The Profit, Obama
We can all agree that the first presidential debate’s main takeaway is that Mitt Romney is the lyingest liar that ever lied. If America got a nickel for every lie he told in that debate, the deficit would have been closed by the time he dropped that guillotine on Big Bird.
Stunned by such rampant dishonesty, President Obama had to do everything in his power not to lapse into a southern dialect and start ranting about how George Bush doesn’t care about black people. The president must also have been woozy from inhaling the billowing smoke from Romney’s on-fire pants, because he let loose the single dumbest line of the night, which betrayed a complete ignorance of the role of incentives and what profit actually signifies in a free economy.
But first, here’s the line he set it up with:
Jim, if I — if I can just respond very quickly, first of all, every study has shown that Medicare has lower administrative costs than private insurance does, which is why seniors are generally pretty happy with it.
As Avik Roy has helpfully laid out, this is so false Mitt Romney could have said it. Here’s one reason:
First, other government agencies help administer the Medicare program. The Internal Revenue Service collects the taxes that fund the program; the Social Security Administration helps collect some of the premiums paid by beneficiaries (which are deducted from Social Security checks); the Department of Health and Human Services helps to manage accounting, auditing, and fraud issues and pays for marketing costs, building costs, and more. Private insurers obviously don’t have this kind of outside or off-budget help. Medicare’s administration is also tax-exempt, whereas insurers must pay state excise taxes on the premiums they charge; the tax is counted as an administrative cost.
Now for the money line. If it wasn’t so clear that he had succumbed to altitude sickness, the following argument would make us question if Obama really was the smartest man to ever hold the office:
And private insurers have to make a profit. Nothing wrong with that. That’s what they do. And so you’ve got higher administrative costs, plus profit on top of that.
“That’s what they do.” Those greedy SOBs in the private market just can’t help themselves! And Obama’s faux nonjudgmentalism channels the famous Seinfeld line, “Not that there’s anything wrong with that!”
If one takes this mindset to its logical end, government should control all resources and sell it to the people as needed. Without having to worry about “profit on top of that”, costs would drop across the board, right? Only if you assume “profit” is simply another line item on a bill, similar to “parts” and “labor”.
But we know it’s not, one reason being that the phrase “out of business” exists. Companies don’t declare bankruptcy because they refuse to lower their profits; they’re forced to shut down when competitors figure out how to more efficiently meet a customer’s need, either by lowering cost or improving quality. Profit is simply a measure of that efficiency.
Likewise, the profit motive is the incentive to create that efficiency. In a government controlled market such as Medicare, the only limitation on prices is the ability to convince the populace that they’re reasonable. When the true costs are masked by government accounting, that becomes a fairly easy task. However, in a free and dynamic economy, businesses are forced to find efficiencies in order to survive. Necessity becomes the mother of innovation, and we all benefit.
And that’s also the story of last Wednesday night’s debacle. Obama spent the previous four years intellectually unchallenged, either by the delusional media or fawning crowds, and had no incentive to sharpen his arguments. Romney, on the other hand, had to compete with multiple Republican challengers and an adversarial media on his journey to the debate stage. When they finally clashed, Romney, representing the party of the private sector, described a compelling vision for the country in a 38 minute performance jam-packed with style and substance, facts and figures. Obama, representing the party of government, said much much less… and took 4 minutes longer to do it.