‘Tis the season to bemoan crass capitalism. But we should think before joining that chorus.
Markets are wonderful things; as Adam Smith explained many years ago, the “invisible hand” channels self-interest toward socially desirable ends. Market competition has given us better goods at lower prices, and has demonstrably been a “rising tide” lifting many boats.
Why, then, is America’s capitalist economy generating so much criticism? What is the cause of the country’s growing and very worrisome inequality?
Two reasons are pretty apparent.
First, the system we currently have in the U.S. is not market capitalism. It is corporatism. Corporatism has been defined as the organization of society by major interest groups, specifically corporations. It isn’t exactly a secret that the last thing many of our captains of industry want is genuine competition. The legions of lobbyists sent to Washington and state capitals are not arguing for open markets; they are vying for competitive advantages and taxpayer subsidies.
The second reason is less obvious, but no less consequential. Markets don’t work for everything.
In the areas of the economy where market competition is appropriate—in the production of consumer goods and services, most obviously—markets operate as Smith’s theory suggests. But as every student of economics learns, there are areas where competition is unworkable.
Historically, for example, America has regulated utilities, and (at least since Teddy Roosevelt) tried to prevent domination of a market through monopolistic practices. (As technologies and markets change over time, these categories may shift, and it isn’t always clear that our governing institutions keep pace, but that is a subject for another day.)
What doesn’t change, however, is a foundational premise: In order for a market to function, there must be a willing buyer and a willing seller, both of whom are in possession of the necessary relevant information. When there is a significant and unavoidable asymmetry of knowledge or information, a true market cannot exist.
Health care is the poster child for that asymmetry. Not only does the consumer lack the information and expertise necessary to “shop” for a seller/provider, the realities of illness make it likely that she will lack the time needed to evaluate her options. Add to that the way in which the health insurance industry has developed, with “in network” and “out of network” providers, and you don’t have to be an economist to recognize that market principles are simply inapplicable.
Most Western nations came to that conclusion many years ago, and most have national health care systems. Here in the U.S., even the modest movement toward government-insured access to health insurance has met with hysterical resistance—and lots of rhetoric about creeping socialism and the superiority of markets.
The immorality of this refusal to make important distinctions was most recently highlighted by the actions of one Martin Shkreli, who bought the rights to a drug and raised its price 5500%. As several commentators noted, America is the only developed nation that lets drug-makers set their own prices — maximizing profits the same way that sellers of chairs, mugs, shoes, or any other seller of manufactured goods would.
Shkreli’s behavior underscores the irrationality—and yes, the immorality—of America’s healthcare system, where corporations set our public policies and insist upon market principles in an area where, by definition, genuine markets cannot function.
The moral of this story: don’t blame capitalism. This isn’t it.
How do we separate capitalism for sheep?
Andy has the right idea. The Gary Varvel’s far-far-far-right so-called “cartoon” in the Star today is an excellent example of GOP misleading their voters. One of my sons made good money but always seemed to be in debt; a friend’s simple comment summed it up and it applies here, “He knows how to make money but he doesn’t know how to manage money.” Look where our tax dollars are going and look where our tax dollars are needed. With the GOP in charge, “Never the twain shall meet.” If I misused my meager income the way Congress misuses our billions – or is it trillions – in tax dollars, I would be one of those homeless with a stolen shopping cart holding my few belongings.
Don’t start telling me that the government’s budget is different than that of the general public; the basis of both is to put what assets you have where they are most needed first – then play if you have any leftover which the government refers to as “surplus”. Capitalism would work quite well and the majority of Americans would not be earning and trying to live on less and less while the 1% is flying high as the infrastructure continues to collapse, education and medication takes a second seat to keeping a roof over our heads and food enough to survive.
“THE PROBLEM ISN’T CAPITALISM” The problem is our current privately owned Congress.
The “invisible hand” is the only part of Smith’s work that the republicans acknowledge. He defined the role of government to be making risk acceptable. They would have us remove all risk from business and put it to the taxpayers. Democrats have been complicit in this as well when the big banks were bailed out. Any bank that is too big to fail should be too big to exist.
If the problem isn’t capitalism, why is it not working? You do not have to travel far, Sheila, to see that most boats have not risen in this capitalistic society. Come to my neighborhood and take a real look at what modern capitalism has wrought. Look at the poor, the homeless, the hungry. Check out the losers in the competition for what use to be plenty. Not there now as we have squandered our resources, including people who did not look like the majority so it was OK to ride rough shot over them for generations. Now, so many decades after Adam Smith, the world population has pushed that capitalistic competition into an ugly, greedy, corrupt system where only the least moral are winners.
Actually, the problem is capitalism! Read the famous article from Albert Einstein called, “Why Socialism”.
He called capitalism, “evil”, and for good reason. Don’t panic, he also called communism evil as well.
The problems he predicted with our economic system have materialized 70 years later with outstanding accuracy.
This whole idea of winners and losers is absurd and goes 100% against our human nature. We are social creatures, yet our economic system teaches us to thrive on individualism.
Another area where capitalism fails is it assumes infinite resources. Sorry, but resources are being depleted and we’re negatively impacting our environment, but don’t expect Wall Street to change. Analysts demand profit growth and CEO’s oblige.
Alternative economies are already forming. We need to realize we live on one globe which supports ALL life. We need to plan better, but capitalism doesn’t allow for it.
Yes, Todd. Exactly!
An excellent summary, Sheila! For anyone interested, read Matt Ridley’s 2015 book “The Evolution of Everything”, which has a very compelling chapter on the Evolution of the Economy.
Capitalism is being abused and misused; it will work if properly applied rather than wasted and benefiting only the affluent in this country.
If you are not aware; Bernie Sanders is NOT on the Indiana presidential primary ballot. It is important to find the post on Facebook to add your signatures before January 15th or this entire state and those who support him will not be allowed to vote for his nomination.
JoAnn – What??? I did not know that Bernie Sanders would not be on the ballot. How can our state choose to eliminate a candidate from the ballot?
Whenever I discuss healthcare and insurance concerns with friends and family I remind them that to understand why it works the way it does in the United States you must accept that YOU, your health and wellbeing, are the commodity being sold. Again I say YOU are the commodity being sold. Moreover you are BY DEFINITION the last involved party to be able to offer input to the decision matrix in the majority of cases. The priority list most often goes: insurance, doctor, you. That’s because the system takes priority and the exception to that only comes if your finances are such that you need not obey what your insurance tells you you may have. Our system is by definition distributed based on financial means not what is best for the patient. And when costs get out of control why the insurance company sure isn’t going to pay more and of course the doctor will still get paid so you Mr./Ms. Patient will make up the difference even though you have the last voice in the decision process…well, unless you just do the system a favor and say you’re not going to seek treatment. Yes, why don’t you just do the right thing for the cost to all of us and not get treatment Mr./Ms. Patient? Thank you, you’ve kept our costs down. Add to this that taxpayer funded research contributes in part to medical advances, the products of which are sold or licensed to for-profit companies who may then deny access to the medical advancement based on financial fitness EVEN THOUGH Mr. And Ms. Patient’s tax dollars helped pay to make the discovery/advancement. Yep, capitalism. We’ve never sat down as a country, talked to each other, and asked ourselves if access to healthcare is indeed a right. A right for ALL people. We’ve never ever had that conversation in earnest and until we do we’ll keep answering the question by asking if you can pay not if you need something.
What Peggy said
You can not get a straight answer from any billing department in any medical arena when it comes to prices. Neither the insurance companies, nor the hospitals, nor the medical supply companies will tell you correctly and consistently what anything costs or what your part will be. It is an incredibly inept, corrupt system we have here, and most people never get any benefit short of catastrophic since the deductibles are so exorbitant. Meanwhile your Pharma shareholders make out like bandits, and the filthy rich pay disgracefully low taxes. Doctors, nurses, and researchers deserve good pay, but that isn’t what has blown the system up. Making health care for profit is insane.
Nancy; the Facebook post lists 8 states, including Indiana, who do not have enough signatures to put Bernie on the presidential primary ballot. On Facebook go to Shelly Pineo-Jensen page or go.berniesanders.com/page/signup/ballot-access-petition-sign-up
I have been sharing the page on Facebook; glad I thought to add it on Sheila’s blog to reach others.
Nancy – To become a candidate on the state-wide ballot, one has to collect the signatures of 500 registered voters in each congressional district. Apparently Sanders’ campaign is still collecting those signatures in order to get on the ballot here.
I am of the opinion that Adam Smith’s bottom line, willing and informed buyers and sellers in competitive markets, defines democracy. Those conditions work because consumers, like voters in a democracy, determine the market to be satisfied.
So what worked for us for decades was the combination of democracy and capitalism and informed voters/consumers.
All required maintenance and rigorous defense which we failed to do.
The domestic enemy we did not defend against much less defeat was the spread of untruth through mass media. That did in both democracy and capitalism and created the megaliths that now control everything.
If memory serves one of the imagined conditions in “1984” were pervasive political loudspeakers in every public place delivering the products of the Ministry of Truth. Well? We have allowed that. Encouraged it even with television and radio.
So consumers and voters are today largely misinformed. In fact we are fully immersed in a culture of misinformation designed to pervert both democracy and capitalism.
Diagnosing that was easy, curing it is hard.
We avoided the trap for many decades because of the former limitations of communications technology and also through the assumption that nothing was simple or black and white. Businesses were to make money AND be good citizens. Journalism was an adequate paying profession that served truth as it’s primary calling. Politicians were diplomats and statesman first and constituency servers second. Form FOLLOWED function.
The world got complicated faster than we got capable of complexity and critical thinking and we were overwhelmed.
One possibility is what computer geeks call a hard reset. A traumatic do over.
Another is that we shake off the blow to the head and work on recovery.
I have no idea if we are collectively capable of rising to the occasion.
I certainly hope so.
Adam Smith’s “invisible hand” has been taken as fact in some circles. It is so powerful that they actually believe “The Market” is supremely infallible. Oh there are booms and busts, but this is attributed to Market Corrections, that is the system bringing itself back into harmony. What they fail to account for is that humans can and do manipulate this market or system.
Not only are there the manipulators themselves the government can step in to pick the winners and losers via Crony-Capitalism. Comcast was given a territory monopoly here in Indianapolis, but unlike the Utilities there is no price control. Our corrupt campaign finance systems provides the vehicle this.
Only one candidate Bernie Sanders is championing Medicare for all. The Republicans want to eliminate ACA, and some even mumble about eliminating Medicare and Medicaid. What they want to replace it with is some foggy Market based plan. Hillary wants to “improve” ACA but again her plan relies on a Market based plan.
Pure capitalism will produce the most efficient outcome. It will generally not produce the most equitable outcome. So even if we had pure capitalism, we would not be happy with the result. The whole “free markets” argument of the right wing is essentially a straw man designed to avoid the more difficult questions of equity.
Why hasn’t the Democratic Party been repeating this over and over for the last 30 years?
We are to the point that the Republicans have effectively crippled public education to prevent any potential awakening of the masses. They have the massive advantage of having their basic messages play perfectly into ignorance and thoughtlessness. Meanwhile the head of the DNC runs the party not to achieve victories for progressive ideas, but to achieve short term political victories and to curry favor. I would like to be hopeful, but I see no reason to be.
I have a Russian friend. I asked him once what would happen if I visited Russia and got sick. What I had in mind was how payment for treatment is handled, given their socialized health care. He said that the doctor’s first priority would be to cure me, whatever it took, and that cost would not be an issue because Russians who become physicians do so because of the desire to cure illness and prevent death. He explained that physicians in Russia do not become wealthy like physicians in the U.S., and that the quality of care is much better as a result. The only thing they lack is an abundance of sophisticated diagnostic and other medical equipment and state of the art hospitals.
I have another friend who is an economist. I asked him about his son’s plans after college and he said that he had been admitted to medical school. I then asked about what specialty he was interested in, and his answer shocked me. He said that his son wasn’t interested in practicing medicine at all, that he was only going to medical school because he had been admitted and medicine paid better than other graduate school options.
Both of these conversations have given me much food for thought. It will take at least a full generation to reverse the for-profit mentality of the health care system. Historically, health care outside of the home began as the charitable mission of various religious women, such as Protestant deaconesses, Catholic nuns, and Jewish women. This goes back to the time of communicable diseases and no social safety net for people who couldn’t work due to illness or injury. Compassionate women stepped up to take care of the sick and injured.
That has all changed. Now, health care is a major player in our economic system and medical bills are a major driving force in bankruptcy filings. This has to change. We have a system in place–Medicare. It should be extended to cover everyone.
Natacha; your friend’s son could become a primary physician, make good money while not practicing medicine because they are no longer required to to that. They are information and referral specialists – especially the referral part, to the most expensive tests available whether you need it/them or not. I have a $22,000 toe; multiple tests via the circulatory specialist, the hospital ER – neither of which looked at earlier tests – the result was bacitracin on my toe, covered with a bandaid and referral to a podiatrist. The tests 3 months earlier found a cyst on my knee causing the severe swelling, not a blood clot, I was told to BUY AN ACE BANDAGE to wrap my leg for the swelling. All through I.U. Health and Methodist Hospital medical services.
Capitalism and current medical care combined to bill Medicare for the bulk of treatment costs. None of which has anything to do with ACA.
No, the problem is not capitalism. The problem is that we have too many people living on one planet, and everybody is looking for something.
https://www.youtube.com/watch?v=ax9FCq-A9xc
JoAnn and Nancy Papas – Thanks! I signed the petition.
Polk Salad Annie:
The reason you cannot get a straight answer from any billing department is due to the huge variety of insurance plans in the market and not knowing exactly what plan you are on, what your deductible may be, what your co-pays may be, etc, etc.
Each plan has been negotiated to pay a specific percent of the billed amount for services. Sometimes there is an exact dollar amount.
If our country had single payer insurance this would no longer be an issue. The providers would know exactly what their reimbursement might be and we would know exactly what our portion of the bill would be.
There are SO many powerful interests out there making a killing in this market and they are lining congressional pockets to keep it that way. The insurance companies, pharmaceutical companies, medical device companies and a host of other interests will not give up their unreasonable profits without a fight.
I’ve spread my retirement health care costs out over the last 50+ years. Would I have trusted any private business for that long with that much money? Not a chance.
“Per capita lifetime expenditure is $316,600, a third higher for females ($361,200) than males ($268,700). Two-fifths of this difference owes to women’s longer life expectancy. Nearly one-third of lifetime expenditures is incurred during middle age, and nearly half during the senior years. For survivors to age 85, more than one-third of their lifetime expenditures will accrue in their remaining years.”
From: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/
The data is from 2000 so as health care cost increase alway exceeds inflation which is about 40% since then let’s assume 2015 average lifetime healthcare costs in America are 2X inflation or 180% X $316,600 or about $570K. Or say $9,000 per year over average working plus retired life.
Of course inflation over a lifetime would reduce that number but the higher cost of later years would offset some of that so to simplify things I’m going to ignore both effects.
Another factor that I will ignore is the fact that wage earners pay also for their kids while they’re growing up.
So somehow, through some private or public agency, each of us have to pay perhaps $10k or more every year. Business chooses to not employ or under pay a significant portion of us so we all have to also pay their costs.
You can see how big the number gets.
Can we afford it? Well, not surprising, some can and most can’t. So the two choices are the wealthy paying way more than their share or we try to reduce the costs of the most lavish health care non system the world has ever known.
The world has demonstrated how easy it is to significantly lower total health care costs.
Here is an example of a recent medical bill issue:
I received a bill last week for $160 from a lab in Oregon. A specialist I see used that lab on this occasion. It was not in my network, yet the previous labs he used had been in my network. His office failed to advise me that they were using a lab out of my network. It was their responsibility to notify me and ask me if I wanted to pay cash. Since they didn’t do this I was not responsible for the bill. The provider was responsible.
When I spoke to someone at the lab, she said the Dr. office should have given me the option to pay $35 cash to cover the bill. Instead, I received a bill for $160 for the exact same service. That is $125 more than they actually expect to receive. This is the insanity that happens every day with medical bills and most people don’t know their rights in these situations.
The lab agreed that the provider is responsible for the bill. She said not to worry, that they would take care of it. I am guessing that she just decided to write off the $35 rather than argue with the doctor’s office.
It should be evident, through reading these many posts, that the failure of capitalism is known to us all. Yet we are loath to admit it. Why? Merely because we have been taught through the years that it is better than anything replacing it. We were taught nothing else. We don’t want to know about the many civilizations preceding us and how they managed to survive and preserve a pristine world for us. We think we know what we do not know. We believe science will save us from ourselves Some even believe there are solutions in the stars.
Not so long ago, a cabal of man came together in agreement that this is their apple to carve as they wish. Things had gone pretty well for thousands and thousands of years before them but they knew of a better way. Now the apple is well carved.
As their bones dissolve into dust, they will not have learned that they always were just that. There is little doubt that we will allow them to destroy us along with themselves. Why? Because we need a king.
We will do everything but look into our own souls.
I have blogged on this issue dozens of times and have arrived at the same conclusion each time, i.e., that capitalism can work but not as currently practiced. (Accord: Stiglitz and Piketty). Our problem at bottom is not wealth but rather in its distribution, like 40 years of stagnant wages for working Americans and a Dow in the stratosphere for the narrow slice of the elite paper shufflers on Wall Street, a system which guarantees that the current system of rich v. poor will stay in place. Invisible hands do not now nor never existed beyond the theoretical, and other Smith insights such as enlightened self-interest have turned into pure greed as corporate bureaucracies have morphed into engines of monopolistic pricing in an orgy of merger and acquisition and buybacks designed to meet the Friedman requirement of “shareholder value,” a position now rife in court decisions and, as I blogged recently, now even considered to be a fiduciary duty of corporate boards and managers (as though corporations have no responsibilities to the communities in which they are based, the air and water they pollute, and the lives of their employees who are summarily fired in order “to enhance shareholder value,” the corporations’ first duty).
It doesn’t help that the Supreme Court has recently identified corporations as persons and that money is speech, both lending credence and otherwise giving aid and comfort to corporations’ planned takeover of America (if they haven’t already). (I was not a member of the bar of the Supreme Court when the court made such inane findings, having resigned from that bar after 25 years of membership with that’s court’s findings in Bush v. Gore.)
Any “ism” has its limitations, to be sure, but in spite of all, I still cling (if precariously) to the idea that capitalism can work. However, as Piketty with his dour r > g formula based on three centuries of research writes, it will ultimately implode as a system “unless attended to.” Stiglitz wants to “attend to it” with new rules of corporate governance written by someone not a corporate lobbyist, rules when fleshed out call for a heightened measure of public control via closer regulatory control of, for instance, big banks, who are currently enjoying little control with the simultaneous use of FDIC funds in lieu of equity and bailout protection by you and me (since they are too big to fail). Heads I win; tails you lose.
I could write much more extensively about the demise of the Sherman Anti-Trust Act, the disastrous repeal of Glass-Steagall etc., but I’ll end it here by concluding once again that I believe that capitalism can work, but not as currently practiced. Finally, as I have written several times, I want capitalism to work because I greatly fear what its replacement would be and how it would work out for America and its people in allocating the income and wealth generated by our economy (my ultimate concern).
The bottom line of course is if capitalism can work why has it not? Is there an ingredient in the current mess that, if eliminated, would allow capitalism to thrive unimpeded?
I just decided that when I get a call from the cardiologist, the podiatrist, the ophthalmologist or the VA Clinic telling me that it’s time to make an appointment I’m going to postpone politely to a future time. I’ve observed that these visits provide the specialists with copay income but they are routinely without treatment or cure, in one case actually exacerbating the condition.
Consider the years of the Great Depression when there was no money so we had none to spend on luxuries such as health insurance (if it was available I never heard of it). A few of us have survived. Our time is coming.
An example of the “Utilities” form of capitalism that doesn’t work for the consumers is the “promise’ made back in 1992 that if the federal government let the communications companies charge us extra money they would have optic fiber installed all over the country by the year 2000. Do you have fiber? Neither do I, but we paid for it. The profits of my Baby Bell went up 107% from an average of 14% to an average of 29% (Source: Business Week Scoreboards, 1993-2000.) And these days if you want to try to find another service provider, you cannot research the possibilities on the internet in any way other than leaving your name, address, and phone number or email so that they can “contact you” with information. That smells of monopoly to me.