Blaming the Free Market for Government Actions

The leftish political strategy for over 100 years has been

  1. Regulate something
  2. Blame the free market for inevitable disruptions caused by the regulation
  3. Use the above to justify more regulation
  4. Repeat

Obama's speech has a classic example of this:

So let me set the record straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. Without competition, the price of insurance goes up and the quality goes down. And it makes it easier for insurance companies to treat their customers badly "“ by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates.

This is ENTIRELY a situation manufactured by government and specifically state regulations.  States prevent out of state insurance companies from competing in the health insurance market.  Think you have the same Blue Cross/ Blue Shield I have (or used to have)?  Wrong.  I have Blue Cross/Blue Shield of Arizona.  You have Blue Cross/Blue Shield of whatever state you are in.  If Amazon.com had to create 50 separate state entities all with wildly different regulatory structures, you can bet they would focus on just a few states and there would therefore be a lot less competition.  Obama HAS to know this is true, so this is just a cynical argument aimed at the ignorant and uninformed.

By the way, what evidence is there that having 75% of the market in 5 companies is too concentrated?  I have been in a lot of industrial markets that were far more concentrated than that which were brutally competitive.

  • Max

    Yeah, he should know, he owns a car company which is in a market with a few other companies and whose suppliers are in a market with only a few companies. -but none the less the competition is incredibly high...

    But hey, what do I know, I studied engineering and not presidenting....

  • MGW

    Doesn't the auto industry have 75% of sales in the hands of 5 or fewer companies? I couldn't find the exact numbers anywhere, but I'll bet that GM, Ford, Chrysler, Toyota and Hondo control 75% of the market. Apparently in this case, there is too much competition and two of the biggest companies need government help to stay in business.

  • DrTorch

    When telecon (CaTV in particular) was deregulated in 1996, the companies that lobbied for that then turned and didn't compete (they went into collusion). Prices soared, service dropped.

    Comcast is among the most hated companies in the US.

    Now competition (w/ satellite and FiOS) is improving things. But you can't always blame problems on gov't regulations.

  • Eric Hammer

    Following the president's logic, one would conclude that professional boxing is not a terribly competitive sport, since there are only two competitors in the ring...

    And Dr. Torch, there is a hell of a lot of regulation in the cable industry. Don't fool yourself that 1996 was the first deregulation or removed every regulation. There are stil large barriers to entry in the market.

  • J Howe

    Stop trying to confuse the issue with facts and logic!

  • aeronathan

    Funny thing about BCBS of AL, they're a non-profit. So much for the meme that its all evil greedy corps causing these problems....

  • Barrett

    I cannot think of an instance where this process is not present. If anyone can, please tell me.

    Obama spews all kinds of contradictions (often within the same speech), makes claims that are supposed to sound factual but are never substantiated and cites causes for problems that have nothing to do with the problem at all (e.g. our economic problems are caused by the lack of socialized medicine, the lack energy policy - as if cap n' trade is an energy policy, it's a tax, and the need for better education).

    My brain hurts when I listen to his drivel.

  • Greg

    The technologies anticipated to compete with cable are finally maturing with FiOS. Whether its the result of too much or too little deregulation in 1996, cable prices have increased. For now, I'm still forced to get extended cable packages to get the 1 or 2 channels I want to watch. I'm hopeful that in about 5 years, I can legally pick and choose all the shows I enjoy through my high speed FiOS Internet connection. Maybe then the cable companies will finally find a way to deliver a la carte channel options.

  • tomw

    Does anybody remember the original American Telephone & Telegraph Company? It had local service companies in all 50 states[well, close enough]. It was a 'regulated monopoly', and had a 'rate of return' based profit system. However much 'plant in service' was functional was the base upon which the profit figure was calculated. Add more money for a 4E switch, and the rate base increased, and so did profits.

    The real problem with that regulated monopoly was twofold: 1)Congrefs interfered all the time along with the FCC and 2)there were 50 states with different regulation and red tape as determined by the respective PUC (public utility commissions).
    For instance, to offer a 1200 baud modem needed 50 different PUC rulings on how much to charge for its use. Multiply that by each and every product that was offered and you get an idea of what bureaucracy can do to a company. It was a hog-tied giant, and when cut and diced into the "Seven Sisters", aka RBOCs [daughter of Ma Bell?], the amount of state PUC regulations didn't change.
    If you note, competition in the local service area is non-existent, and the old RBOCs have now joined together back into two large conglomerates.
    Eleanor's "never mind" on SNL was a joke about the service the phone company provided. "We don't care, we don't have to!"
    This is exactly what the Obama prophet declares is best for us. The old Ma Bell system with government Eleanors.
    I can hardly wait. Black rotary dial medicine, here we come.

    tom

  • scp

    "By the way, what evidence is there that having 75% of the market in 5 companies is too concentrated?"

    I'm no expert, but I'd guess that the evidence is to the contrary. I seem to remember something about a "rule of 3" from Jagdish Seth".
    http://www.expressindia.com/news/fe/daily/19990319/fec19019.html

    If 5 major competitors manage to survive, I might be tempted to conclude that the market is already over-regulated.

  • The thing is, there is very little free market anymore. Banks, insurance companies, hospitals (just to name a few) have all formed organizations and agreed on prices so there is no competition between them.

    The government, instead of breaking up the organizations as it should, passes laws that does not address the real issue. The main problem is that we do not need more laws or regulation, we need real competition between companies to keep the prices down.

    Only when the those big trust and monopolies are broken up, then and only then will we have a real free market again.

  • You're right.

    The president's plan does nothing to bring down healthcare costs because it doesn't address the causes of cost increases. Nor does it do anything to create a free and fair insurance market.

    Current insurance regulations prohibit interstate commerce for insurance, so there really is no true national healthcare. The big insurance companies are actually a whole bunch of smaller companies like United Healthcare of Texas or United Healthcare of Massachusetts. These must all be "arms length" to comply with the law. This means that they are required by law to have redundant staff, systems, etc. That is totally inefficient and prevents any real competition.

    The public option would be a national player, but if it is anything like the Medicare I see my grandmother get or the VA benefits I saw my grandfather die on, it will totally suck. But, because it doesn't have to be 50 separate companies, it will totally win. That isn't competition. That's a stacked deck.

  • This post has been linked for the HOT5 Daily 9/11/2009, at The Unreligious Right

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