Scaring seniors has long been a staple of Democratic presidential politics. In 2000, Democrats charged that Social Security checks would no longer appear in the unhappy event that George W. Bush was elected president. This year, Senator Kerry is capitalizing on a shortage of flu vaccine caused by the unexpected closing of one of the United States’ two suppliers.

Liberals will try to leverage the incident to bring greater government involvement into vaccine production. Yet, a closer look reveals that the very real problems with vaccine production, for influenza and other diseases, stem from the massive role government already plays.

First, the good news. There’s more than enough flu vaccine in the U.S. to serve Americans most vulnerable to the flu – those over 65 and children six to 23 months. There are 56 million doses of vaccine and 45 million individuals in higher-risk groups.

And if regulators would show a bit of flexibility, nearly everyone who wanted a flu shot could have one. A clinical trial in 2000 showed vaccines effective on healthy adults at half doses. Diluting a portion of the supply could make millions of more doses available.

Vaccination rates in the U.S. have skyrocketed. From 1989 to 1999, the vaccination rates quintupled for adults under 50, tripled for adults ages 50 to 64, and more than double for seniors. Fewer than one in three seniors received a flu shot in 1989. A decade later, nearly seven in 10 did.

These increases are a free-market success story, a tribute to profit-driven production and creative distribution that added drugs stores, supermarkets, and office building lobbies to the traditional doctors offices, clinics, and hospitals as sites to pick up the annual shot.

Yet all is not well in the market for vaccines, influenza, and others. How is it that a minor problem at a single production site can wipe out nearly half of the United States expected supply?

The overall story of the vaccine market—influenza and otherwise—is of massive consolidation due to low profits driven by government regulation, legal liability, and government dominated pricing. In 1957, 26 companies supplied seven common children’s vaccines. Currently four companies account for the total market.

The story’s the same for the influenza vaccine. Three decades ago, companies manufacturing the vaccine numbered in the double digits. By the late 1990s only five firms remained. In 2004, the entire U.S. flu vaccine market depended on a lonely, but brave, pair.

Today’s news is vaccine shortages and higher prices for prescription drugs. But the normal state of affairs is surpluses and low prices driven, in part, by government purchasers who demand large discounts. Like 4th of July potato salad, the flu vaccine can’t be stored for use in the next season. Over the previous three seasons, 27 million doses were discarded due to lack of demand. Wyeth, the last firm to leave the market, lost $50 million.

Regulations keep products off the market. Maryland-based MedImmune Inc. produces FluMidst, a nasal spray flu vaccine. It’s only been approved for use in healthy individuals five to 49 years old. The company could produce 20 million doses but will be lucky to get two million doses passed the regulators and out to market this year. Last year, the company was forced to discard four million doses of its product at the end of the flu season.

And there are, of course, lawsuits. In the 1980s, lawsuits threatened to extinguish vaccine production – including one case represented by John Edwards in which the plaintiff was awarded $5 million. Congress responded by passing a liability reform that effectively required lawyers to seek compensation from the government, financed by a tax on the vaccines themselves. Trial lawyers are extremely creative, as anyone facing million dollar paydays tends to be, and are working on loopholes in this law.

The largest factor is probably parsimonious government purchasers. In 1994, then-First Lady Hillary Clinton spearheaded and Congress passed the Vaccines for Children Program that put the government in charge of vaccinating much of America’s children. Today, government purchases 57 percent of all childhood vaccines, and it demands low prices. Considering the risks, it’s simply not an attractive market for companies.

This history is important to bear in mind when considering John Kerry’s ambitions to increase the role of government in providing health care. As we can see in the example of flu shots, this intrusion distorts the market and can have dangerous side effects.