Mar 11 Like Grant to Lincoln

I don't know what Steve Landsburg is drinking, but someone get me a case, and then get cases to Washington and St. Paul. Here are a few choice tidbits:

There is this notion abroad that an extra billion in government spending can be converted from "irresponsible" to "responsible" as long as it's accompanied by an extra billion in tax hikes. That's like saying a $500 haircut can be converted from "irresponsible" to "responsible" as long as you withdraw the $500 from your bank account.

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The Obama administration has its knickers all in a twist over rising health insurance premiums. As you wade through the rhetoric, here are a few things to keep in mind:

1. Greed does not cause rate hikes. I’m not sure why some premiums have shot up lately, but I’m quite sure that “greed” is not the answer. That’s because I’m quite sure that the insurance companies are no greedier today than they were a year ago. To explain a change in prices, you’ve got to point to something that’s changed. Greed is pretty much a constant.

   So what relevant factor has recently changed? The only plausible candidates are costs, including expected future costs due to health care “reform”. What costs, specifically? I wish I knew. Maybe some commenter does.

2. Greed, by itself, does not cause high prices either. In competitive markets, greed causes low prices as greedy companies struggle to steal each others’ customers.
3. Monopoly causes high prices. Monopoly power, like greed, can’t explain recent rate hikes because monopoly power in this market has not recently changed. But monopoly power, unlike greed, can explain permanently high prices. And there is considerable monopoly power in this market, partly because you’re not allowed to shop for insurance out of state and largely because your employer does your shopping for you. The Administration has shown almost no stomach for combatting this problem.

   Instead, their position is something very like this: “We can’t help ourselves from misusing our power to prop up this terrible monopoly, so give us the power to control it.” Kind of like the alcoholic who needs you to buy him a drink to steady his nerves before he drives home tonight. Don’t let him snow you.

4. Profits do not raise costs. The administration wants you to believe that we could lower the cost of insurance by limiting the profits of insurers. That’s bad economics, bad accounting and bad arithmetic.

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Yesterday my lunch companion announced his new weight loss strategy—he’s eating more cake. He’s got it figured that if he eats enough cake now, it will motivate him to take up running someday (even though he’s never run before). So he ordered a slice of chocolate cake and announced that he’d just lost two pounds.

Of course, my friend wasn’t entirely serious; he was just gearing up for a possible future at the Congressional Budget Office, which says we can reduce government spending by enacting the president’s health reform proposal. They’ve got it figured that if we pass this proposal now, it will motivate future cuts in Medicare (even though nobody’s ever had the stomach for those cuts before). If I understand the numbers right, they’re counting that as a “saving” of several hundred billion dollars. Well, pass me that cake.

You really should follow his blog. And thank him by buying his book, The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics.

Cross-posted and comments welcome at SCSU Scholars.