I fail to understand why any economist (Nobel Prize or not) can say with a straight face that "the public option" is competition for the private insurers. And Krugman says it, again and again.
A marketplace with competitive entrants, is one in which success or failure exists. Think of a competitive footrace (well, one without Usain Bolt!). Someone comes in first, someone in second, someone in third, and the rest are not named presumably to be counted as losers (except of course that any loser in such a race is faster than 99% of the general population). Failure is an option; in fact it's guaranteed for all but the top three medal winners.
In a marketplace with private insurance companies, any of the companies could go out of business at any time. In a free market system (which ours barely approximates) you have profit and loss. You have success (growth in market share, growth in profits), and you have failure (loss of market share, loss of income). Ultimately, if a market participant loses all their income, they go bankrupt.
Does anybody think the public plan for insuring people would ever lose all its income? Go bankrupt?
I thought not.
So I ask you again, how can any economist say that a company which is guaranteed not to fail be competing with companies that can fail? The obvious answer is: they're not competing; they're not even participating in the same market.
And that puts paid to Krugman's assertion that the argument against the public option boils down to the fact that it's a government program (his emphasis). No. I argue against it because it cannot fail. Without the discipline of potential failure, the program will never succeed, either.