Ryan’s price controls

Kevin Drum spots the magic asterisk at the heart of Paul Ryan’s latest Medicare-destruction plan.

One obvious way to help people economically is to reduce the prices of the stuff they buy by imposing legal caps.  Rent, food, and gasoline all have been targets of such policies. In general they’re a dumb idea, because price controls create shortages and shortages lead to evasion, inefficiency, and unfairness.  That’s both textbook intro-to-economics and standard conservative rhetoric against economically illiterate liberalism.

Kevin Drum points out that the centerpiece of Paul Ryan’s latest plan to destroy Medicare is simply a version of the same thing. Insurance companies would compete to sell health insurance to seniors. In lieu of Medicare, seniors would receive vouchers to buy insurance, with the value of the voucher set at the price offered by the second-lowest bidder.

But a different provision of the law – the part that’s supposed to keep federal spending down, which after all is the whole point from Ryan’s perspective – forbids the value of the vouchers from rising any faster than GDP growth plus half a percent a year.

So, Kevin asks, what happens if the second-lowest bid is higher than that? The proposal does nothing to constrain health care costs; the price cap is entirely arbitrary. So why should we believe there will always be two bidders at a sufficiently low price? Looks like just the latest version of Ryan’s magic asterisk: all the hard choices are to be announced later.


Any chance that an actual political reporter, or the moderator at the Vice Presidential debate, will ask this question and be able to insist on a coherent answer?

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

7 thoughts on “Ryan’s price controls”

  1. So why should we believe there will always be two bidders at a sufficiently low price?

    Have faith. The Market will provide. Baruch atah ha Shuk, ha dayan emet.

  2. A few other questions worth asking:

    1. Is the second-low bidder required to take all comers?

    2. If so, is there any requirement that bidders demonstrate that they have administrative and customer support services in place adequate to the expected volume of business?

    3. Are the bidders’ practices with respect to approving procedures, specialist visits, and so on unreasonably restrictive?

    4. Is there any requirement that the bidders demonstrate that their financial arrangements – reserves, contracts with providers, and so on, are adequate?

    Sensible RFP’s include a lot of requirements other than low price. If you are going to award a contract to build a bridge you need to make sure that the company selected can actually do the job correctly, not just that it made the lowest bid.

    Maybe all these sorts of things are in the plan, but omitted in the description for simplicity. I’d like to know.

  3. Any chance that an actual political reporter…will ask this question and be able to insist on a coherent answer?

    Speaking of reporters, check out the article by Annie Lowrey on the front page of today’s New York Times, entitled “Conservative Elite in Capital Pay Heed to Ryan as Thinker”. I guess this is the kind of “reporting” that guarantees a young up-and-comer a slot on the front page of the Times–a ludicrous puff piece that allows all the usual suspects to reaffirm each others bizarre self-valuations. The author refers to Ayn Rand as both a “canonical conservative thinker” and a “philosopher”. She writes that Ryan “spoke passionately about the threat posed by the national debt” while refraining from pointing out that this threat seems to bother Ryan only when a Democrat is president, and that Ryan’s own budget plan would add another 2.6 trillion dollars to the debt to finance huge tax cuts for the rich.

    “Aides and confidants”, she writes, “describe [Ryan] as an earnestly interested…policy thinker, with a deep knowledge of budget numbers”, which is what Ryan himself would have us believe even though the budget numbers he throws around are gibberish. Lowrey quotes Bill Kristol repeatedly, passing along his comparison of Ryan to Pat Moynihan, among other gems.

    I wonder if Ms Lowrey is giving Paul Ryan actual blowjobs in addition to the virtual one in the Times. (And let me hasten to add that I would make the same remark if the author of this article were Ezra Klein.)

  4. So why should we believe there will always be two bidders at a sufficiently low price?

    So the insurance companies/doctors can make a lot of money before Ryan and the GOP patiently explain that government is a awful and the best way to eliminate this new problem is to eliminate the price controls/subsidies/what have you.

    [‘Privatization two-step.’]

  5. Mitt started Bain Capital with money from Central American oligarchs. And America is starting to feel like an oligarchy, with wealth and power flowing upward, alarmingly, back into the hands of the few.

    Oligarchy is not what our founders had in mind. It’s not what we, the people, have in mind. It’s not what our soldiers and their families have sacrificed for since Lexington and Concord. Oligarchy is Royalty by another name — de facto princes and princesses ruling over us, above the law, controlling huge chunks of power including legislative, judicial, police and, God help us if it comes to pass, military.

    Also note:

    Israel started out as an egalitarian kind of place, but it’s suddenly changing and looking more and more like oligarchy.

    “One astonishing fact he noted was that 18 Israeli families control fully 60% of the equity value of all Israeli companies. Their wealth is concentrated in the four largest industries in Israel: banking and insurance, chemicals, high tech, and military/homeland security.” http://www.richardsilverstein.com/tikun_olam/2010/07/13/18-israeli-families-control-60-of-nations-corporate-equity/

  6. “Any chance that an actual political reporter, or the moderator at the Vice Presidential debate, will ask this question and be able to insist on a coherent answer?”

    Considering that any kind of truthful and coherent answer would irrevocably throw the race to Obama it’s not really possible to get such an answer. Reporters’ time would be better spent simply telling the truth–the numbers in Ryan’s various plans range from fantasies to outright lies, and not a one of them has been crunched in any way–rather than trying to get confessions out of Romney and Ryan.

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