Thursday, August 27, 2009

Profit is Key to Defining Choices

The health care bills are perfect examples. If competition is a discovery process, the congressional bills would impose the opposite of competition. They would forbid real choice.

In place of the variety of products that competition would generate, we would be forced "choose" among virtually identical insurance plans. Government would define these plans down to the last detail. Every one would have at least the same "basic" coverage, including physical exams, maternity benefits, well-baby care, alcoholism treatment and mental-health services. Consumers could not buy a cheap, high-deductible catastrophic policy. Every insurance company would have to use an identical government-designed pricing structure. Prices would be the same for sick and healthy.

In this respect, it wouldn't matter whether or not Congress created a "public option," a government insurance plan. In either case, bureaucrats would dictate virtually every aspect of the health-insurance business.

What Obama says in favor of a public option -- as of today, at least -- tells us how little he understands competition. The public option's virtue, he told Smerconish, is that "there wouldn't be a profit motive involved." But as St. Lawrence University economist Steven Horwitz
writes in The Freeman magazine, profit is not just a motive. Profit (along with loss) is what enables competition to perform its discovery role:

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