For the record. Short Sweet Simple.
At least part of those rate increases are due to Obama’s proposals themselves. His health care reforms were always going to drive costs up. According to Noam Levey of the LA Times, who examined the New York experience, average insurance rates were bound to go up simply because coverage was going to be extended to the uninsured — increasing the demand — and mandating that people with pre-existing medical conditions could not be refused. With more and higher-risk consumers entering the market and the supply of medical services inelastic in the short term, prices were bound to go up. If people can “buy insurance on the way to the hospital” as one economist put it, then the money had to come from somewhere else in the insurance pool. Levey said, “premiums in New York are now the highest in the nation by some measures, with individual health coverage costing about $9,000 a year on average.” But since higher premiums would mean political suicide for the Administration it is going to square the circle by imposing price controls. So what’s wrong with that? The problem with price controls is that it eventually creates underprovision and shortages in the long run. Everybody will remember his lesson from Economics 101. Here’s how Wikipedia retells it.
The primary criticism leveled against price controls is that by keeping prices artificially low, demand is increased to the point where supply can not keep up, leading to shortages in the price-controlled product. Shortages, in turn, lead to black markets where prices for the same good exceed those of an uncontrolled market. Furthermore, once controls are removed, prices will immediately be subject to rampant inflation, which can temporarily shock the economic system.
A classic example of how price controls cause shortages was during the Arab oil embargo between October 19, 1973 and March 17, 1974. Long lines of cars and trucks quickly appeared at retail gas stations in the U.S. and some stations closed because of a shortage of fuel at the low price set by the U.S. Cost of Living Council. The fixed price was below what the market would otherwise bear and, as a result, the inventory disappeared. It made no difference whether prices were voluntarily or involuntarily posted below the market clearing price. Scarcity resulted in either case. Price controls fail to achieve their proximate aim, which is to reduce prices paid by retail consumers, but such controls do manage to reduce supply.
I spent a significant amount of time over breakfast explaining the fundamental differences between the Left and Right over the matter of Obama's moribund health care proposal. It rather boiled down to the impracticalities of single-payer force, and a principled stand against socialized medicine that does nothing to lower the overall cost of health care provision. Not that I'm spoiling for a fight, but I don't see exactly how his supporters have been convinced by the 'economics' of his proposals. I suppose if you think, like Stiglitz apparently does, that State Capitalism is a good thing and that most good things come from directed stimulus and industrial policy, then there may be a case to be made. But to me it's one of those startling contradictions of leftward thought - those who moan most loudly about the deprivations of the police state welcome the nanny state with open arms.
What is a police state but a nanny state in boots?