Thursday, November 12, 2009

Picking Your Argument

Paul Krugman despairs of the lack of “rational political discussion” in a post Tuesday, in which he refers to a statement by Dick Armey that compares the “health care reform bill” to the banking crisis.

Armey claims, “We saw what happened in housing when they ordered banks to make loans to people who weren’t qualified,” and Krugman quite properly tears his hair out about the idiocy of that argument. He points out that the vast majority of the bad lending came from places not subject to the Community Reinvestment Act, and says that the claim that government forced that bad lending is completely spurious.

Krugman’s criticism of Armey’s odious critique of the “health care reform” bill is correct as far as he goes, but what Krugman fails to acknowledge is that while the cause is bogus in Armey’s comparison, the comparison of effect is actually quite valid.

Whether the bad lending was voluntary or by fiat, it did occur; lenders adopted the position that they would make a mortgage loan to anyone who walked in the door and asked for one. They would not be selective, they would not be concerned with whether or not that loan would be profitable; they would simply grant mortgage loans indiscriminately.

Krugman doesn’t address the issue that this “health care reform bill” of which he is so strongly supportive requires that all health insurance companies adopt that same business model.

Actually, it’s an even worse model. The mortgage lender always had a chance, however poor, that the mortgage might be paid. Under this reform, if a person walks into an insurance company with a health condition that costs a million dollars per year to treat, that company must sell insurance to that person knowing that it will lose a large amount of money on the sale.

How can such a business model fail to have negative consequences?

I’m not suggesting that the health insurance industry is not in need of reform; it certainly is. It is, however, in need of sensible reform, not just unthinking reaction to consumerism.

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