The seeming purpose of having competition is to prevent monopoly pricing and excessive profits but, as Steve Keen shows, all businesses use the same pricing model with about the same level of profits. If they did use the pricing model that economists say that they should use they’d actually go broke.
What the market possibly does do is prevent excessive profiteering by private monopolies (a private, unregulated monopoly, actually gets to charge whatever they like – just look at Telecom) although the record profits that the banks are pulling in would tend to indicate that this doesn’t happen. As a state monopoly can, and should, be open to public scrutiny the added complexity and costs of competition aren’t needed to prevent excessive profits. A state monopoly can be run at close to cost.
An insurance monopoly gets the most people in it making the premiums the lowest possible due to economies of scale. On top of that it also precludes the massive duplication of bureaucracy that occurs in a competitive market thus saving costs there. Thirdly it doesn’t have the dead-weight loss of profit in it which further decreases premiums. Fourth, the government, and thus the insurance company, isn’t going to fold like AMI and thus legitimate claims will always be paid out in a timely fashion*. Fifthly it’s going to be completely transparent, the public will be able to see the money’s coming from and exactly where and why it’s being spent – something that just cannot be done with private institutions.
But the most important reason is how it works and it works, not as a large deposit of cash as private insurance does, but as a pay-as-you-go system.
The first advantage in this is that it’s actually very cheap to set up but the main advantage is that it doesn’t have to withdraw a huge amount of money from the economy to cover claims as the private insurers do. This means that that money will stay in circulation and thus help keep the economy going rather than contributing to its collapse.
One other thing, due to the governments ability to create currency there is no need for re-insurers and so that level of complexity and added expense is removed further decreasing premiums.
It is impossible for the private sector, with it’s dead-weight loss of profit, the need for a large stack of cash, and the duplication of competition to compete with this model.
* Extreme events such as the Christchurch earthquakes will still cause problems. You could get paid out but still not have anywhere to live due to there being a lack of builders available. Such extreme events will always need government intervention to get the logistics working.
Draco T Bastard
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