelled (with no refund of tuition).

    Comment by SoCalRobert — September 30, 2009 @ 12:09 am - September 30, 2009

  15. Thanks to Charley Crist, we have “public option” property insurance in Florida. State Farm is going to raise their rates and then leave the state. Other companies are contemplating the same. In other words, we’re getting less choice, less competition. We don’t need the boondoggle of government “competition” to kill healthcare as well.

    I know for a fact that a student who told a teacher to F.O. would stand a decent chance of getting the crap knocked out of him and would certainly have been expelled (with no refund of tuition).

    That would have happened where I went to school (public) in the 80s (sans the refund part).

    Comment by ThatGayConservative — September 30, 2009 @ 1:09 am - September 30, 2009

  16. Well, I’m waiting for the ins industry as a whole to tell CalPERS to pound sand.

    Comment by The_Livewire — September 30, 2009 @ 7:00 am - September 30, 2009

  17. (disclaimer: Yes I work for an insurance company, no I don’t speak for them)

    Comment by The_Livewire — September 30, 2009 @ 7:00 am - September 30, 2009

  18. telecomm industry is both heavily regulated and competitive. and unlike the insurance industry, it actually provides an affordable service.

    Comment by Chad — September 30, 2009 @ 5:30 pm - September 30, 2009

  19. 80% of people disagree with you, Chad.

    Comment by The_Livewire — October 1, 2009 @ 7:13 am - October 1, 2009

  20. what’s your source?

    Comment by Chad — October 1, 2009 @ 11:56 am - October 1, 2009

  21. In MA, if you want to purchase affordable, catastrophic health insurance … well, you can’t. The nanny-state won’t allow it. Only platinum-plated policies are allowed, which are really health maintenance pre-pay plans. Real health ‘insurance’ to protect me from financial ruin … not here.

    So now, every person in the state is required to have an ‘all-you-can-eat’ buffet style health plan where the incentive is to consume as much as you can. Cost, and price, be damned!

    Is it any wonder the emergency rooms are over-flowing with patients in MA? But the problem with crowded ER’s was supposed to be a lack of health insurance? I guess our wise leaders on Beacon Hill missed Econ 101, and this is the same crowd currently at work on Capital Hill. And apparently, in FL too.

    Comment by Joe — October 1, 2009 @ 12:03 pm - October 1, 2009

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