Government versus the market

Date posted: May 5, 2011

A major plan was recently released that would significantly reduce both the federal deficit and debt. How is this accomplished? N.C. State University economist Mike Walden responds.

“Well … it’s accomplished by really taking some of the major federal programs that deal with income and medical care, Medicaid and Medicare, and actually converting them into a private program, where the government’s role would be to help people finance the purchase, for example, of medical insurance but not for the government to actually run those programs and directly pay the cost. So this would be what I would call a market-oriented program. This would be very different from what we’ve done with Medicare and Medicaid over the past really 50 years.

“The president, for example, has a program where he says, ‘No, we want to keep those within the government, but the government is going to work with the providers. The government is going to work with its incentives in order to try to reduce those costs of Medicare and Medicaid over the future.’

“So these are really two different approaches. Do you want to try to have the private market control costs through competition? Or do you want to have the government try to control costs through imposing regulations and changing incentives?

“And I expect we are going to have a lot of budget battles in the future. But philosophically — philosophically — this is where the battle is going to be waged, between a market-directed program versus a government-directed program.”

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