By Richard Vedder
Bob Villwock sent me a transcript of parts of President Obama's speech last night that shows two things. First, it reminds us of the president's fundamental ignorance of the gains that capitalism has provided to Americans, gains that made us the richest nation in the world. It helps understand the president's fundamentally socialist tendencies and his contempt for free enterprise and the workings of markets.
Second, the speech draws analogies between private and public universities on the one hand and private and public health insurance companies on the other. The President opines that if public and private universities can coexist and both thrive, the same is true of health insurance --a public insurance option would not destroy, but invigorate and strengthen private insurance.
Before commenting further, let's quote the President directly:
"...the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, it could provide a good deal for consumers...it would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities."
By implying public universities have helped serve to keep college affordable, the President is ignoring decades of factual evidence to the contrary. The university/insurance comparison is silly anyway, since most of higher education is not-for-profit (unlike insurance), and is heavily subsidized by the federal government --per student government grants to ostensibly private Harvard are far greater than at, say, public Illinois State University. The private/public distinction is largely meaningless in higher education. It is precisely the rising governmental involvement that has caused the huge cost explosion in higher education --and in health care. Government is the problem, not the solution.
The notion that government run businesses can offer a better deal because of "overhead eaten up by profits" in the private sector is laughable as well. Despite massive government subsidies (e..g, paying no property taxes or rent on their facilities), the U.S. Post Office is broke and losing market share to far more efficient FedEx and UPS. Government run prisons are costlier than privately run ones. Overhead and administrative costs are higher in commercial enterprises where the political process allocates resources than in such enterprises where decision making is made by profit motives and market forces.
The abysmal ignorance of the president is upsetting. Profits are compensation for the use of capital resources, and serve an extraordinary useful social function-- serving as a signaling device that helps efficiently allocate resources. New investments in newspapers is non-existent because they are unprofitable, but investment spending on innovative Internet information providers is relatively robust because potential profits seem large.
The for-profit university sector offers instruction for less cost to society per student than the not-for-profit sector precisely BECAUSE of profits, not in spite of them. High executive salaries at the University of Phoenix have not kept that institution, or others like it, from offering a service that is rapidly gaining market share despite the enormous advantages the publicly subsidized not-for-profit competition has.