Sunday, August 16, 2009

Mankiw's illustration of the danger of a public option

Mankiw makes a key point that is worth keeping in mind as Obama appears to propose a "public option" without subsidy:  they can still be subsidized without making it official. The best illustration of this is the highly salient example of Fannie Mae and Freddie Mac.  These entities enjoyed an implicit subsidy that allowed them to crowd out private firms from the market with disastrous consequences.

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