According to the Whitehouse website, the President's new healthcare proposal, announced today, includes a number of changes, such as:
"Improving insurance protections for consumers and creating a new Health Insurance Rate Authority to provide Federal assistance and oversight to States in conducting reviews of unreasonable rate increases and other unfair practices of insurance plans."
Think back to chapter 3, supply and demand. When the government keeps the price of a product below its equilibrium level, what does that lead to? Shortages.
But what if we think the original price is "unreasonable" and that the government-mandated price is "reasonable?" Does that change the consequences that will follow? No.
There is a bright side, though. Ten years from now economics teachers will have more good examples of the unintended consequences that result from government interference with the price mechanism.
