What is with politicians trying to force consumers through a government-designed exchange to buy services? Everytime I read about the health insurance exchange that the Democratic plan sets up, I get flashbacks to the power exchange set up by California politicians in the late nineties.

Here in California the government “allowed” us to buy our electricity from individual providers instead of a single power company. But those providers were forced to buy all of their power through a single exchange at a single price. How was that supposed to help lower prices or increase service quality?

All an exchange does is ensure high prices and corruption. It increases costs by reducing choices, by increasing the number of middlemen—someone has to be paid to run the exchange and monitor the regulations—and it creates a single point of corruption. And because the exchange is just a series of regulations set up by the government, it inevitably fails at a crisis point.

When that crisis hit here in San Diego, power prices went crazy—and power wasn’t even “gravity-driven” before the power exchanges came into play. Rather than let us choose our power based on service, price, quality, or some combination, we had to go through a company that had to go through a PX that had to conform to strict government regulations. Consumers—those of us that actually had to use power—could only “negotiate” with companies that had no power¹ to set prices or to give us what we wanted.

I remember looking into buying green power. There was a company that claimed to be green; it didn’t provide green power. It couldn’t—all the power was on the other side of the exchange and they weren’t allowed to go there. All they could do was promise to donate some part of their profits to green sources. That was the extent of consumer freedom under the power exchanges.

Like California’s power exchanges, health care exchanges add more regulations; these cost money to comply with. They add more middle-men; these cost money too. They mandate a one-size-fits-all pricing scheme; this increases prices for everyone who doesn’t need that size. It creates a system where we have little to no control over what services we buy. And it creates a massive single point through which all money flows. It’s going to attract corruption on a scale that will dwarf that of Enron’s traders.