Megan McArdle has a post up grousing about how ‘but we have rationing already’ arguments are facile. Pardon me for not seeing her point (although I am willing to concede there may be overuse of the term, as we shall see). Let’s say the rationing in question is some guaranteed minimum coverage (public option). Obviously minimum is not maximum. That’s what people mean when they call it ‘rationing’, and that’s an ok use of the word. But lets start by noting that, paradigmatically, rationing needs two elements: it provides a minimum for everyone in a group by forbidding anyone from getting more than a certain maximum. Rationing means using the latter mechanism to ensure the former result. In that sense, the proper thing to say is that the guaranteed minimum coverage doesn’t really involve rationing.

Suppose, instead, we were talking about a guaranteed minimum income (as was proposed in the 70’s, and as such free market luminaries as Milton Friedman thought made a certain amount of economic sense, if memory serves.) Lots of folks would be opposed to guaranteed minimum income today (to put it mildly), but would anyone say a guaranteed minimum income was bad economics because it would amount to ‘rationing of the money supply”? And fiat rationing (as McArdle says) is inefficient. I don’t think economists would see this as a problem. Why not? Because there is no reason why the volume of money overall should be a function of – critically constrained by – some minimal income provision. That’s just not how the money supply would be determined: there wouldn’t be some iron economic law that there couldn’t be more money than everyone times the minimum. [click to continue…]