misconceptions and deregulation

Just very briefly – “deregulation” does not mean the stripping away of all rules or the desire to enter into a state of anarchy.  So when I speak of “deregulating” the health care industry, I’m mainly talking about removing rules that prevent competition and create monopoly or that are expensive but provide no real benefit.  So removing restrictions which prevent insurers from competing force insurers to compete is a way to “deregulate.”  Other regulations which keep insurers from ripping people off, or remove barriers which prevent people from even purchasing insurance to begin with make much more sense.  Regulation should increase choice not decrease it, though ironically it is much easier to write rules that limit choice than to write rules that help increase it.

We’re not speaking in black and white here – or at least I’m not.  Some libertarians or anarchists would probably take a very different view than me.

The way I see it, you can follow a guiding philosophy only so far as it is practical to implement.

So you take the concept of market solutions to its practical limit – and this is hemmed in by historical realities, political realities, the electorate, etc – and then you make a compromise that can also be practically implemented. Give consumers choice over who they pick to provide their own health care via the aforementioned deregulation.  Kill the monopolies and create a real competitive market for health insurance.  Then give consumers even more choice by offering means-tested vouchers, whether or not there is a public option, so that all across the board people can make decisions about their own health care.  Spur competition.

Then you have to start making compromises because of all the basic facts that are impeding a real market from taking off (entrenchment of current industry players, high cost of premiums and the distortion created by decades of employer-provided insurance and so forth).  Write smart, simple regulations that prevent insurers from denying coverage.  Offset this by mandating that Americans purchase or acquire health insurance, and set rules for the “basic” plan that all insurers have to offer.  It’s not perfect, but in the real world, no compromise ever will be.  Imperfection is the nature of compromise, and the unintended consequence of imperfection can sometimes be really good results.

In the end this all comes back to the difference between “small” and “limited” government – or the scope of government involvement vs merely its size, and to the ways in which government does intervene into both our lives and, somewhat redundantly, into our economy.

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4 thoughts on “misconceptions and deregulation

  1. Unfortunately, I remember a lot of these same arguments when I was living in California in the late 90’s and early 00’s. Phil Gramm pushed through the legislation to deregulate CA’s energy commodity trading for his buddy Ken Lay.

    And, we all know what happened next: price gouging, rolling blackouts, huge increases in prices, less competition, more monopolies, etc. People DIED because of the games that Enron played, and Enron was allowed to play games because the industry was deregulated (using many of your arguments, E.D. Kain).

    So, forgive me for not believing that deregulation of industries is always a good thing. The arguments (at the time) were that more competition was needed, that it would lower prices, provide better service, blah blah blah.

    Instead, California got the Governator, who has now succeeded in destroying the parts of California that Reagan hadn’t already destroyed.

    “Deregulate, baby, deregulate!” makes about as much sense as “Drill, baby, Drill!”

    Now, in idealistic terms, competition is a fine thing. In actual practice, legislation that deregulates a large industry (like banking, or energy, or health care) has never provided an increase in meaningful competition – it always favors a single monopoly (or a very small group). It is written by humans, after all. Well, politicians, I guess, but some of them are human, I think.

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    • I already addressed this issue here. I wrote then:

      With all due respect, this is simply nonsense. The problem was not deregulation, it was government price-caps on energy costs. Utility companies could make more money shipping power out of state than keeping it in state. In fact, the only way for utilities to remain in business given tight price controls was for utility companies to sell to other states which led to a shortage at home. In a truly deregulated market prices would have reflected supply. In fact, this would have led to people conserving more power rather than using up energy that was priced artificially low by the state. Truly deregulated markets would reflect actual prices and force people who used too much power or water or gas to scale back usage.

      If you want to see real rolling blackouts, keep costs artificially low through government intervention, which will also keep innovation to a minimum. Who needs to invest in alternative energy if existing energy is kept cheap and reliable?

      Beyond this, there is the simple fact that criminals will commit crimes one way or another. Should their have been better oversight so that Enron could have been discovered earlier on? Sure. But does that mean the problem lies in deregulation? Not at all.

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      • This is overly-simplistic.

        1. PG&E and SDG&E were forced (by the deregulation) to sell off >50% of their generating capacity to private companies (like Enron) and were then forced to buy back the power from those private companies. This had NOTHING TO DO WITH PRICE CAPS.

        2. The FERC was to step in and regulate those newly privatized energy generators, so that they could not gouge customers. They DID NOT. There is a lot of evidence that politics played a role (include influence from the White House). This had NOTHING TO DO WITH PRICE CAPS.

        3. During warm days, the demand crept close to supply, but never exceeded it. The rolling blackouts and other problems occurred because Enron (and others) shut down their newly privatized generators for “maintenance”, even though no maintenance was needed. This pushed supply below demand and they reaped ludicrous profits. This had NOTHING TO DO WITH PRICE CAPS.

        4. This DOES have something to do with price caps. Retail prices were regulated. Wholesale prices were deregulated. I’m sure you can see the problem in that. So, it would be fair to say that some of the problems were due to retail price caps. It would also be fair to say that some of the problems were due to deregulating wholesale prices. Glass half full or half empty?

        5. Before the whole privatizing thing, energy production and distribution in CA was excellent for decades, with no rolling blackouts or sudden price increases. This does not show a causal effect to privatization, but I think it sure smells like it.

        I find your argument limited and somewhat hollow. Certainly price caps played a small part, but they were not the only reason for the problems. Deregulation played a significant role in this, despite what you want to believe.

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  2. E.D., dude, I think you have a very good foundation to work with in your recommendations. Now, who’s going to pay attention?
    B.O. and his epigones have their agenda, they’re not interested in ‘fixing’ anything.

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