Letter to the Editor: Public option economically illogical
Oct. 23, 2009
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Indulge me in a very simplified thought experiment. You, reader, enjoy beer, and I have deep pockets. We come to an arrangement: you pay me a fixed fee, and I will heavily subsidize each of your purchases of beer over the course of a night.
What would we expect to see happen? I expect that your demand for beer will increase toward over-consumption since the more you use this service, the more attractive the deal becomes. Perhaps an astute bartender notices the strength of your demand and decides to react by raising the price of each beer by 25 percent. As far as you are concerned, you continue to pay the same as before. As far as the bartender is concerned, he's reacting rationally to forces of supply of demand. As far as I'm concerned, I'm going to have to raise the price of my fee for future nights if I'm going to keep from losing money.
The price of beer will balloon and the culprit is an economic wedge — the difference between the price a consumer pays and a producer receives. And here, we apply the thought experiment to health care. In her recent column, Ms. Jordan Stein suggests that a public option is necessary to help keep costs down. I’m puzzled why Ms. Stein and her ilk can assert this as common sense in the face of the logic that the public option would exacerbate the effects of the health care wedge on health care cost inflation. Are they being ignorant or disingenuous?