Markets are incremental; Obamacare is not

Paul H. Rubin —  24 March 2011

Watching Obamacare dissolve in a morass of legal challenges and waivers points out another benefit of markets.   Markets proceed incrementally.  The Internet has made a huge difference in all of our lives.  But the process was gradual.  It began with just a few academic users and then expanded as entrepreneurs figured out next steps.  In 1990 no one planned today’s Internet; no one could have.  There were individual successes, some of which persisted (Amazon) and some of which succeeded for awhile and then failed (AOL).  But the whole thing is a mass of small steps that led to what we have today.  More small steps will lead to tomorrow’s Internet which will be something no one today can foresee.

Obamacare (and many other government efforts) is not incremental.  It is a 2000 page law trying to remake the entire medical system from the top down.  No such system can succeed.  No one can foresee the interactions of all of the parts that are part of this law.

Other proposals for reform — allow interstate sales of medical insurance, cap tax deductibility of insurance premiums — are incremental in nature.  Such proposals allow us to try a small step and see if it works and proceed from there.  We cannot forecast the results of these small steps, but we do not need to.  They are small and easy to reverse if they fail.  Moreover, they leave room for entrepreneurs to modify them in unpredictable ways.  If we allow interstate sales, which models will work best?  No one knows, but lots of people will try to figure it out and some of them will make lots of money and give us a better system.

Paul H. Rubin

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PAUL H. RUBIN is Samuel Candler Dobbs Professor of Economics at Emory University in Atlanta and formerly editor in chief of Managerial and Decision Economics. He blogs at Truth on the Market. He was President of the Southern Economic Association in 2013. He is a Fellow of the Public Choice Society and is associated with the Technology Policy Institute, the American Enterprise Institute, and the Independent Institute. Dr. Rubin has been a Senior Economist at President Reagan's Council of Economic Advisers, Chief Economist at the U.S. Consumer Product Safety Commission, Director of Advertising Economics at the Federal Trade Commission, and vice-president of Glassman-Oliver Economic Consultants, Inc., a litigation consulting firm in Washington. He has taught economics at the University of Georgia, City University of New York, VPI, and George Washington University Law School. Dr. Rubin has written or edited eleven books, and published over two hundred and fifty articles and chapters on economics, law, regulation, and evolution in journals including the American Economic Review, Journal of Political Economy, Quarterly Journal of Economics, Journal of Legal Studies, and the Journal of Law and Economics, and he frequently contributes to the Wall Street Journal and other leading newspapers. His work has been cited in the professional literature over 8000 times. Books include Managing Business Transactions, Free Press, 1990, Tort Reform by Contract, AEI, 1993, Privacy and the Commercial Use of Personal Information, Kluwer, 2001, (with Thomas Lenard), Darwinian Politics: The Evolutionary Origin of Freedom, Rutgers University Press, 2002, and Economics, Law and Individual Rights, Routledge, 2008 (edited, with Hugo Mialon). He has consulted widely on litigation related matters and has been an adviser to the Congressional Budget Office on tort reform. He has addressed numerous business, professional, policy, government and academic audiences. Dr. Rubin received his B.A. from the University of Cincinnati in 1963 and his Ph.D. from Purdue University in 1970.

One response to Markets are incremental; Obamacare is not

  1. 

    “Interstate sales of medical insurance” sounds harmless, and it probably is, as long as the state where the insured is located is allowed to regulate the out-of-state insurer.

    I know this item is always top-of-the-list for Republicans when they are asked what they would do regarding medical insurance. But as used by them, it’s really a euphemism. “Interstate sales of medical insurance” means for them that (1) there will be a race to the bottom among the states to determine who can offer the most pro-insurer laws/regulations, (2) medical insurers will incorporate or reincorporate in the state that has won the race to the bottom, for example, South Dakota and (3) that state’s pro-insurer laws/regulations will govern over inconsistent laws/regulations of the other states, even if 99% of the insureds are located in other states, again, think South Dakota. We will end up not only with pro-insurer laws of one small state governing all medical insurance but also that state’s morality — for example, forget the idea of getting an abortion covered by insurance in California if South Dakota sets the medical insurance laws for the entire country.

    So what sounds like a pro-competitive measure is simply another attempt to divide the pie so as to give extra slices to the medical insurers, who — surprise, surprise!! — are major contributors to the Republican party and Republican candidates.