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.