Tuesday, February 23, 2010

Obama's Price Controls- Is he disingenuous or brain dead?

Obama is in a hole. He needs to get out of it as soon as possible. He needs a bill with the title “Health Care Reform” on top of it. He needs to put this mess to bed as fast as possible and go on to other matters. I was encouraged last week that he had seen the light. This week I am not so sure.

He is now pulling out his new panacea. He is pushing for a general federal jurisdiction over price controls on health care insurance, effectively controlling all prices for hospital and medical services as well as pharmaceuticals. If he seriously pushes for this jurisdiction, he will drag the country back through the dismal swamp of partisanship. I cannot believe that a reprise of this sort will enure to the benefit of his party. It is bad politics, but it is worse economics.

It has been pretty well established since the New Deal experience that government regulation could can be quite effective in matters other than prices. such safety and environmental regulations. Business interests predicted the sky would fall in when OSCHA and automobile mileage standards were enacted, but by and large these laws have worked.

On the other hand studies have shown that efforts to control pricing have not effectively reduced costs. Price control has been tried in industries classified as so called natural monopolies such as transportation, communication, natural gas and electrification It is pretty well established that these control have resulted in no significant savings to the consumer.

Instead regulated industries have often become inefficient and unncompetitive as a result of regulation. For instance, when the airline industry was deregulated, prices were reduced drastically because of competitive forces in the industry. Regulation was actually holding prices up rather than down.

Nixon’s attempt to resurrect price controls during the spiraling stagflation was ineffective. Market forces are simply too strong to be controlled by a bureaucracy.

So, when Obama suggests that health costs can be controlled by the government for any length of time, he is either disingenuous or brain dead.

Sen. Judd Gregg of New Hampshire claimed on the PBS Newshour last night that this attempt to regulate health care insurance is a predicate for going to a single payer system, which is a euphemism for extending Medicare to all persons. Democratic Senator Sherrod Brown did not deny the allegation.

If Gregg’s assertions are correct, we are really facing a debacle. It is generally agreed that the federal budget problems are caused primarily by the rigid entitlements found in Social Security, Medicare, and Medicaid.. Our president voices concern about that deficit and at the same time seems to be working toward quadrupling Medicare, which is our biggest fiscal problem. He reminds me of a lawyer person I once knew whose nkickname was Gator. That is, he smiled at you and ate you up.


Elizabeth said...

What should the government do about out of control health care costs? The way I understand the system (and I do not understand it well) is that pharmaceuticals can slightly change the formulas for medicine to get new patents which keep prices high. The price for research is high, but how do we encourage research and not unrealistic profit? How do we combat the injustice of insurance companies while keeping the cost low?

I don't feel like there is a good way to combat these problems while partisanship and mistrust run rampant.

I agree with you that what he is doing will "drag the country back through the dismal swamp of partisanship," but I'm not sure he knows how to work with Congress any other way. I believe that our only hope for a reasonable health care plan is a moderate Congress being elected this year with a slight Republican majority. Bill Clinton and Newt Gingrich were able to get some good work done after the 94 election.

But I believe that using words such as "disingenuous" and "brain dead" to refer to President Obama will only increase the partisan sentiments that are trapping us all.

L. Vastine Stabler said...

Your comments make sense. I plan to discuss what can and cannot be done about costs in a later post.
Iti s worth noting that prices of new drugs are already regulated by the FDA. I do not have an opinion of how good ajobthey do on setting prices, but I understand that they use an approach along the lines discussed in the post

I am sure that the language about Obama seems partisan, but the truth is that the Republicans do not have a much better record on cost control than do the Democrats.