In a recent post on health care, Paul Krugman writes (in his typically obnoxious smug style):
Both George Will and Greg Mankiw basically argue that we don’t need a government role because we can trust the market to work — hey, we do it for groceries, right?
Um, economists have known for 45 years — ever since Kenneth Arrow’s seminal paper — that the standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough. To act all wide-eyed and innocent about these problems at this late date is either remarkably ignorant or simply disingenuous.
Check out Brian Caplan’s response here. After making good points in response (government controls make the problems worse & that there’s advantageous selection), Caplan adds:
Unlike Krugman, I not going to dismiss everyone who doesn’t know these facts as “remarkably ignorant or simply disingenuous.” What I will say, though, is that if you don’t know them, you have a lot to learn from nobody.
Thank you, Brian for demonstrating the class that Dr. Krugman does not.
Also check out David Henderson’s post: Krugman Misstates Arrow. Here’s part of it:
if by “standard competitive model” you mean “perfect competition,” doesn’t work well even with gasoline stations and repair shops. When a company can invest in reputation, what Ben Klein called “brand name capital,” the perfectly competitive model goes out the window. But if you read just Krugman’s short post, you might think that Arrow is arguing for a government role in health care, as Krugman is, right? And I would bet that Krugman wants you to think that. Yet, nowhere in Arrow’s article can I find such an argument.
