Why Hayek Would Endorse Obama’s Government Health Insurance Plan

Brad DeLong explains:

The economic logic behind a public [health insurance] plan springs from these information and selection problems.  Private health-insurance companies are currently spending a fortune in a negative-sum game by which they try to make other private companies and not themselves actually pay for treating sick people. A public plan run by bureaucrats would not face those incentives, and would not waste money in that way. A public plan would, however, have its own inefficiencies: it would be run by bureaucrats, and would waste money in other ways.

Which set of inefficiencies would be greatest? We don’t know. The argument for a public plan is that we should be like the mongoose Rikki-Tikki-Tavi, whose motto is: “run and find out.” We should set up a public plan, let it compete with the privates, and see if it can provide care people like more cheaply than the private insurance companies. Friedrich Hayek would approve: the idea is to use the market as an institutional discovery mechanism.

Hayek’s argument for subjecting government services to private competition is actually explicit and has a far more multidimensional rationale than Brad DeLong imagines, and can be found in Hayek’s Law, Legislation and Liberty.  I recommend the book to your attention, Brad.

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2 Responses to Why Hayek Would Endorse Obama’s Government Health Insurance Plan

  1. Taylor says:

    Greg,

    I’ve been seeing this a lot lately, the misquoting or mis-stating of Austrian economists by Keynesians to show how “even free market types” go along with their proposal.

    It seems to be their new argument. They’ve realized they can’t win in a logical argument so instead they’re just going to co-opt our figureheads and make people think that “economists of all stripes agree” with socialist plan X.

    What are we to do now? Claim Marx argued for free markets?

  2. Justin P says:

    Yeah I read that from DeLong and was actually taken back that he would of all people be looking to Hayek for justification. I admit all I’ve read by Hayek so far is Road to Surfdom but I only really got interested in economics because of the “Stimulus” bill and then took me a while to find Hayek.

    It seems to me that DeLong hasn’t read Road ever or even the cartoon version, if he did, I don’t think he’d have made such a claim.

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