In Which Gred Mankiw Displays Alarming Ignorance about that Giant Glowing Red Triangle Across the River

Robert Waldmann

Suggests that serious readers go read Brad Delong’s comment on Greg Mankiw’s comment on Paul Krugman’s assertion that George Will and Gred Mankiw are “either remarkably ignorant or simply disingenuous.” Totally asking for it, Mankiw also commented on Krugman’s post referring to DeLong and Krugman as a tag team.

I just want to note that Greg Mankiw chooses a very odd example to illustrate his ignorance of basic economic theory.

He wrote

[Obama’s] economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices…”

Mankiw chose to talk about the market for gasoline !

OK prof Mankiw I have a proposal. This evening get out of Your office, get on Mass Ave and drive South. You will see a river. Across that river you will see a huge red glowing triangle. Do you know what that triangle advertises ? Yes it’s the Citgo sign. It avertises a publicly owned oil company and chain of gas stations.

So if you have no problem with a public provider of gasoline, why are you opposed to a public provider of health care ?

Somewhat more importantly, the idea that the market for gasoline shows that we can trust the private sector to give us “Consumer choice and honest competition” is beyond bizarre. Ever heard of Standard Oil professor Mankiw ? The fact is that it requires constant struggle to preserve competition and a market based approach of offering a public plan has advantages compared to a litigation based approach.

It just so happens that the health insurance market is not at all competitive in many regions, that profits of large health insurance companies have exploded and that the fraction of money paid to health insurance companies which they send on to health care providers have plummeted. Sort of like the market for gasoline that the private sector gave us before massive public intervention.

America’s health insurance companies had better decide if they prefer a public option or actual enforcement of the Sherman antitrust act. Splitting up health insurance companies (what was done to achieve competition in the market for gasoline) would be rather more disruptive to policy holders (and executives) than allowing the medicare administration to compete with them.

I’d say Mankiw has a point. Health insurance is like gasoline in the sense that the market has failed — that profit seeking corporations have managed to reduce competition to levels such that their profits explode. The main differences are that it’s the 21st century and the President is using a market based rather than a punitive approach to the problem.

Claiming that there is currently a competitive market for health insurance in the USA is like claiming that they sky is green.

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