Profit is BAD – Sharing is GOOD


Kurt Bouwhuis, Mackinac Center Intern

Here is a video I found on Michigan Liberal this morning that is rather interesting.  Although I enjoyed the graphics and short duration, it is a bit misleading and completely leaves out the notion of unintended consequences or the effects of current government regulations on our health care industry.  Aside from disregarding the complex web of government regulations that shape the industry we have today, the clip assures us that eliminating profits is a good idea.

The creator of this short clip suggests that profit is an added expense that could be used to provide more people with health care.  It seems plausible, but what purpose does profit serve? Aside from encouraging entrepreneurship and risk taking, it tells producers what people want. For example, suppose I am a the CEO of a medical insurance company with low deductibles. Additionally, suppose a new competitor enters the market and offers a high deductible insurance at a lower cost. Some consumers will likely choose to buy less of my insurance and more of the other insurance. These consumer choices become translated into a loss my insurance company and a profit for the new competitor. This economic activity is dynamic and guides the production of goods and the elimination of others.  Unfortunately, it is impossible to eliminate profits without eliminating the vital role it plays in conveying information between producers and consumers.

In the clip, Medicare is said to be a model program – The problem is, the future obligations are trillions of dollars in the red.

The “rationing” by private insurance companies could easily be reduced by competition (that is currently being restricted by government regulation).  If a company chooses to ration too much, a consumer could easily choose another company.  If government chooses to ration, consumers will have no choice but to stick with the government monopoly.

As a funny side note, the clip tells us to imagine what the world would be like with private fire insurance.  It is quite an easy world to imagine here in the United States because we have private fire insurance.  We do, however, have public fire protection.

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