The Wrong Debate Being Had Over Healthcare

The individual mandate is just the latest in a long string of government interventions that benefit particular private interests at the expense of others.

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Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University.

As Supreme Court justices peppered lawyers with questions during the oral arguments last month, health industry stocks seemed to move with every Supreme utterance. They were down on Tuesday when it appeared that moderate justices might not allow the government to force people to buy insurance. But they were back up on Wednesday when it appeared that these same justices might overturn the entire law, saving insurance companies a number of other costs. These fluctuations make it clear that it isn't just political capital riding on the case. A lot of private capital is at stake too.

Though the healthcare issue is often framed in terms of "Government" versus "Business," it is much more complex. In reality, government intervention in the market often helps some private businesses (such as the big insurance companies), but these gains come at the expense of other less well connected businesses. When governments grant privileges to particular firms, they tend to undermine competition, raise prices, lower quality, and hobble innovation.

[See a collection of political cartoons on healthcare.]

If the government wins the Supreme Court case, large health insurance companies win too. They obtain a privilege that no other private industry in the country has ever enjoyed: a federally-enforced mandate to buy their product. Of course, small businesses will be stuck with a large portion of the mandate's cost, which is why they brought the suit against the law. But consumers may lose too (and not just the ones that don't want to buy insurance). A number of studies find that firms that benefit from government-granted privilege tend to under-serve their customers.

All of this is rather inconvenient for both the left and the right. Too many on the right are accustomed to think that private success is always virtuous. But some of the most lucrative firms are those that have obtained special privileges from government (bailouts, lines of credit, subsidies, etc.). And too many on the left, meanwhile, have fooled themselves into thinking that they can introduce controls, mandates, subsidies, and tariffs without making some fat cat even fatter. 

[Read the U.S. News debate: Should the Government Invest in Green Energy?]

Both are wrong.

Government works best when it refuses to pick winners and losers. And the private sector works best when businesses rise or fall based on the value they provide to consumers. 

History shows that when businesses use government to box-out their competition or to squeeze more from their customers, it almost always ends badly. Consumers are stuck with higher prices. Entrenched firms no longer innovate. Precious resources are wasted lobbying for special privilege

In 1933, Franklin Roosevelt signed a law creating the National Recovery Administration. It mandated that firms cut output and set minimum selling prices. At the time, those firms that stood to gain from higher prices and less competition were all for it. The head of the U.S. Chamber of Commerce hailed the National Recovery Administration as "the Magna Carta of industry and labor."

But economists and economic historians have almost universally assailed the National Recovery Administration as a counterproductive disaster. It cartelized industries, raised prices, hampered competition, and exacerbated unemployment. On May 29, 1935, the Supreme Court found the National Recovery Administration unconstitutional. 

[See a collection of political cartoons on the economy.]

Unfortunately, this was not an isolated episode. Years later, the New York Times would report that Richard Nixon's decision to impose sweeping price controls throughout the economy was "applauded" by business leaders "with varying degrees of enthusiasm." That, too, ended in failure. According to Daniel Yergin and Joseph Stanislaw, "Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets." Nixon finally abandoned the system four months before he resigned the presidency.

Business leaders would again applaud Congress and President Carter's decision to back loans to Chrysler in 1979. They cheered Ronald Reagan's decision to impose import duties to help save Harley Davidson in 1983. They hailed George W. Bush's decision to impose steel tariffs in 2003. And, of course, the financial and auto bailouts in the Bush and Obama administrations had plenty of corporate supporters. In each of these examples the government backed particular businesses at the expense of consumers, taxpayers, and would-be competitors.

Whatever the fate of the individual mandate, it is just the latest in a long string of government interventions that benefit particular private interests at the expense of others. Government should be neither probusiness nor antibusiness. When firms compete on their own merits, consumers gain and the economy prospers.

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