Tuesday, July 28, 2009

Do You Trust Markets?

Greg Mankiw has a nice post on trust in response to Paul Krugman's views on the government's role in health care. An excerpt:

I tend to distrust power unchecked by competition. This makes me particularly suspicious of federal policies that take a strong role in directing private decisions. I am much more willing to have state and local governments exercise power in a variety of ways than for the federal government to undertake similar actions. I can more easily move to another state or town than to another nation. (I am not good with languages.)

Most private organizations have some competitors, and this fact makes me more comfortable interacting with them. If Harvard is a bad employer, I can move to Princeton or Yale, and this knowledge keeps Harvard in line. To be sure, we need a government-run court system to enforce contracts, prevent fraud, and preserve honest competition. But it is fundamentally competition among private organizations that I trust.

This philosophical inclination most likely influences my views of the healthcare
debate. The more power a centralized government authority asserts, the more worried I am that the power will be misused either purposefully or, more likely, because of some well-intentioned but mistaken social theory. I prefer reforms that set up rules of the game but end up with power over key decisions as decentralized as possible.

What puzzles me is that Paul seems so ready to trust solutions that give a large role to the federal government. (In the past, for instance, he has advocated a single payer for healthcare.) I understand that trust of centralized authority is common among liberals. But here is the part that puzzles me: Over the past eight years, Paul has tried to convince his readers that Republicans are stupid and venal. History suggests that Republicans will run the government about half the time. Does he really want to turn control of healthcare half the time over to a group that he considers stupid and

These thoughts, I appreciate, are broad generalizations. They don't immediately lead to a specific set of reform proposals. But I wanted to give Paul credit for a key insight: A central question in this and perhaps other debates is, Whom do you trust?

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