On the political scene, America's rising health care and insurance costs continue to be a main topic of debate. An article published in May by Forbes magazine conveniently frames the health care debate in terms of public choice. It argues that the government should spend more money on providing true public goods and less on goods that are simply beneficial to the public. Health care clearly does not satisfy the non-rival and non-exclusionary conditions necessary for something to be a public good. It should then, in theory, be possible for private companies to provide it in an efficient way. This is why, according to the author, the government should focus on providing true public goods which cannot be provided privately and stay out of healthcare to the extent possible.
So perhaps public choice can provide a solution. The New York Times published an article on competitive bidding laws and mentions how a "pilot program had reduced Medicare costs by 42 percent." So in this example when the government focused on enforcing the free market, health care prices dropped. The free market institution is non-rival and non-exclusionary, and therefore is something that is not likely to be provided efficiently by private companies. It seems to me like the government should focus on providing as close to a perfectly competitive market as possible. The more allocatively efficient outcome should follow naturally - and with it lower costs for consumers.
Sorry for the length - I look forward to reading the comments.
1 comment:
Some of the most important conditions of perfect competition are: infinite producers, zero barriers to entry and exit in an industry, and homogeneous products. I know you said the government should make the market as close to this "as possible," but the healthcare industry is arguably the most regulated industry in the economy. The suggestion that additional regulation is what will lower barriers to entry, create more producers, and in any way create a more homogeneous product doesn't really fit in with the current issues of the healthcare industry.
Also, a market doesn't need to be perfectly competitive to reach allocation efficiency. Perfect competition is a set of assumptions, not an ideal by which society should attempt to design markets.
I also disagree with the suggestion that public choice sees the "free market institution" as a public good. If you and I are allowed to freely exchange, we aren't consuming any sort of good simply through voluntary exchange.
Thank you for the though-provoking post.
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