The Postal Service offers another instructive lesson. When it periodically starts running deficits (as it is now) and proposes cost-saving measures like eliminating Saturday delivery or closing tiny post offices, Congress often intervenes under pressure from predictable interest groups like bulk mailers, the 600,000 postal employees, and the users of those tiny offices.

More generally, it is hard to find examples where government-run businesses compete with private companies and win. One reason is that governments are not very good at innovation. As the great 19th-century economist Alfred Marshall wrote, “A government could print a good edition of Shakespeare’s works, but it could not get them written.”

But what about the often-stated fact that Medicare has much lower operating costs than private insurance companies? Won’t this allow the public option to compete successfully? As Victor Fuchs, the dean of American health economists, recently argued in The New England Journal of Medicine, this is not an apt comparison because the new public plan would have marketing and other administrative costs that don’t apply to Medicare with its captive market.

ALL of this leads me to conclude that if we impose sensible rules on the public option, it will neither save nor destroy the health care system because it will simply not get much market share. And if we do not impose those rules, the public option will hurt rather than help.

So here’s some free advice to members of Congress: While you are enjoying your August recess and town hall meetings, instead of arguing about whether to have a public option, argue about the ground rules.

To the Republicans, I say this: If you can get real assurances that the public option has to break even, and that it will get no special deals from suppliers, let the Democrats have it but ask for concessions on tort reform in return. (That could actually save some money.) The resulting public plan will be too small to notice.

To the Democrats, I say this: If you want competition in health care, you won’t get it if the public option can make deals its competitors can’t. So either give the Republicans hard assurances that the public option would have to break even and not get special treatment, or, better yet, just give it up to ensure that some useful health care reform is passed. A public option is neither necessary nor sufficient for achieving the real goals of reform, and those goals are too important to risk losing the war.