Well, something is in the air. There’s the April 6 issue of Time and that cover story – this recession, or near depression, or whatever it is, will bring an end to the “spirit of excess” that began in the eighties and persisted “like an awesome winning streak in Vegas that went on and on and on.” If you’ve been to Vegas you know such things never happen – the house always wins – but you get the idea, perhaps from silly movies. In this case, perhaps, the house won once again – but in any event they build on the metaphor. Getting through these hard times will be like overcoming an addiction, but we will emerge a more sensible, responsible nation. We’ll get over our gambling addiction, or something like that – we’ll all wear those little coin medallions – Sober for Sixty Days or whatever.
But what we’re told we’ll get over is not the gambling – only the conviction we do need more and newer and shinier and bigger whatever it is we think we want. America has learned its lesson. We’ll turn away from excess – there are signs that this is happening, and they are noted – but not from rolling the dice to see what happens. The item is about consumption of goods and services, with heartwarming stories of volunteerism and community – when you aren’t consumed with owning a new Lexus you have time for such things, and come to like them.
That’s all well and good, but it leaves open the question of how things really work in America – the mechanisms by which people gather whatever wealth, personal time and security they can accumulate. What’s missing is that, if this clearly indentified and carefully documented trend continues, the whole edifice of free-market capitalism will be undermined. A more sensible, responsible nation sounds wonderful – in the abstract. It may be un-American.
The issue is capitalism itself. To thrive, we need the opposite – imprudence, impatience and irrationality. You need to sell more and more to grow, and there’s only so much stuff, and so many services, any particular person needs – you hit a wall unless you get many, many people to buy something they didn’t know they needed, and may not need at all. It’s called creating markets, and of course some good comes out of it – personal computers and safe, over-the-counter antihistamines and so forth. But you also get six-thousand dollar handbags and that plastic trout that hangs on your wall, and talks. All the stuff in-between – no one knows what to make of it all. Much of it is good, and necessary – but much isn’t, depending on who you are. Buying this that or the other thing may be, to you, sensible and responsible – those expensive running shoes, for example. Someone else might see those as a needless, frivolous whim on your part, or something you want only because you’re horribly insecure, or because you’re a stupid sucker, or because you’re just strange. But it’s a free country, so buy what you think best, and rest assured you are keeping the economy from stagnating then collapsing – even if someone thinks you’re dumber than a rock. Tell them you believe in free-market capitalism, and they’re a damned communist.
Yes, free-market capitalism has its flaws, but it is still the best system devised by man – or stumbled upon by chance – to provide the greatest good for the greatest number. There has been some scholarly disagreement about that recently, arguing free-market capitalism could use some tweaking, but it is our system – and we think it should be everyone’s. We’ll impose it if we must. At the height of the Cold War that Khrushchev fellow said communism would bury capitalism – but he was a fool. People want to make money and buy foolish things that make them happy – and they don’t much care for sharing. And now we’ll bury anyone who doesn’t believe that basic truth about human nature. We won the Cold War, didn’t we?
And we like our free-markets – no nanny-state imposing onerous regulations, just a few to weed out the frauds and cheats. No one tells us what to do. And we try to keep the government out of things as much as possible. In fact, we have become a nation of market fetishists puritanically opposed to what we call moral hazard. Of course a market fetishist has that thing for that Invisible Hand that Adam Smith conjured up – if everyone greedily works hard to get all the goodies they can, in an open market with few or any rules, those who produce all the goodies, for profit, will compete with each other to provide the best possible products at the lowest possible cost, and the Invisible Hand of Competition will assure the greatest good for the greatest number, and at the lowest possible cost. It’s way cool. Let things be – never intervene – and the market will fix everything.
As for moral hazard – that’s what happens when you interfere with the process. The government intervenes, and when it does – providing things for its citizens, from common funds for the common good – that not only obliterates all the efficiencies that an open market provides, it makes people think they’re owed something. That might mean unemployment benefits or welfare in hard time, or basic healthcare. When they do think they’re owed such things, as a right, they just stop being adults – they’re little kids saying give me this, and give me that. That undermines the whole system. The system depends on competition, not entitlement. When people have to compete against each other for everything, grabbing as much as they can in a system with few rules, it makes them better people. It makes them self-reliant adults who contribute the whole system, by acting only in their own self-interest at all times. What could go wrong?
And it’s the opposite of communism. That failed. Although, one of Andrew Sullivan’s readers says this:
One of the most powerful lessons of history was certainly played out in the forty-three year period between the end of World War II and 1988. By the end of that time, it was completely obvious that people living under communism were not doing as well as most people living under some form of capitalism (at least in Europe). This became well known to the folks living in Eastern Europe and the former Soviet Union, and contributed greatly to the downfall of communism, among other factors.
For the last twenty-one years, we have been following a similar social experiment between different styles of capitalism: more regulated and less regulated. Several western countries including Ireland and Iceland, as well as some of the Baltic countries, got rid of many regulations, particularly regulations regarding finance. For a while, their economies were shining stars, but now they are a mess. The US and Britain, the least regulated large economies, are now suffering greatly as well from the financial bubble – while Old Europe (to steal a phrase from Don Rumsfeld) is not nearly as affected by the recent debacle.
Sullivan adds this:
Are we beginning to learn another one of history’s lessons?
Old Europe didn’t make a fetish of the Invisible Hand. Adam Smith was interesting and all, but there was no reason to get all crazy about such stuff. They regulated things far more than we did, and while recognizing moral hazard, decided that some things should be basic rights – one of them was free access to healthcare, for everyone, with no exceptions, with everyone chipping in. That – and all the other social safety nets developed over the years – invariably soften the blow of a massive recession, as we seem to have now.
And that worries some people. We didn’t go that way. That might have been a mistake. The more people begin to sense that it was a mistake the more free-market capitalism is in danger. And people naturally try to find a way to save the whole free-market idea, while conceding the mistake.
Marc Ambinder explains here:
The first 100 days of the Obama administration will be and have been consumed with the economy and the budget; the second 100 days will feature, among other things, a significant and detailed negotiation with Congress on health care reform.
To start the process, the White House has two major options. Either they could push for a significant expansion of government-run programs, or they could ask Congress to use money from the health care reserve fund to pay for the premiums of Americans who don’t currently have insurance. The former would represent a departure from the employer-based system; the latter, which would include significant new restrictions on the insurance industry, would preserve, for the time being, the system’s status quo. Politically, the target is moderate Democrats and independents. Legislatively, the goal is to get insurance companies and business lobbies on board, early.
Timothy Noah calls this Lemon Capitalism:
In a March 26 press conference, House Speaker Nancy Pelosi said that health care reform “should have a public option in it for it to really be substantial.” This statement puts her more strongly behind creating a new government health insurance program than President Obama, who proposed such a program during the campaign but mostly avoided discussing it and has lately been cagey about how hard he’ll fight for it.
Five Senate Republicans, including Minority Leader Mitch McConnell and Charles Grassley, ranking member of the Senate finance committee, have put Obama on notice that they will oppose any health care reform that includes a public option because, they fear, private health insurers will not be able to compete with a government health insurance program.
They’re probably right about that. It might be worth losing sleep over if private health insurers were today doing a halfway decent job of keeping costs down and/or providing an acceptable level of coverage to policyholders. But they aren’t.
Noah goes on to discuss “the severely dysfunctional market for private health insurance.” He finds it odd that conservatives are finally willing “to concede that government health insurance programs like Medicare and the State Children’s Health Insurance Program are superior to their private counterparts both in delivering benefits and in keeping costs down” – but also saying because that is so any healthcare reform really hurt private health insurers, and we cannot have that, as they’re important and necessary. He reflects on March 24 – before the Senate health, education, labor, and pensions committee, Ronald Williams, chairman of Aetna, explained “how terribly unfair it is for private health insurers to compete with government programs.” They just provide more at lower cost. That could drive Aetna and the rest out of business, and then, where would we be?
So the trick is to create a public option while “maintaining a level playing field for private insurers” Noah cites a number of position papers that argue that any new government program should be forbidden to achieve cost savings by exercising its market power. Instead, healthcare reform “should pursue cost savings through alternative strategies.” No one can name those, and Noah says this resolves to nonsense:
Given that a key argument for health care reform is that it will curb galloping medical inflation – and given that to whatever extent it fails to do so, reformers will be forced to ration care, which could prove programmatically difficult and politically explosive – any attempt to diminish savings from reform merely to put a smile back on Ronald Williams’ face strikes me as perverse.
We’ve been here before. When Congress extended drug benefits to Medicare recipients, it prohibited, at the insistence of the Bush administration, any negotiation over drug prices. Republicans continued to block legislation reversing this prohibition even after it was demonstrated that, for the top 20 drugs prescribed to senior citizens, the median price difference between what Medicare paid and what the Veterans Administration paid (the latter being free to negotiate volume discounts) was 58 percent.
How did this come to be? Noah suggests this:
The reasoning was (and remains) that holding the line on government spending is socialism. Letting the government pay in excess of the market price is capitalism. Surrendering to such Alice in Wonderland reasoning is insanity.
On healthcare, I fear that restraining costs means rationing in the end and expanding the power of the public sector in ways that will reduce patient choice and slow innovation and research. At the same time, I can see that the combination of our current expectations and the revolution in medical science will mean huge increases in spending which, because healthcare is distributed through third party insurance, is very hard to curtail without more government.
But Obama is right to ask back: so what do you propose? … On healthcare, I’m not so sure. It’s hard to oppose the upgrade in information technology as a cost-saver. I can see the merits of getting more people insured. As long as any reform is careful to prevent the private sector being squeezed out of business, I’m open to persuasion. But I’m more cautious on this than most, I guess. I value the private healthcare system in the US – that, for all its faults, has innovated medicines that have saved my life.
His readers voice dissent. One of his readers accuses Sullivan of having the same “ingrained automatic conclusion by market fetishists that the private sector does innovation better than the public.”
That may not be true, as this reader cites an item in the New Republic:
The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities). The majority of that money pays for the kind of basic research that might someday unlock cures for killer diseases like Alzheimer’s, aids, and cancer. No other country has an institution that matches the NIH in scale. And that is probably the primary explanation for why so many of the intellectual breakthroughs in medical science happen here.
This reader comes to this conclusion:
So while the private sector is concentrating their medical research money on creating hair or hard-ons, hell bent on finding the next ‘lifestyle’ drug that doesn’t actually save any lives but rakes in the dough, the public sector is spending on the basic research that creates real medical innovation. I’m quite sure that some of the retroviral treatments you need were the product of the private sector. I’m equally sure the majority of the basic research paving the way to those medicines was financed by public funds and conducted in public institutions.
Two-thirds of pharmaceutical research is done by the private sector. There’s no question that they cannot replace the NIH – but their research should not be dismissed as hair and hard-ons. Their work is more geared to treatments for specific diseases, and is vital.
So a second reader says that’s bullshit:
Your counterargument misses the fundamental point. The basic research is what fuels scientific discovery and medical innovation. This is where people like McCain and Palin showed their real ignorance (or real cynicism) when they mocked fruit fly research. What they failed to grasp, or pretended not to grasp for political gain, was that fruit fly research is responsible for almost all of the developments in the field of genetics in the last 50 years.
Here the idea is that the market does not work, as money directed at a specific disease or a particular cure is pretty much wasted:
NIH and just about every unbiased medical and scientific authority agree that breast cancer charities and other disease charities are essentially a waste of time from a scientific standpoint. First, they don’t generate nearly enough capital to make a difference. Second, they are too narrow in scope to ever achieve anything approaching a groundbreaking discovery. Human health would be greatly improved if bureaucrats, special interests and politicians would stop trying to direct research and let those who are qualified determine the most promising areas of research upon which to focus. It is far more common for basic research to lead to unintended discoveries that greatly improve drugs and treatments for specific diseases than it is for research focused on a specific disease to provide a medical breakthrough.
And this reader says the claim that “two-thirds of pharmaceutical research” is being done by the private sector is misleading. One should not confuse research with product development:
Private sector pharmaceutical product development is severely limited in its scope and seeks only to find a profitable widget. As a person who has worked at a number of medical device and pharmaceutical companies, I can tell you that you have no idea the number of promising drugs/treatments the private sector develops that are scrapped because the margins aren’t good enough. The private sector cares only if the drug/treatment is effective and safe enough to be approved and profitable enough to be worthy of development. Scrapping a vastly superior drug/treatment that might not have the same profit margins is not seen as anything but good business to them. It’s not uncommon for pharmaceutical companies to buy promising startups just so they can shelve potential treatments that might compete against their mega successful drugs. Now, obviously, I’m speaking in generalities and not every pharmaceutical executive or company behaves in this manner, but this is standard operating procedure for the vast majority of pharmaceutical companies.
So you can widen that to healthcare in general:
Even if we had a public healthcare system, there would still be a profit incentive for private companies to develop drugs/treatments. Those of us who could afford private care could still receive it, and those who could not afford it would also have access to treatment. It’s great that pharmaceutical companies have developed HIV drugs that have kept you healthy and alive. The world is far better with your rational voice in it. But are you willing to state that because of your economic status you are more deserving of life-saving retro-viral drugs than someone who is economically disadvantaged? This is the reality of our current health care system.
While the current system might make the private sector larger profits, thereby fueling a smattering of better drugs/treatment, it does so on the backs of those who are dying because they cannot afford the drugs/treatments they need to stay alive. Public healthcare might lead to less profit motive for the private sector and fewer drugs/treatments developed, but it would do so while ensuring that everyone received access to life-saving healthcare, and theoretically, would save the government a substantial amount of money that could be given to NIH to fund more research which would more than make up for any decrease in private sector productivity.
The core issue is whether we can treat drugs as products like any other, i.e. products that are restricted by price. This means that the poor will get worse treatment than the rich.
As long as basic care is guaranteed, I can live with the inequality, and I do not see the government’s role as ending it.
The poor will get worse treatment than the rich. He’s fine with that. What more do these people want?
At lest they won’t face a moral hazard – being given something they didn’t earn.
There are, as they say, a lot of needles to thread here. Time magazine, invoking Las Vegas, may assert that we, as a nation are changing. Not really. We still have that market-fetish thing going strong.