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N. Gregory Mankiw, distinguished professor of economics and former head of the Council of Economic Advisors to the President (Bush), has just failed economics. In his latest op-ed for the NYT on Obama's preference for public health care, he writes that

"[The President's] economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices."

He goes on to point out the problems of having a government entity providing health care:

"Recall a basic lesson of economics: A market participant with a dominant position can influence prices in a way that a small, competitive player cannot. A monopoly — a seller without competitors — can profitably raise the price of its product above the competitive level by reducing the quantity it supplies to the market. Similarly, a monopsony — a buyer without competitors — can reduce the price it pays below the competitive level by reducing the quantity it demands.... To be sure, squeezing suppliers would have unpleasant side effects. Over time, society would end up with fewer doctors and other health care workers. The reduced quantity of services would somehow need to be rationed among competing demands. Such rationing is unlikely to work well."

Here's the thing, Greggy-boy. All those things you're worrying about? - lack of competition, higher costs, poor service - they already exist in the private sector-dominated American health care system. According to The Economist's devastating review of the regime, Americans are getting health care that is both more expensive and of lower quality than most of the rich world. And the system suffers from lack of competition and poor incentives, to boot. Given the current state of things, it's very possible that a government provider will increase competition. Horrors.

Now Greg Mankiw wrote the book I used for my introductory courses to economics, but it doesn't seem to me that he's been able to escape from the first 5 chapters of his textbook and enter the real world. Those little supply and demand curves that line up nicely for the classic "pizza and beer" examples don't always apply in the real world because in the real world there is market failure. Health care is not, as Paul Krugman has pointed out, a bowl of cherries- that is to say, the economic logic explaining why we don't need government to set up our grocery stores is not the same as economic logic explaining why we need government to set up basic health care (and education, and the military, and environmental regulation, and contract laws, and police services, and...). This has been known to the economics and wider health community for decades.

[Intermission: Brad DeLong pokes yet more holes in Mankiw's flawed thinking.]

Mankiw retorts that "Why! If a public plan was such a good idea, there would be nothing stopping someone from setting it up right now!" You mean, aside from powerful vested interests, an army of lobbyists and a convoluted behemoth of a legislative system? A better question might be: why has the private health sector failed the American people so badly?

I'll give you a hint: the answer is not found in the first 5 chapters of your introductory economics textbook.