Kevin Whited takes a look at this absurd proposal from "centrist" Democrat Presidential Candidate Joe Lieberman.

Presidential candidate Joe Lieberman yesterday said he would limit insurance company profits to 2 percent a year in order to reduce the cost of health care. [...]

"I think if you put a reasonable profit limit, which is what this is, a reasonable profit limit, then that will have the effect of lowering costs underneath," he said.

So now the government wants to be able to control what a "reasonable profit" is? This guy doesn't even understand basic economics. Rather than try to explain it myself, I'll leave it to the great Dr. Walter E. Williams, who notes that free markets depend on mutually beneficial transactions.

Market allocation of goods and services depends upon peaceable, voluntary exchange. Under such exchanges, the essence of our proposition to our fellow man is: If you do something I like, I'll do something you like. When such a deal is struck, both parties are better off in their own estimation.

Billions of these propositions are routinely made and carried out each day. For example, take my trip to the grocery store. My proposition to the grocer is, essentially: "If you make me feel good by giving me that gallon of milk you own, I'll make you feel good by giving you three dollars that I own." If my proposition is accepted, the grocer is better off, since he values the $3 more than the milk and I'm better off, since I value the milk more than the $3.

Contrast the morality of market exchange with its alternative. I might go to my grocer with a pistol and propose: give me a gallon of milk or I'll shoot you. Or, I might lobby Congress to take his milk and give it to me. Either way I'm better off but the grocer is worse off.

What Leiberman is proposing is to force insurance companies to sell their product for less than what the market will bear. On the supply side, investors and shareholders would be limited in the profits they can take from the insurance industry. The result will be a decreased demand for investing in insurance as investors put their money into more lucrative stocks. (Would you invest in insurance if you were capped at a 2% return? That isn't even enough to keep up with some savings accounts, or the rate of inflation.)

Of course when investors leave a market, competition will follow suit. With less companies out there providing insurance (less competition), there will likely be higher insurance prices not lower. Of course then the goverment will have to step in again, and spend big tax dollars (seized from "the rich") to bail out the American public.