government and monopoly

“Monopolies are not innovative, whether they are public or private.”  ~ Megan McArdle

“One is the loneliest number that you’ll ever do
Two can be as bad as one
It’s the loneliest number since the number one.”  ~ Three Dog Night

A fairly obvious example of government-created monopoly is the public utility.  You likely have one of your own.  Or rather, you have one water utility; one gas utility; one provider of electricity.  You used to have only one phone provider as well.  It was a monopoly known as AT&T, created by the government.

So the gas utility, for instance, is the only game in town.  Its prices are tightly controlled – but if they go up you pay whatever they tell you to pay.  Government “regulates” this, ensuring that they can’t gouge customers too completely, playing the part of “good cop” to some degree.  That is what is seen.  What is not seen is the simple fact that if there were competing gas companies in town and one raised its prices, you could opt for another.  If one did not provide you with decent service, you could move on to another – much like you can do now with your cell phone.  Or your supermarket.

At a friend’s work recently they discovered a gas leak.  The utility shut off the gas for safety reasons and evacuated the building.  A while later the repair guy came in and took a look at the leak and said he’d be back at eight the next morning.  Knowing that he worked for the only game in town, knowing that shoddy customer service hardly mattered when the consumer was at the mercy of the supplier, and that no competitor could profit from their poor customer relations, he did not respond to pleas that it be fixed now so that business could continue.

“I’ll be back at eight,” the gasman told them.  That was that.

Now, this is not to say that all utility workers operate in such a manner.  Some are very responsive, and want to provide quality service because people usually like to be helpful.  But the reality is, relying upon our better nature is a lot like playing roulette.  Good customer service, even in competitive markets, can never be guaranteed, but at least in competitive markets poor service can be met with lost business.  In the non-competitive utility business, not only is their no alternative to turn to, you also can’t walk away from the product or service, because it’s a basic necessity.  Power, gas, water – all heavily price-controlled, subject to anti-competitive practices, with costs that have little or no bearing on the actual value of goods and services, and service that is shoddy and wildly unpredictable.

So, add to this mix of basic necessities, the spectre of government-run health care.

Again, I’m not against a safety net.  In fact, I think safety nets are just about one of the most essential functions of government.  Government ought to provide nets for people who need them regardless of their merit.  The fact is, poor people are often unhealthy, and often this is a consequence of simply being poor.  Often as not, those at or near the poverty line eat cheap, unhealthy food.  They suffer comparatively more from preventable ailments like diabetes.  They often have worse access to information.  Poverty is cyclical, and so the kids of these unhealthy parents are likely to be unhealthy, and they’re not terribly likely to just pull themselves up by the bootstraps and somehow cast off the chains of their parents habits now that they’ve been so socially ingrained.

But that doesn’t mean that the proper way to provide these safety nets is by creating, as only government can, sustained, anti-competitive monopolies, or bloated, self-serving bureaucracies.  The common refrain among liberals is that health care should not be under the jurisdiction of markets, or rather that health care is “too important” to be offered up “for profit.”  (Like gas or electricity maybe?)

The big, greedy insurance companies are only out for personal gain, and they profit off of the healthy while spurning the sick.  Well, maybe so.  But that doesn’t mean that they could operate this way in a truly competitive market, nor does it mean that there couldn’t be possible strings attached to a free market system, much as the Dutch do with their own very free market attempt at health care, that require insurers to provide for the sick as well as the healthy.

The Dutch system requires people to purchase insurance from private insurers and requires those insurers to provide it to everyone regardless of pre-existing conditions.  They then “reinsure” these companies to help provide balance should one company get stuck with a disproportionate number of sick customers.  This is not the perfect or ideal market solution that many libertarians would like, but it is a far cry better than the very cramped, monopolized system we have now.  The Dutch also provide vouchers to people who cannot afford to buy their own insurance, thus subsidizing the demand side rather than only the supply side (though, in all fairness, they do also subsidize the suppliers via reinsurance as I mention above, though not nearly as directly as other systems do, including our own.)

The Dutch system consistently ranks at the top of European health care systems, in quality of care and efficiency, as well as customer satisfaction.

So, this refrain – “health care should not be about profits” – is really very short-sighted.  You see, a public option will still rely on the private sector a great deal, only it will pick favorites.  Who will these favorites be?  Well, probably whoever lobbies best.  Big Pharma will certainly benefit, because while a market-solution is driven by profit, a government-created monopoly or cartel doesn’t need motivation – they are simply given profit.  You think that the gas utility or the electric utility doesn’t make a profit?   They accept some price controls and regulations as a pretty nice trade-off for no competition.  They’re not driven by profit (as in driven to provide a quality product), it’s just handed to them.

The same is true in a government-created health care monopoly.  The more government gets involved, the less competition takes place and the more lobbying, which is a shoddy substitute for a market, influences how decisions are made for people, rather than by people.

On the face of it, you might think this means the players involved aren’t doing it “for profit” because, after all, it’s a public option. But that’s only paying attention to “what’s seen” and not to what’s “not seen.”  The profit motive still exists, only now it’s protected, and benefits only those suppliers who have lobbied the government the most.  Someone still needs to provide the insurance, the drugs, the facilities, and so forth.  The only thing that really protects consumers in the long-haul is healthy competition.  If the public option is captured, which it will be almost by default, then there goes the best, most organic means to protect consumers of health care.  In a socialized system where the supply was also created and delivered by the government you would simply encounter the worst and most bloated of all possible monopolies.

Now, lots of people on the right talk about rationing and other bogey-men.  This is less a concern of mine.  Markets ration, too.  Really, the fundamental flaw with a public option is monopolization and cartelization of health care.  Innovation is a pretty big part of this concern, because as monopoly grows, not only does quality service taper off, so too does the quality of the product.  If big drug companies are pretty much guaranteed business by the government, and all the government wants is to control costs, well the cheapest short term way to do this will be to just stick to the major suppliers and get the most basic drugs.  Innovation starts to tail off because it is no longer demanded.  Competition can’t thrive because all the big money from big government is going to the big, established players.  Then, as choices are further limited and the government is more and more reliant upon specific players and specific drugs (for instance) those companies can begin to push up the costs.  That’s monopoly.

And so it goes.

This is why individual choice is so fundamental to any system and why government health care will only serve to prop up those greedy private players that liberals are always complaining about, not the other way around.  This is why when people say health care shouldn’t be about profit they should look beyond the immediate, beyond the visceral reaction to the idea of insurers attempting to profit off of selling you health insurance and pay attention as well to the profit created by government-sanctioned monopolization and how that hurts individuals and communities.

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60 thoughts on “government and monopoly

  1. Wow! So much rage. And so wrong in so many ways.

    The only thing that really protects consumers in the long-haul is healthy competition.

    Could you give an example of “healthy competition” in the real world?

    I assume that “healthy competition” means that those who lobby the hardest don’t come out ahead and that goods/services are provided that the consumer actually wants/needs (and not just those goods/services that provide the greatest profit).

    And, do you actually know how much basic medical innovation is performed by the government, as opposed to the private sector? I’m interested in seeing the data you use to justify:

    Competition can’t thrive because all the big money from big government is going to the big, established players.

    Even uber-rightist Ben Domenech understands that the government is the SOLE provider of basic medical research.

    The truth, as anyone knowledgeable within the system will tell you, is that private companies just don’t do basic research. They do productization research, and only for well-known medical conditions that have a lot of commercial value to solve. The government funds nearly everything else, whether it’s done by government scientists or by academic scientists whose work is funded overwhelmingly by government grants.

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    • Sully Fick –

      You know, I really do enjoy engaging commenters here. I really do. Often they disagree with me. But when you premise your comment with:

      “Wow, so much rage…”

      Well. You’re just full of shit. So I have no desire to continue to engage with you.

      I never said government shouldn’t do research. I said that further monopolization of markets will lead to less research. And it will.

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      • Um, ok. I will refrain from commenting on your posts on this site.

        Some parting advice (which is worth what you’re paying for it): get out of the blogging business if you can’t take a fairly tame comment like “Wow! So much rage.” At least I didn’t tell you that you were full of shit.

        Irreverence is the champion of liberty and its only sure defense.
        – Mark Twain

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        • Sully,

          I can take criticism or snark or whatever, but you’ve been pretty consistently rude for no apparent reason. At least to me. I mean, what the hell do you mean by “rage” – where is the rage? I am certainly not writing from a position of “rage” and so you saying that makes me think that you’re not really, um, reading the post. Hence the “full of shit” line. I’m sorry if that was over the top, and I do want you to keep commenting on my posts. I just want to be able to engage all commenters here honestly. That means heated arguments are fine. Purposefully misrepresenting someone’s argument though is just weak. You want to address my arguments or have me address yours, don’t start out with a freaking strawman.

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          • I agree that purposefully misrepresenting someone’s argument is not only weak, but intellectually bankrupt. However, I don’t see anything I did that misrepresented your argument. I have previously apologized for a single rude remark I made that was unnecessary. I am not aware of any other rudeness on my part.

            As for rage, I meant it in the Dylan Thomas way;

            Do not go gentle into that good night,
            Old age should burn and rave at close of day;
            Rage, rage against the dying of the light.

            Though wise men at their end know dark is right,
            Because their words had forked no lightning they
            Do not go gentle into that good night.

            Good men, the last wave by, crying how bright
            Their frail deeds might have danced in a green bay,
            Rage, rage against the dying of the light.

            Wild men who caught and sang the sun in flight,
            And learn, too late, they grieved it on its way,
            Do not go gentle into that good night.

            Grave men, near death, who see with blinding sight
            Blind eyes could blaze like meteors and be gay,
            Rage, rage against the dying of the light.

            And you, my father, there on the sad height,
            Curse, bless me now with your fierce tears, I pray.
            Do not go gentle into that good night.
            Rage, rage against the dying of the light.

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            • Okay, Sully Fick, then it’s my bad. I did not realize you were referring to rage in the more poetic sense. I can be a little hot-headed and I felt like my post was, I dunno, pretty reasonable and measured. So I say, disagree with it but don’t characterize it as rageful! But hey, if you mean “don’t go gently” or whatever, sure.

              My bad, I apologize for saying you were full of shit.

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              • To be clear, “So much rage” was in reference to the strength of your beliefs and convictions and the amplitude of your arguments (even though I think your repairman anecdote is weak tea).

                So, rage against that which you feel deserves your rage. And, don’t go gently into that good night.

                After all, blogging is really about realizing what we think is important enough to “talk” about.

                I’m done for now.

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  2. E.D. – isn’t most drug spending already done by the government already? All of those drugs that elderly people take are paid for by Medicare. And Medicaid pays for over 50% of HIV treatment in the US.

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    • I am the first to admit that the system as it stands is completely broken. Government is way too involved in the current system. That’s again not to say that they shouldn’t spend at all – obviously giving old people drugs can be a very good thing, and it’s great that Medicaid provides health care for HIV patients and so forth. This is more about how that money should be spent or rather how the government should distribute its spending. And there are serious problems with Medicare and drug spending (for one, it was pretty much captured by the drug companies from the outset).

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      • I guess it’s not clear to me what you’re arguing for. 0% publicly-financed health care? Medicaid having to cover HIV treatment seems like a good example of complete failure by private insurance. Only the government was willing to take the risk. And – to complete your customer service analogy – only the government felt it had any responsibility to treat HIV. No number of calls to Blue Cross’ head office would have changed its policy.

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      • And there are serious problems with Medicare and drug spending (for one, it was pretty much captured by the drug companies from the outset).

        First, I agree that the drug spending was captured by the drug companies from the start.

        But, here’s the problem I have:

        The Medicare drug benefit was designed, written and promoted by the biggest “free marketers” in government (Republicans), not by the big government-ers (Democrats).

        Your post seems to make several references to big government being a major contributor to monopolistic problems, and that the solution is more competition (hence, more free market theory). How is it possible that the biggest “free market” believers are the ones responsible for allowing the drug spending to be “pretty much captured by the drug companies from the outset”?

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          • Well, that’s an honest reply, and I appreciate it.

            The problem I have is that, being born in the mid-60’s, the only version of “free marketers” that I’ve experienced have been those who call themselves fiscally conservative Republicans, and, so, I associate “free marketers” with what I consider to be the worst kind of politician.

            Is there an archetypal “true free market” politician – in the modern world? Ron Paul is too crazy. The Republicans are too corrupt. Reagan isn’t, since Clinton was more of a free-marketer. So, if the Democrats aren’t going to push your (E.D.’s) arguments for the free market, and the Republicans are corrupt, who’s going to sell the idea to the masses? I mean, other than The League. :-) I ask this even though I don’t agree with the ideas, because…politics and the practical, and all that.

            There are a lot of advantages to an “ideal” free market that I wholeheartedly agree with. But, we don’t live in a world where the “ideal” is possible – only the dirty truth of what we humans are capable of.

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  3. Monopolistic behavior is indeed bad. Which is why the current setup is broken – nearly every step along the way is a monopoly-like behavior. Because my insurance is partially subsidized by my workplace, I don’t get a realistic choice of insurance companies. Because my insurance specifies which doctors (or really, clinic) I need to see as my primary care providers, I don’t get a choice there. Because my primary care clinic needs to refer me to a specialist in order for my insurance company to cover it, I don’t get a choice of specialists. I can’t shop around for estimates for even non-emergent care the way I could for, say, a car repair. I talk to a doctor, he gives me a diagnosis, a treatment plan and a bill. Getting a cost estimate from a doctor or insurance company is like trying to get milk from a bull. That doesn’t even get into emergent care, where I’m less likely to worry about costs -and thus subject to more monopolistic behavior – because I need my condition treated right away.

    Where’s the competition in the current setup? Competition only works when a consumer chooses based on price AND quality. I don’t get a realistic choice based on either, because part of my pay implicitly comes from the subsidized insurance. The only people who make a choice are the employers who provide insurance, and in some cases they don’t even get a real choice – in many states one insurance company provides upwards of 60% of the insurance. Even then, it’s tough to determine if the insurance companies are competing on quality, because many employers don’t have good feedback mechanisms for benefit quality.

    I know you admit that the current system is broken, but the political system only offers so many ways to fix it. Fixes have been killed about once a generation. Either you’re for the status quo, or you’re in favor of the fix being proposed and debated right now. Promoting an alternative system that no one is proposing right now is as effective as promoting an alternative system where no one ever gets sick so we never need health care. If you’re in favor of the status quo, just come out and say it.

    (Also, you really should read Domenech’s takedown of McArdle. Megan’s article was a giant pile of BS, and it’s clear that she has basically no knowledge about how research and development works in the medical field.)

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  4. Well I’m not sure a public gas utility is the best example to start with. They do after all have to sink some big toobs in the ground which is huge expense and effort . It’s not particularly practical to have multiple companies ripping up the streets to put in gas, water, etc pipes. Nor would they go to that expense unless they were guaranteed profits.

    In this case of health care a public option is not a monopoly. A British style system is, but not the public option that is generally being proposed. Even most of the critics of the public option use a bass ackward criticism that essentially a public option will be to good (cheap, popular) and squash insurance companies. Insurance companies need to compete better.

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    • There’s also a fundamental difference between health care and insurance.

      It’s like the difference between education and a voucher.

      What percent of the debate centered around making sure that everyone was covered vs. that everyone was healthy?

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      • I think that is more an issue of semantics. We call it health insurance even though it does more then insure us against accidents. The term health insurance refers to a process and provider for payment for health related expenses.

        I don’t there has ever been a concern that everybody “be healthy.” I think most of us who have been beating the drum for health reform actually know that people do die. The issue is having everybody be covered with a minimally decent level of coverage and stopping the worst abuses of the private insurers.

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    • Actually for gas, you can have a private market selling gas canisters as we have in Singapore. Many of the petroleum companies sell canisters that last about 3 – 4 weeks (if you use gas for cooking only. I live in the equator so I dont use gas to heat the rooms). They also deliver on weekends. Because gas usage is light, there isnt much of a logistical problem like there would be for electricity.

      India does ok with having water tanks in every home (especially in some of the more rural areas) However, water supply can sometimes get erratic, and I have had to watch how I used the water when I went to India to visit relatives.

      It might even be possible to do something similar with electricity if we used generators, but I’m not familiar with the comparative efficiency as well as the quality of service of such a system, or the environmental effects for that matter.

      However, of the three utilities, I know that gas at least can be privatised. In Singapore, there is a large private sector for gas provision. (Of course the government pipes gas for its public housing, but I think it may be optional)

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      • Natural gas is used much more heavily here – not only cooking stoves, but clothes dryers, furnaces and water heaters are commonly natural gas-fired, particularly on the West Coast. In urban areas, it is far more efficient (not to mention safer) to install a network of underground hard-line gas pipes than it is to truck LPG around from house to house on a daily basis, with each house on a block having a ready-made bomb in its backyard.

        In less-dense, rural areas, having gas trucked in and pumped into storage cylinders is the norm – and these cylinders are generally placed a good distance away from the home, for the aforementioned safety reasons.

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        • Thats the thing, you dont need to heat water with natural gas (tungsten filaments are used in many parts of the world)
          Clothes drying can be done with blasts of hot air (in a tumble dryer) or the sun (if it doesnt rain as much where you come from) Given that we get more annual rainfall than the amazon, we do pretty well here in terms of drying clothes in the sun.

          Between a furnace and a stove, I dont see that much of a logistics problem using cylinders. Dont knock it until youve tried it. With one active and one back up in use all the time for each appliance (stove and furnace) you can operate a pretty decent private market for LNG.

          As far as safety is a concern, in urban singapore with a population density of 6814 per sq km, as far as I can tell, there havent been any accidents with gas cylinders. (at least not with a cursory google search) Moreover, if anything like that happened, it would have appeared in the local papers, which I would have remembered seeing.

          These are not cylinders where the truck comes in to pump in the gas. This is more like a metre tall cylinder which the gas company delivers as it takes away the old one. Given adequate checks, they are very safe.

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          • No, you don’t “need” to, but for heating purposes, natural gas is substantially cheaper than electricity. Burning a flammable gas is a much more efficient heat generator than running electricity through a resistor grid. Therefore, where the infrastructure exists, gas-fired water heaters, clothes dryers and furnaces are generally preferred. The U.S. has extensive indigenous reserves of natural gas, and it’s a fairly “green” fuel, as far as that goes.

            The hard-line public utility gas infrastructure is already in place in urban areas, and has been for years. Again, there’s no way a company could possibly compete with piped gas by trucking around gas cylinders – it’s inherently far more costly and less efficient, requiring many more employees, many more steps in the process and much more energy spent to deliver the product.

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  5. E.D. – This is a terrible intro to your argument. The most notable deregulation of utilities recently is California 2001 – which was an unmitigated disaster as utilities reduced capacity leading to increased cost and less in-state accountability. Given the enormous capital cost of building an electric plant (of any stripe) and the long amortization, why would anyone jump into a deregulated utility market? What you’ve given is a wonderful example of the disaster that deregulation of an industry may bring. I can kind of see the argument for the phone company, but in that case private industry was able to latch onto the network built by the public. I am unaware of a case where private industry has profitably entered the utility market and provided better service at lower costs. Is there one?

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    • I disagree. The problems in California were not solely because of deregulation but due to poorly implemented deregulation that allowed certain players to act like criminals. I’m not saying it would be easy to deregulate the utility industry, but that’s largely because we’ve been regulated for so long. And when I say “deregulate” I never (or rarely) mean completely.

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            • And thus, you have discovered the fundamental problem with “libertarianism”. Its adherents, earnest though they may be, ascribe magic powers to “free markets.” A friend of mine likes to tell me that the problem with Bush was that he didn’t de-regulate enough; that he kept taxes too high – if only we’d had true unfettered capitalism, everything would have been ok.

              Arguing with a “libertarian” on health care is impossible because government failure must be taken as an article of faith. “We can’t allow the government to tamper with the market for pharmaceuticals.” But doesn’t the government already run the market for pharmaceuticals? “Then the government can’t change the way the free market has decided to work because additional involvement would destroy the incentive to innovate.” Doesn’t innovation come from government funding to high-risk/reward academic labs? “Then we can’t have the government change the way the free market has decided to make the technology transfer process work.” etc

              At least a proponent of the government setting reimbursement rates and establishing an insurance pool starts from the idea that every American should have access to affordable health insurance. Our experience from Medicare – a much-loved program by those over 65 – is that a 65/35 public/private split is necessary, as opposed to the 30/70 split that people 18-65 now have. I allow for a role for private insurers in the market, but given that my plan charges me, a healthy 32-year-old man, as much as Medicare spends per capita on 65-74 year-olds, I don’t see them holding up.

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  6. Monopolies aren’t bad for innovation. See Boeing. See Airbus. Let’s not forget Bell Labs (AT&T’s monopolistic child) that created both Unix and fiber optic communications. Much of the rail innovation has come from a French monopoly. Nokia was a government funded monopoly. Japan created many monopolies or duopolies so the precious dollars they gave to R&D wouldn’t be canabilized.

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    • I disagree entirely. Were these innovations created because of the monopoly? Would they have been discovered in a competitive marketplace? Would better innovations have been discovered? Has the development of new technology grown faster (and cheaper) with less monopolization? I think these monopolies develop these things because even monopolies have to provide products. But that doesn’t mean they provide the best or in a very cost-effective or timely way.

      Case in point, Intel didn’t come up with a decent new processor for years until AMD held their feet to the flames.

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      • There isn’t really much with which to disagree. Perhaps under a different theoretical construct these things would have come to pass, but that is an argument that requires evidence, and it certainly isn’t a refutation of the actual history.

        The PC Chip market is not an example of a vibrant market. In the consumer market there are two competitors. Duopoly kicks monopoly’s butt is a rather tenuous argument.

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        • Two’s almost as bad as one, it’s the loneliest number since the number one.

          But in all seriousness, I just don’t see how competition vs monopoly is even a question. I mean, one can argue the merit of how best to deliver health care on other grounds – like, whatever is more likely to cover people is best regardless of side-effects – but few people would prefer monopolies in their gadget markets etc. etc.

          And no, duopoly is not so grand either. The point is that it seriously changed the market to have AMD as a contender, drastically reducing costs while improving performance.

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      • But the point is that one can have innovation without having competition per se. And I think that M.Z. is right. Competition doesn’t always lead to innovation, and neither is it a prerequisite. Yglesias’s recent remarks about our history of privatized fire departments being an utter disaster come to mind. And there’s the example of the Soviet Union, of course, which managed to generally keep up with the U.S. scientifically while definitionally not having competition.

        My point isn’t to extol the merits of Marxism-Leninism (though I do favor public ownership of utilities) but to try to counteract this particular piece of conventional wisdom. The faith of free marketeers strikes me as one that is only partly informed by the facts (and that dismisses all the bad stuff, like Enron and the Depression), and even if one doesn’t believe that the government should provide insurance for healthcare (as I do), the reality is that there will always be some people who will be willing to screw over everyone else to put themselves ahead. Maybe it’s only 5% of businessmen or something, but what percentage of people commit heinous crimes in normal life? We don’t talk about repealing murder as a crime because most people don’t do it, aside from some rotten apples. But we should get rid of regulation for nonhuman entities with way more power and reach? Hmm.

        My essential critique of libertarians is that they underestimate the extent to which self-interest can cloud peoples’ judgments. “Enlightened self-interest” strikes me as an inelegant construction–better to think of it as the will to do good being corrupted, which is the basic Niebuhr view of humanity. And it will be so. So I do want the government doing everything it can to keep me from those folks with regulations, and sometimes it’s better just to have the government to do stuff–they’re the guys who are theoretically accountable to the people and dedicated to their welfare, as opposed to the CEOs who only have to worry about their shareholders.

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        • “And there’s the example of the Soviet Union, of course, which managed to generally keep up with the U.S. scientifically while definitionally not having competition.”

          Should have written internal competition. I guess they were competing with the U.S. But I think the point still stands.

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          • Not to mention that the entire American defense industry was funded top-down by the Pentagon from 1945-89 with basically no competition in the market, particularly on secret projects. The outcome was the best military technology in the world.

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        • Ironically the Soviet Union did have competition in military aircraft, producing both the Mig and Sukhoi aircraft. I think they had 6 design bureaus that competed. Regardless, the advantage of capitalism is the rapid dissemination and adoption of new technology, not its creation.

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        • Accountability is the central issue, right? And it’s NEVER incentivized (not sure if that’s the right word), but can only be forced, either by the market or by legislation. The question, then, is which method of accountability works best for the industry/utility in question. Maybe one-size-fits-all makes for easy platform writing, but it seems to me the market does better with consumer goods and services that are easily transferable — if you don’t like your cell service, you can switch without too much fuss, and hold that company accountable by ceasing sending them money.

          We don’t have that option with utilities that require heavy infrastructure (water, gas, electric), so accountability has to come by other means.

          Why these questions have to be answered so rigidly is beyond me.

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          • Let me add that the health insurance industry as a whole has made it pretty difficult to hold any one company accountable. Either there are near-monopolies in many regions, or de-facto (if not thru actual collusion) barriers to switching plans — an example is the spot on insurance applications that ask you about your previous coverage, and if you were ever denied, etc.

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  7. I’m not quite sure if the telecom industry is such a great example for the wonders of “competition”. Especially given that not only have most of the baby bells reintegrated into something very much approaching monopolies again (AT&T, Verizon, etc.) they’ve also been effective at squashing any realistic competition and choice absent some forms of government intervention. The capital costs and the necessity for providing service to non-profitable areas (e.g. rural areas) make private industry a poor provider of utilities in general. There’s certainly many problematic examples of deregulation, while California isn’t necessarily the best example, Maine ranks up there as a good example of what happens when you sell off what should essentially be public infrastructure to private concerns.

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  8. What I’m not quite sure about is how you get from public option to monopoly. As I understand the current proposal, the public option would be a plan to cover the existing and future uninsured. You seem to be assuming some combination of the following: all employers will drop their health plans, existing insurance companies will just roll over and go out of business and everyone will end up on the public option; the government will force doctors and hospitals to practice in certain ways that will preclude innovation in medicine and treatment; and we will wind up Britain’s National Health Service. Now maybe that will all happen, but it seems to me that the current public option proposal is pretty far from creating monopoly conditions in either the insurance market or the health care market.

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  9. “Power, gas, water – all heavily price-controlled, subject to anti-competitive practices, with costs that have little or no bearing on the actual value of goods and services, and service that is shoddy and wildly unpredictable.”

    This is mostly nonsense. As a California water lawyer, I should know. Shoddy service — do you even know the reliability statistics for power, water and gas delivery in your neighborhood? Have you compared them to other jurisdictions in your state, other states, other countries? Utility service in this country is, by and large, outstanding.

    Electricity, natural gas and water are all pure natural monopolies at the retail level. There’s a reason why states have Public Utility Commissions — it’s the only way to obtain state oversight over the monopoly. Even electricity and telephone can be subject to some competition if common carrier rules are created. Nobody has thought of a way to create retail competition for water. (It’s heavy, relatively inexpensive and highly regulated, among other problems.)

    But whether your utility provider is a PUC-regulated corporation, a city or a special district (a limited-purpose governmental agency, which is a very popular method of delivering utility services here in CA), they all have checks and balances regarding the quality of their services and their financials are all available for public review. Did your friend call the dispatcher’s office, or the PUC ombudsman? I doubt it. It sounds to me like you’re just in the mood to b*tch about government generally.

    Of course, the monopolies for retail utilities have precisely zero to do with the provision of medical care (and medical care funding) in this country. You might as well draw an analogy between medical care funding and the color blue. (ooh, blue really p*sses me off, just like medicare!)

    There’s a reason why the government is involved in health care funding. Americans are unwilling to let the following groups die on a bench outside of a hospital: (a) those who show up for emergency care without the proven ability to pay; (b) those who are too poor to afford a basic policy (medicaid); (c) those who are too old to afford a basic policy (medicare).

    Now, you can rant and rave all you want about the generosity of Americans, but the odds of you actually persuading anyone that we should be building death wards in lieu of treating these three groups is just about zero (a small group of libertarians to the contrary).

    Given that private insurers have already successfully privatized their profits and socialized their losses, the only question facing this country is whether we’re going to continue this utterly idiotic approach or whether to implement one of about half a dozen other ways of doing things, as shown by the rest of the industrialized world.

    The Wyden plan seems to be a reasonable approach. But as the saying goes, You Can’t Get There From Here, because it would involve the complete elimination of the existing insurance model. Much like there aren’t the votes to let the elderly and poor die untreated, there aren’t the votes to go to the voucher approach.

    Of course, if there were more than 2 republicans who might possibly end up voting with the democrats on this issue, a more market-based approach that required such a radical shift in medical financing might be a possibility. But you make the best of the political reality you have, not the one you wish you had.

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    • That last is the key point, and why those who say that Republicans are irrelevant in this process are full of it. First, Republicans watched this slow-motion trainwreck unfold for eight (well, six) straight years with the power to bring forward a solution and didn’t care to even start to pretend to come up with any ideas (beyond almost-free drugs for the elderly). But even now, there just simply isn’t a good bill they’ll vote for (yes, they say they will when it’s not coming up for a vote), becuase it’ll hand Obama a major victory. (I’ve made clear in the past I believe Democrats would behave in exactly the same way if roles were reversed.), This applies even to bills that comport with their supposedly more market-based orientation (Wyden). Sorry, no, theirs is a defeat-Obama-based orientation.

      Where that leaves us is with the president having to get a bill together that pleases nearly the entirety of his party’s Congressional caucuses, and only them. Shock of shocks, it doesn’t have broad appeal.

      Better, more honest Congressional minorities, please.

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  10. As you know, I’m still pretty skeptical that “more competition” is the answer to our health care problems. So a competition-related question for you :

    Where does medical patent reform fit into this equation? Do you think we should make it easier for other companies to manufacture medical equipment, supplies, and pharmaceuticals free and clear without worrying about government-granted monopolies?

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  11. I don’t think there’s a would-be liberal health reformer beyond the most committed single-payer devotees in this country who wouldn’t snatch up an America-scaled Dutch-replica system in a heartbeat if it was suddenly on offer and all sides agreed to it. But let’s not pretend it’s a free-market system. There’s an individual mandate. The government imposes a floor on basic coverage that must be offered by private insururs to all citizens, and dictates the price that is charged to purchasers, all regardless of risk (the government adjusts risk share to maintain competition, and it and employers cover the portion of the expense). It offers subsidies to everyone who can’t afford the set price by a standard of affordability set by the government). All minors are covered by the government. People can purchase more comprehensive plans above the minimum mandated coverage. Employers can offer coverage as compensation. (All from wikipedia.) I’m guessing there are quite a lot of government-mandated specifics to that government-established basic minimum coverage than can be described here. Basically, the government sets the rules — quite aggressively — and outsources the work. I’m quite okay with that formula, especially because under the conditions it sets, clearly profit is going to be pretty close to a non-issue (since government is keeping the private entities in business by kicking in what it doesn’t want the consumer to have to pay). But the main point is, everyone has to buy insurance, the insurance has be of a certain quality, and no one has to pay more than what is deemed to be an acceptable premium.

    Maybe I shouldn’t be so quick to say that everyone here would jump at that offer, but I certainly think everyone should. But if they wouldn’t, there’s a really understandable reason for that. People here become so attached to particular visions for a solution because our political system provides so few opportunities to address the problem, and we become dependent on the idea that Great Leaders with Visionary Solutions who can Bring Them About are our only hope to bring about reform. We have an utterly irrational process that’s far too dependent on personalities and not rationality.

    So it’s great to sit back and theoretically admire various schemes as better than we are about to implement. At some point it becomes like a sick joke how many schemes seem to be available that pretty much meet all the important criteria of many progressives AND libertarian-minded people. But it’s worth pointing out that if the bill now in Congress is defeated, we’re not going to default to the Dutch system. We’re not going to get any of those wonderful schemes. Rather, we’ll just keep what we have. So it seems to me that rather than continue to pound away at all the ways what’s about to come down could be much, much better (and may be worse than what we have), it may be a better use of our energies to look at why we have a system that seems inevitably to offer only those as our only two choices.

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  12. E.D. :

    I must say that you lost me with this declaration:

    “Power, gas, water – all heavily price-controlled, subject to anti-competitive practices, with costs that have little or no bearing on the actual value of goods and services, and service that is shoddy and wildly unpredictable.”

    Perhaps the quality of utility service where you reside varies wildly from every place I’ve ever resided in America. But in my experience the service is not as you portray. I am 41 and cannot recall ever experiencing a water or gas outage. Although I do not currently have gas service I can assure you that when I open my taps what predictably comes spilling out is clean water, at a decent pressure, 24 hours a day, 365 days a year. Yes, the power sometimes does goes out, but rarely for more than a few hours, and most often during winter weather events (somewhat predictable given the weight of ice and/or falling branches in conjunction with above-ground infrastructure). I guess you could term these outages “wildy unpredictable”, but that’s only because they are rare.

    As for the gas leak anecdote, I find it too lacking in details to agree with your conclusions:

    Knowing that he worked for the only game in town, knowing that shoddy customer service hardly mattered when the consumer was at the mercy of the supplier, and that no competitor could profit from their poor customer relations, he did not respond to pleas that it be fixed now so that business could continue.

    What was the nature of the leak? Was it within the building? At the juncture of the building and public right-of-way? All or partially under or within concrete or asphalt? Did he have all of the required tools and supplies on hand to successfully complete the repair? If not, was there any danger in leaving the piping in a half-repaired state? Did he in fact show up the next morning at 8 as promised?

    None of this is to say that I’ve never been frustrated in my dealings with governmental or quasi-governmental entities, but truth be known I have also had such experiences dealing with complete free market entities. These experiences generally haven’t given rise to a personal frustration that tracks (with what seems to me at least) your hyperbolic rhetoric.

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  13. “Monopolies are not innovative, whether they are public or private.” ~ Megan McArdle

    The defense industry, for better or worse, is one of the most innovative industries on the planet. This statement is just plain false.

    As I’ve said over and over and over again: this is ideology, not facts. Please present some study or something that quantifies the negative impact on innovation that will be caused by some kind of universal health care plan. Econ 101 is no substitute for reality.

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      • What about it? Can you point to some place where I can see a quantified estimate of the loss of innovation caused by the NHS?

        Can you then point to a single person with any influence at all who is calling for an NHS-style system in the US? Econ 101 is useless (and is about the extent of McArdle’s knowledge of economics as well), but so are strawmen.

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        • Look, the Britain thing was a joke (mostly). But I can flip this on its head, too. Can you definitively prove that innovation will remain as good or better than it is now under a universal system? Probably not. Lots of speculation here, obviously. But the general move toward monopolization is one which usually seeks the path of least resistance. Find the product that is needed most at the lowest cost and supply it. Without competition, there is really very little drive to do better. The military is not a very good example. For one thing, there is a completely artificial demand created by the government. Under this line of reasoning the government also ought to create monopolies in the gadget industry and then buy everyone their MP3 players and DVD players and TV’s. After all, the monopolies produce such great results in defense.

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          • Haha, we agree on some of that. Maybe not results in defense. Again, for better or worse, the purely technological (and technical) parts of our defense apparatus seem to work pretty well. It’s the leadership and the goal-setting that are horrific.

            But look, Medicare hasn’t killed innovation. Old people get tons and tons of drugs – would there even be a market for Viagra if everyone above 65 were in some kind of innovation-deadening socialist enterprise? I find that very hard to believe. I would also note that Medicare is substantially more socialist than anything that is being seriously proposed by anyone to the right of Bernie Sanders. So I’m just incredibly skeptical of arguments that the American entrepreneurial spirit is going to be killed by the great specter of individual mandates and a public insurance option for people who don’t work for large employers. It’s pure crazy.

            It’s also run-of-the-mill McArdle. I think part of the reason my reaction is so negative is that I find it hard to take anyone seriously if he in turn takes her seriously. You see Ezra’s recent dissection of her? When it comes to a fight over health care between those two, I know whose side I want to be on.

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  14. The more government gets involved, the less competition takes place and the more lobbying, which is a shoddy substitute for a market, influences how decisions are made for people, rather than by people.

    Truer words were never spoken. The 2nd order effect of increasing government intervention in the economy/our lives is that it increases public competition for control of government where information asymmetry, corruption, accountability can be (though not always) far worse than they are in competitive, private sector markets.

    Not saying big government = always bad, but I’ve yet to see proponents of government intervention respond to the statement you made in any measure beyond, “anti-corruption/lobbying measures” will protect the public interest or keep the wrong sort of democratic actors out of the falls of government.

    Thoughtful post and a good read.

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