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August 21, 2012 8:38 AM Ryan’s Price Controls

By Mark Kleiman

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?

[Cross-posted at The Reality-based Community]

Mark Kleiman is a professor of public policy at the University of California Los Angeles.