The scum of the earth

That would be your friendly neighborhood health insurance company. It's an interesting observation in itself that most of the important news about health care is to be found in the business section, which is why I always turn to Business Day first.

It turns out that Senator Rockefeller, although he doesn't seem to have a big problem with cooking up phony intelligence to start an illegal war of aggression (but I digress), is bent out of shape by health insurers cheating physicians and consumers. The latest scam has to do with payments for out-of-network providers. Insurers typically reimburse 80% of "reasonable and customary" charges, but it turns out they have been using phony intelligence to determine what these are.

This is just one more rotten turnip in the health insurance stew, of course. The only function of these companies is to squeeze profit out of the transaction between the ultimate payer and the provider making sure that people who really need health care can't get it, that people who do have insurance don't get the services they need, and that employers and taxpayers overpay them while they underpay providers. In other words, they are parasites who perform no socially beneficial function whatsoever.

If we had a single payer system, of course, there would be no such thing as an out of network provider. There would be one network, and all the providers would be in it. Contrary to the BS touted by the insurance industry and its ventriloquist dummies in the corporate media, you, the consumer, would have more choice, not less: you would be able to go to any doctor, any hospital, anywhere in the country, and you would be fully covered.

We need universal, comprehensive, single payer national health care.

Filial Piety

Sorry for the absence, still dealing with family responsibilities. Anyhow . . .

Few of us ever think about the huge reduction in traumatic injuries that Americans enjoyed during the 20th Century. I'm reading a book about this subject, of which more anon once I am ready to write the authoritative Cervantes review, but for now I'll just note that changes in building codes, consumer product regulations, highway design and features, automobile design requirements, workplace safety regulations etc. had an enormous impact of which the public is little cognizant.

The picture is complicated because there are separate statistical systems for workplace injuries, motor vehicle injuries, violent, injuries, etc., but just as one example the death rate from motor vehicle crashes in the U.S. was about 22/100,000 per year in 1980 and has fallen to about 15. Unfortunately, while deaths from other causes of injury have fallen steadily, deaths from accidental poisoning -- meaning mostly drug overdoses -- have been rising lately. Note that the progress results from a combination of technological advances, and government regulation to force builders and manufacturers to use the technology. This is just one more area in which simple-minded libertarian ideology fails utterly.

When I was a child, my cousins had a friend whose nightgown caught fire from brief exposure to a gas burner and who suffered agonizing and disfiguring burns over much of her body. Nowadays, that can't happen, because children's sleepwear is, by law, flame retardant. Think about that, Cato institute.

Unfortunately, one problem for which there is no simple technological or regulatory fix is falls by elderly people. This information service of a consortium of Ohio universities is one of those reliable Web resources I commend to your attention. They tell us that nearly 1/3 of women over 65 will fall every year, and the rate goes up with age. The risk for men is somewhat less but still substantial. Although hip fractures are the classic disastrous consequence of falls, head injuries and back injuries can also occur. These incidents can set people on the path to long-term decline and disability. The National Institute on Aging also gives out a lot of helpful information.

Thoughtfulness about people's physical environment is helpful -- night lights, keeping cords off the floor, making sure there aren't any loose throw rugs, grab bars and railings in all the right places, that sort of thing, can help. It's also important for people to do their best to stay active and to keep up their muscle tone and balance; to be alert to possible drug side effects that might cause dizziness of fainting, and not take any bullshit from their doctors about it; to look after bone strength and all that good stuff. Help out your friends and relatives and neighbors if they need to change ceiling light bulbs or do other chores that require climbing ladders or standing on chairs -- not a good idea if you're getting on, I'm afraid.

Be mindful.

Exterior Motives

Diane Rowland in NEJM (and yes, ya'll get to read it, bless 'em) describes the impact of the recession on the percentage of people without health insurance. You don't need to be a Doctor of Science to figure out that it's probably not good. However, I want to focus on the other side of the dynamic, which is the multiplicative effect on the economy as people lose health care and the states lose revenue to cover the increasing demand for Medicaid.

Contrary to John Boehner and that grumpy old guy -- what was his name again? -- who ran for president, recessions and depressions are not caused by excessive marginal tax rates. They are caused by what is happening to us right now, which is one trigger or another -- such as a burst asset bubble -- withdrawing aggregate demand from the economy and starting a chain reaction. As some people buy less stuff, other people lose their jobs or have reduced incomes, so they buy less, and so on and so forth. And of course businesses cut back on investment as well when they don't figure they can sell more stuff. So that giant sucking sound is economic activity swirling down the bowl.

Health care is the largest single industry, so it has a big potential role in stopping this negative momentum. Even better, it can have strong positive externalities, it provides jobs at every level of skill, and it's comparatively non-energy intensive and has readily policeable environmental costs (though we don't always do as well as we should -- viz all those pharmaceuticals in the water. Uggh.)

As Rowland points out, Medicaid and its extensions to more moderate income people, such as the Children's Health Insurance Program, can be an important automatic stabilizer -- a circuit breaker for depression -- if it can be fully funded by the states. Because these are entitlements, when people lose employer-provided insurance they may be eligible to be picked up by government-sponsored programs, which keeps the health care industry from contracting and so slows the downward spiral. The American Recovery and Reinvestment Act -- known more colloquially as the Stimulus Package -- was hurried through Congress so quickly that most people don't know what's in it other than that ridiculous, wasteful volcano monitoring and beaver management, but in fact, as Rowland says, it "provides $87 billion for a temporary increase in the federal share of Medicaid costs through 2010 and $25 billion in temporary subsidies to assist unemployed families with the cost of their COBRA premiums." Now, that's going to keep people from dying in the streets, which is nice, but it's also going to save a whole lot of jobs. Even better, 0% of it goes to pay for insurance company marketing, although some of it will go to profit and administrative waste.

With a national single payer plan, all that good stuff would happen automatically, every time there's an economic downturn, and it will happen even bigger and better because it will keep 100% of the people 100% insured instead of just helping a little bit the way the ARRA does. That will make economic downturns shorter and shallower and much less damaging. Does that help sell the idea? I sure hope so.

Bizarro World

Reed Abelson in the NYT is aghast at the prospect of a government sponsored health plan open to all:

It is one of the most contentious health care proposals President Obama has floated: offer a federal, Medicare-like insurance plan to anyone, at any age. And let commercial insurers offer their private health plans alongside it. . . . But the insurance industry and others wary of too much government intervention vehemently oppose the idea. They say the heavy hand of the government will eventually push out the private insurers, leaving the government option as the only option. . .

The main selling point for a government-run program would be its low cost. It would have a much lower overhead than private plans, with no need to make a profit or spend money on marketing or brokers’ commissions. And, if allowed to flex its muscle, the government would buy medical care at much lower prices.

The horrifying prospect that the government sponsored plan might actually deliver health care for all, at lower cost, has Chuck Grassley's knickers in a twist: “There’s a lot of us that feel that the public option, that the government is an unfair competitor.” Abelson goes on to explain that "Even Mr. Obama has acknowledged that those concerns are valid, and it is unclear how the government plan could be set up to give insurers a fair chance to compete."

How about this? If the government plan is cheaper, and better, then we don't need the private insurance companies at all. They can go away. Good riddance. No problem.

Brave New World?

Probably appropriately, having been burned by Pons and Fleischmann and the cold fusion debacle of the 1980s, the mass media have been largely avoiding this, but it appears that cold fusion is back, or rather, given the prior embarassment, what is now called "Low Energy Nuclear Reactions," LENR.

There is no telling whether anything will come of this, and it has physicists sufficiently baffled that I would still bet "no" if I had to. But . . .

If it ultimately is found to work, it will change our world so profoundly that the consequences are largely unimaginable. All the predictions about the potentially dire consequences of the decline of petroleum extraction, and the utopian visions of reordered values and a reorganized society that will carry us happily past the age of oil, will blow away like dust.

It is quite premature to invest much energy in contemplating the possibilities, but I mention this because it reminds us of how cloudy all of our crystal balls really are. Just as adults realize that their childhood obsessions with cliques and who the popular kids are and the unbearable crush on Mary Lou and all of that were just a lot of pish tosh, so might be everything we believe is important now in public policy, from the future of Social Security to geostrategy to economic development of the poor nations. A lot can change in a hurry, for better or for worse. Don't forget that. (I'll skip the negative catastrophe scenarios for now, but they're out there too.)

The disconsolation of philosophy

I don't have a big problem with mortality. Death is essential to life -- if organisms didn't get out of the way, they couldn't have progeny, there would be no evolution, and we wouldn't be here. Not to mention no nitrogen cycle or carbon cycle and hence most probably no biosphere of any kind. It's also not necessarily a bad thing that we know our time is limited so we'd better get off our lardbutts and accomplish something. Right now I need quite a few more years but definitely not eternity.

However, what I do have a big problem with is decrepitude. Our real worry should not be dying, but living too long in a helpless state. (While this may seem obvious to my typical reader, I hardly need remind you that it is the opposite of the view of the Christian champions of moral virtue, and the Republican Party.) The goal of medicine and public health should not be the arbitrary extension of life, but rather making sure we can cross the finish line under power. Unfortunately the Rule of Rescue (also see here) forces our research and treatment agenda off of that point. As we (I hope) embark on a new path of comparative effectiveness research and more rational allocation of medical resources, I hope we can find a way to make life, rather than the mere delay of death, the ultimate goal.

Depravity

I'm going out of town for a few days due to a family emergency, and I expect to be disconnected from Your Intertubes until at least Sunday. (My relatives are rather primitive in some respects.) Before I go, I want to make sure everybody has read Mark Danner's summary of the ICRC Report on the Treatment of Fourteen "High Value Detainees" in CIA Custody. It has gotten a bit of attention throughout the blogosphere, but of course the corporate media has tried very hard to ignore it.

You will learn how George W. Bush, dripping with Christian piety, ordered such actions as the following:

Two black wooden boxes were brought into the room outside my cell. One was tall, slightly higher than me and narrow. Measuring perhaps in area [3 1/2 by 2 1/2 feet by 6 1/2 feet high]. The other was shorter, perhaps only [3 1/2 feet] in height. I was taken out of my cell and one of the interrogators wrapped a towel around my neck, they then used it to swing me around and smash me repeatedly against the hard walls of the room. I was also repeatedly slapped in the face....

I was then put into the tall black box for what I think was about one and a half to two hours. The box was totally black on the inside as well as the outside.... They put a cloth or cover over the outside of the box to cut out the light and restrict my air supply. It was difficult to breathe. When I was let out of the box I saw that one of the walls of the room had been covered with plywood sheeting. From now on it was against this wall that I was then smashed with the towel around my neck. I think that the plywood was put there to provide some absorption of the impact of my body. The interrogators realized that smashing me against the hard wall would probably quickly result in physical injury.

That is just a very small taste of an elaborate, bizarre, unending program of torture. Now, the only thing I have to add to this is that for the individuals interviewed by the ICRC there is good evidence, at least according to their torturers, that they were involved in crimes, although they can never be prosecuted because they were tortured. However, as we also know, most of the people who disappeared into the network of CIA and military dungeons, and who were subjected to at least some portion of George W. Bush's psychopathic sadism, were completely innocent. Just think about that as Mr. Bush markets his memoirs and raises funds for his presidential library.

As Dr. Ruth is always careful to say . . .

I am not a physician, I cannot advise. However, my loyal 4 1/2 readers know that I have been something of a skeptic of some of the most widely promoted routine cancer screening procedures, notably PSA and even DRE screening for prostate cancer and mammographic screening for breast cancer. The basics are well-trodden ground here: the cost and hassle of the screening itself, followed by the angst and cost and pain of biopsies when they are positive, often falsely, followed by surgery and chemotherapy and all the associated horrors when the biopsies are positive even though many prostate cancers and breast "cancers" called ductal carcinoma in situ might just have sat there and done nothing if you'd just left them alone -- is it worth it?

This randomized controlled trial of prostate cancer screening, with 10 years of follow up, finds that men in the screening group were diagnosed with more cancers, but had no mortality benefit. In fact, the men who were not screened were actually less likely to die of prostate cancer than those who were screened, although the difference is considered not statistically significant. Who knows, with longer term follow-up, whether this trend would reverse? But it seems unlikely. If it's real, then it follows that you are more likely to die from the treatment than you are from the cancer.

The information women are given about mammography is often presented in misleading form. Here's the bottom line: If 2,000 women are regularly screened for breast cancer for 10 years, precisely 1 will benefit by avoiding dying of breast cancer. On the other hand, 10 women who would not have died from breast cancer will undergo breast cancer surgery, and possibly radiotherapy or chemotherapy.*

You will have to decide for yourself what to do with this information.

* Gotzsche, et al. BMJ, February 21, 2009.

So why did I just go off on a big tangent?

Well, of course it's partly just topical rage at the idiocy of the political discourse coming from the right and channeled by the corporate media with full aiding and abetting by the clown college called academic economics. But, when it comes to our main obsessions here -- public health, that is health promotion and disease prevention at the level of populations -- and reform of the medical institution -- economic orthodoxy is even more pernicious than it is when discussing the best way to meet society's need for plastic furniture covers.

Public health is, essentially, a public good and one big externality, more or less by definition. It is true that the market does provide most Americans with adequate protein and calories -- to say the least -- and other stuff without which we would be people of deadness; but when it comes to public health, what we mostly find ourselves doing is figuring out how to fix the market, or act entirely outside of it, to achieve social welfare that it cannot possibly provide. Public health, indeed, is very nearly co-extensive with all that which lies outside of the market, which I have described over the past few days: limiting harmful externalities, reducing inequality, giving people information, producing underproduced social goods, maximizing social capital, and all that good stuff. Some of the most powerful and cost-effective public health interventions consist of directly attacking the pernicious effects of the market, as by, for example, taxing tobacco and limiting food advertising to children. Occupational health and safety regulations, universal public education, consumer product safety regulation, food labeling laws, nutritional support for poor children and families -- all that stuff that conservatives call communism -- is what public health is all about.

Of course, it isn't communism. I asked my sociology class a few years back to define "communism," since people bandy the term about quite a lot, and one student told me that according to this father, the Boston Globe is a communist newspaper. Sometimes, I wish. I don't mean to embarass anyone, but we had a commenter here a few days ago who maintained that the collapse of the Soviet Union discredited Keynes. I can assure you -- and I know the good people at the Cato Institute will back me up -- that John Maynard Keynes was not a communist. (He was, however, a homosexual, which I understand is nearly as bad. He nevertheless had a happy marriage of convenience to a beautiful ballerina. History is so fascinating.) Nor did the Soviet Union practice Keynsianism. It's rather like claiming that the precession of the equinoxes proves that Jupiter is made of Jello. All you can is "Huh?" Still, this is the rhetorical world we inhabit.

Communism is a rather quaint idea these days and not something you need to worry about unless you are planning a trip to North Korea. Nonetheless we do still have to worry about the "S" word. I'll say a bit about that soon.

Depressed . . .

Repressed, oppressed, suppressed and compressed. After contemplating why many people, particularly of the starboardside variety, cannot seem to grok the basic concept of what a recession or a depression is, and how to get out of it, I have come to the following conclusion.

If you just assume that the market is "self-correcting" and that it "efficiently allocates resources," and then you look around and you see that there are factories sitting idle, fields unplanted, and workers unemployed, it seems obvious to you that the market could not be responsible for this, and something or somebody must be getting in the way and stopping it from doing what it does naturally. I mean, why don't those factory owners just start up the factories and hire the workers and start making stuff and selling it like they were before? What's stopping them? It's gotta be those onerous taxes and government borrowing crowding out private investment and burdensome regulation blah blah blah. Cut spending, cut taxes, get the government off the backs of the people, and we'll all be back in business and getting rich again.

Why is this wrong?

It's wrong because it is circular. The market does not do what you think it does. The market is not a natural phenomenon, it is a human social construction, cobbled together painfully and largely accidentally over many centuries. When it has been obvious that in one way or another it wasn't doing what people in power wanted it to do, they took steps to modify it -- whether to your benefit or mine, or not, all depends. It does not, as many economists assume just because, well, because they assume it, have an "equilibrium" state either. It is a chaotic system that goes through periods of pseudo-equilibrium in which change is generally slow, other periods of more rapid change, and occasional catastrophic changes which leave it in a new pseudo-stable state called a depression.

Here is what happened, in a nutshell. Due to an asset bubble (one of the rapid change states alluded to above) people spent a whole lot of money and businesses invested a whole lot to sell stuff to them. Commodities with fairly inelastic supply -- like petroleum and food -- became disproportionately expensive. Then the bubble popped and people everywhere felt a whole lot poorer and/or they couldn't borrow any more money, so they stopped spending. Factories closed, workers were laid off, the price of commodities collapsed curtailing investments in their production or extraction, meaning more workers were laid off. As people lost their jobs, they spent even less and more factories closed, along with the restaurants that fed the workers and so on, and now those people were out of work and they spent less and so on and so forth.

People who still had money weren't inclined to invest it because there was nobody to sell stuff to. Factories sit idle, not because they would have to pay workers comp and social security and unemployment taxes if they hired people, but because they wouldn't be able to sell the products those people made. They wouldn't even accept the workers as volunteers, because they would still have to pay for raw materials and electricity and what not, and they'd end up with a lot of stuff sitting in a warehouse that they couldn't sell.

So there is only one way out of this, unless we're willing to wait a long, long time. We're in a liquidity trap. Money is there, but it just sits there. Factories and workers are all there, but they just sit there too. Think of an internal combustion engine. You've got gasoline, you've got pistons and cylinders and ignition, but it doesn't spontaneously start running. You need a starter motor, which can draw current from a battery and get the whole thing moving.

There is only one such starter motor available in all the world. The government. The government has to spend money. It could cut taxes to zero and it wouldn't do any good. It could cut interest rates to zero and it wouldn't help. Instead, we have to turn the crank. Buy stuff, hire people, get the machine going again. That's called Keynesianism. And it isn't just true. It's completely fucking obvious.

My way 5 -- taxes

In the context of externalities and the place of the market in society, I have alluded to public goods. Loosely speaking this refers to goods that for one reason or another, in principle, cannot or perhaps should not be owned by individuals. But the theory of the market requires that everything be owned or it is helpless.

I would argue that public goods are far more important than private goods, and that therefore we ought to assume that public goods are the default and therefore it is private goods that are problematic and need to be accounted for as an anomaly. Certainly that is obvious for most of human history, during which people have very little in the way of individual possessions, and quite probably nothing that they kept for very long; most of what people did "own" in any sense was shared among the band; and the ecosystem yielded sustenance to the people with no-one even thinking of claiming ownership of any part of it. The idea would have made no sense, could not even have been stated.

Alas, we are so accustomed nowadays to think of everything as being owned that I have to make an argument about what economists largely ignore and only grudgingly acknowledge as exceptions. There are three main reasons why goods are public. Some are a little bit of two or more. First, it is impossible to limit the use of some goods to people who have established ownership. This includes not only bounty of nature, such as the atmosphere, but also certain manufactured items such as lighthouses. A shipper cannot build a lighthouse and exclude competitors from seeing it. But this is only subtly different, when you really think about it, from the second reason why goods are public, which is that they have such huge positive externalities that there obviously would not be enough of them produced if we left it to the market. It might or might not be worth it to an individual shipping magnate to build a lighthouse for the benefit of his own company, but if this did happen, it would not happen in all of the places for which a net social benefit to society would accrue by the creation of a lighthouse.

This latter argument requires a bit of elaboration. If all of the shipping companies and fishers and recreational boaters in the world could get together and parse out exactly what their benefit would be from the building and maintenance of lighthouses in all the places where they might be useful, and they voluntarily agreed to kick in the amount of their benefit to a common pool, there would no doubt be far more than enough money to build and maintain all the lighthouses they could possibly want. However, it would not happen, because most of them would wait in hopes that the next guy would do it and they wouldn't have to. And if some of them did step forward and do the right thing, they'd end up paying the cost while a bunch of freeloaders shared in the benefits, which doesn't seem fair.

Solution? Taxes. We form a government that enjoys enough popular legitimacy to solve problems of this kind, by compelling people to contribute to the common good, since, lamentably, most people just won't do it if we merely ask politely.

So government must a) protect commons such as the atmosphere from overexploitation and b) create new commons such as lighthouses which nature has not provided.

There is a third kind of quasi-public good, which is a so-called "natural monopoly." It would be ridiculously wasteful to build two or more separate networks to distribute electricity to people's homes. It's bad enough that our streets are cluttered and defaced by long lines of poles with wires, but what if there were three or four of them marching side-by-side down the sidewalk? Not only would we be unable to walk to the bus stop without stepping into the street, but electricity would cost much more because the investment and maintenance in each of the separate networks would be shared among a fraction as many consumers.

BUT

A monopoly utility would have us by the sensitive parts. It could charge whatever it wanted because it would have no competition. For some reason, in this country we have mostly allowed private companies to operate these networks but we regulate them closely to limit their prices and profits to a reasonable amount. Remember what happened in California when they tried not doing that and Enron stole billions?

Now, this ought to be perfectly obvious to everyone. We need to pay taxes, and we need to have government spending and regulation, because if we did not, capitalism could not exist. It is 100% false, and is not even supported by the most radical version of any intellectually respectable theory of the market, that taxation and government spending are necessarily harmful to economic growth or make people poorer. On the contrary, they are an irreducibly necessary condition for markets to exist and to flourish. When government collects taxes, the wealth doesn't disappear: the government spends and invests it. Whether this contributes to economic growth and overall welfare depends not on how much the government collects and spends, it depends on what kinds of activities the tax code differentially encourages and how the government spends the money. When government invests in public goods, that makes us all wealthier.

There is no consistent historic or cross-sectional relationship between the level of taxation in a country and its long-term rate of economic growth. European countries with far higher marginal tax rates than the U.S. have done just as well if not better economically (depending on what you measure) and with far less poverty, far less social problems, and happier people. Their corporate CEOs make a fraction of what ours do, and keep even less of it, but they still get up in the morning and go to work and run strong, profitable companies. Historically, in the United States in the past century, our strongest periods of growth have coincided with the highest marginal tax rates.

Duh. I can't believe we have to argue with these idiots.

Next: Recession.

My Way -- 4

I'm feeling a bit under the weather so this may not be my best rant ever, but here goes. As far as I'm concerned, the most pernicious lie that oozes out of orthodox economics is that social inequalities are just -- that economics contains a scientific proof that rich people deserve to be rich and poor people deserve to be poor.

The theory of the market does not actually contain any argument that can support that conclusion. It comes from one of the most basic logical fallacies. Economists believe that their theory describes reality, and then, by a sleight of hand, without even noticing that they have done it, they go from this supposed (though actually totally bogus) is, to ought.

What is just is a purely moral question, which begins with how we feel about a situation. It is a perfectly respectable moral position to argue that the people who clean the toilets and wipe up the bodily fluids in the academic medical center where I work should be paid more than I am, because my job is so much more pleasant and frankly, lots of fun; whereas their job is nasty and hard and boring and repulsive. I would say I am highly sympathetic to that position. Now, you might believe that such a world cannot exist. My skills are in shorter supply, and sell for more money. Okay, that's the way it is, but that doesn't mean the housekeeping staff deserve their crummier jobs and lower pay.

Defenders of inequality have various arguments, some of which have a pseudo-ethical cast. For example, they claim that higher incomes are a reward for hard work and talent. There may be a return to talent, in general, but it is far from consistent. However, none of us earned our talents, we just got lucky. As for hard work, poor people usually work much harder than wealthy people. In fact, our station in life is much more powerfully influenced by our birth than our talent and hard work. Going to college is hardly an ordeal - it's actually a lot of fun. It's less work than having a job, except for a couple of weeks at the end of the semester; beer practically comes out of the faucets; and it's really easy to get laid. For some of us, learning stuff is also kind of a gas, but we need a certain degree of privilege to be able to afford it. Nowadays a lot of college students have little intention of learning anything, they just figure Daddy is paying for a degree so they're entitled to one.

As for the CEOs and financial traders who have been raking in the multi-millions, they're just thieves. CEOs conspire with their boards of directors to loot their companies. I mean come on, you couldn't possibly find somebody with the talent to lose billions of dollars without paying $100 million a year? I really don't think so. And trading financial instruments is just parasitism.

So, basically, the Ayn Rand set that's been parading around lately is completely, irrevocably, irredeemably, inexcusably, revoltingly, childishly, greedily, and stupidly FULL OF SHIT.

Next I'll do taxes.

Econ 101, my way -- part three

In today's lesson, we move on to macroeconomics. As you have probably noticed, the corporate media treats something called Gross Domestic Product, GDP, as equivalent to the health of the economy. Strong growth in GDP, good; slow growth or (gasp!) shrinkage in GDP, bad. It's true that the current shrinkage in GDP has been accompanied by devastating job losses, and that's certainly bad. On the other hand, however, GDP has grown pretty steadily, with just a couple of hiccups, since the early 1980s and even that was just a blip in steady growth since WWII. And yet, and yet, average workers have not been any better off, and in fact they've had to work ever harder just to keep their standard of living the same. And now, in spite of all that wonderful GDP growth, they're worse off than they have been in a quarter of a century. Something is evidently wrong with this picture.

So, GDP = C + I + G + (X − M)

That means consumption -- but "consumption" doesn't mean "consumption," it means the amount of money people spend to buy consumer goods -- plus investment, plus government spending (here they ignore what it's for) plus net foreign exchange, i.e. exports minus imports.

Okay, now this is a number. It has a formula. Assuming you can measure each of those items accurately (which you can't, but we won't belabor that point) you can compute it. That presumably makes it "scientific." Macroeconomics is mostly concerned with predicting this number and trying to find ways of making it grow as fast as possible over time, which is presumed to be the goal of human existence. (Hey you snotnosed sophomores, I know that economists believe there is a maximum sustainable rate of growth, i.e. that economies can "overheat" which leads to recession, so they aren't looking for the fastest possible rate of growth this year, but rather over the long term. Yeah yeah.)

So what's wrong with this picture? I'm not going to get fancy about it, I'm just going to give you a laundry list.

1. It takes no account of natural resource depletion. For example, petroleum is pumped out of the ground and sold. The sale price is added to the GDP of the country from which it was extracted. But the oil is gone! Forever! No substraction is made to represent that.


2. As our old friend B drives around the city inhaling those oxides of nitrogen and ultrafine particles, GDP takes no account of the damage to her lungs and arteries. But as soon as she has a heart attack and goes to the hospital, 100% of the cost is added to GDP. In other words, the more people whose health is damaged by pollution, the wealthier we think we are.


3. Ditto for social costs. The cost of treating drug addicts and alcoholics, locking up prisoners, burying people killed in gang wars, and prosecuting that cop who shot the guy in the back in Oakland is added to GDP.


4. It takes no account of goods and services which are produced but don't enter into the market. You can grow your own vegetables, make your own furniture, and build your own house, but none of that will count. On a much larger scale, as long as B stayed home and raised the kids and did the cleaning and cooking and laundry, none of that counted. But once she got a job, put the kids in day care, and started buying take out food and dropping off the laundry, it all gets counted. She's no better off for all that, of course. Although other people now get paid to do what she used to do for free, and you can feel about that however you like, the total value of what the population consumes is no greater, and arguably less.


5. It takes no account of what the government spends its money on. If the government maintains beautiful parks, pays for health care, educates children, houses poor people, and finds the cure for cancer, it gets exactly the same amount of credit as it does if it purchases $50 million bombers and uses them to drop high explosives on Arabs. But the latter does not leave us better off.


6. It takes no account of the distribution of wealth. If the CEO of the One Big Investment Bank that owns the world makes $3 trillion, and the rest of us make $1 each, it's no different from each man woman and child getting $33,000.

All of these problems help account for why people don't feel they are any better off even as the GDP keeps growing, although it's the last one that gets most of the attention, and that's also where we seem to get into the most screaming fights here with Glibertarians. So that's where I'll go next -- to the question of justice.

Econ101, my way -- continued

Quick, what's the most valuable thing on earth? Don't think about it too hard, just blurt out your answer.

You might have said platinum, or saffron, or the Mona Lisa. Or maybe you said something like your spouse, or baby girl, or human kindness. Any of those could have made for an interesting starting point, but I'm going to vote for the planet's atmosphere. Take it away and ( ) And try not using it for a couple of minutes.

Of course, the theory of the market completely ignores the atmosphere, because the theory only considers stuff that somebody owns, that can be allocated by buying and selling. Somebody might glibly claim that the atmosphere has no price because it isn't scarce, but that is obviously wrong. We aren't about to use it up but we're certainly damaging it -- not only through greenhouse gas emissions but through particulate and gaseous emissions that cause a very large burden of disease and shorten life spans.

While the lunatic libertarians and corporate greedheads who control the Republican Party, Fox News and talk radio may essentially deny it, actual economists across the spectrum recognize the existence of public good such as the atmosphere and concede that there is a legitimate argument for regulations to protect and conserve them, although they may differ on the specifics of the cost-benefit analysis and the ethical framework for rule making. However, once again they are thinking upside down by putting the market at the center of their theory and viewing this as a peripheral problem to be tacked on.

When B went to A's supermarket -- and if B lives in Jamaica Plain A is a company in the Netherlands that owns Stop & Shop -- I've already noted that among the externalities she generated was damage to the atmosphere. Obviously A's supermarket wouldn't exist without the atmosphere, but there's is a great deal more that it requires which is completely unrecognized by the theory of the market. For example, it needs the roads by which B and the other customers get there. Before we had a large scale infrastructure of roads and everybody owned a car, supermarkets could not exist. Only small grocery stores were possible because they could only serve a limited, local population.

Stop & Shop also needs the police protection provided by the city, or it would be looted. For all the harm the police sometimes do, they are obviously essential. Without them we simply could not have complex modern society. Merchants could not operate and we could not walk down the street with money in our pockets to patronize them even if they did. Fortunately, most people are law abiding anyway, so the police don't have to follow everybody around all the time, but only need intervene when people commit deviant acts. That most people are generally respectful of the rights of others, are helpful and cooperative, and can trust and be trusted unless otherwise indicated, is another very important public good called social capital. Again, neither the supermarket nor any other business or market institution could exist without it. Yet the theory of the market completely ignores it.

Then there is human capital -- the capabilities of people to create value. The theory of the market can recognize this only after the fact, and very crudely, by counting up how much people are paid. But this is a completely erroneous measure of human capital. For one thing, much of its benefit is created outside of the market, in non-market social transactions, or in the creation of public goods such as -- well, for one thing, the reproduction of human capital in public schools. Teachers' pay is not set by the market, but by politics, and so it is far too low. Furthermore, executives conspire with boards of directors to award themselves grossly disproportionate compensation which has no relationship to the value they create. Most of the jobs in the supermarket don't require a lot of skill, but they do need managers, accountants, buyers and so on -- whose essential base of skills is provided by their families and by the state, all outside of the market.

So the market is actually just a part of society, and a much smaller part than economists recognize. It is embedded in a social and physical environment on which it is entirely dependent, which shapes it and changes its nature over time, and which is largely responsible for its outcomes. For economists to focus on the market as the essential determinant of welfare and treat everything else as peripheral is as though physicians thought of human health entirely in terms of a theory of the liver. The rest of the body would come into consideration only insofar as it was essential to explain the condition of the liver. While you and I know that the ultimate implication of this would be that we would have to understand the entire body, without which the liver could not survive, it would be a very strange and disabling perspective, no?

And so it is said that economists know the price of everything and the value of nothing. Indeed.

Next: National Income Accounting

Economics 101, My Way

From time to time we have commenters here who have had the misfortune to take an economics class or two, or even worse, to have majored in economics. The brain damage is not irreversible, in many cases. Let's see if we can offer some healing, by starting over. We'll begin with microeconomics. Although the major controversies of the day focus on macroeconomic issues, the faith-based macroeconomic orthodoxy is built on the faith-based microeconomics taught in the first semester.

So here's a transaction: B buys something from A. Your EC101 professor will ask you to accept several ostensibly "simplifying" assumptions about this event.* One of the most important is that all of the costs and benefits to humanity (usually labeled as "society") are captured in the transaction. In other words, B gets a product and A gets money, they're both happy, and that's all we need to worry about: the world is now better off. Exceptions to this supposed rule are called "externalities," which are an example of an unusual situation called "market failure," but we'll worry about those later, in specialized sub-disciplines such as environmental economics.

Alas, it's the first day of class, and you have already been lied to. Every single transaction, even the most mundane, has externalities. In fact, the externalities overwhelm the transaction itself, in every case. Markets always fail: this is not a special case or a minor adjustment to be considered later. It's fundamental, i.e., the theory is false, it does not describe reality.

Consider an ordinary trip to the grocery store. B gets in her car and drives to the Stop & Shop, emitting from her tailpipe CO2, oxides of nitrogen, and hydrocarbon vapors which condense into ultrafine particles. The latter cause inflammation in the lungs and bloodstreams of the passersby who inhale them, causing respiratory and cardiovascular damage, increasing their risk of heart disease, and shortening their lives. There's more of course, but let's get her into the store.

B loads her shopping cart with some Hungry Man dinners, boxes of cereal, bottles of soda and milk, some ground chuck and a pot roast, a bag of potatoes, etc. Plain old groceries. You already know that producing this food involved such activities as destroying tropical rain forest to grow forage for cattle, feeding antibiotics to livestock thereby creating antibiotic resistant bacteria, depleting topsoil, polluting waterways with fertilizer runoff and pesticides, shipping stuff long distances by plane, truck and rail thereby emitting air pollution and causing other kinds of damage such as bothering neighbors with a lot of noise, crashes in which people are injured and killed, destruction of communities to build roads, etc.

But wait, there's more! B is going to feed this stuff to herself and her family. The choices she makes will have a huge effect on their health. For example, the sodas have a lot of calories with little nutrition, and a high glycemic index. They'll tend to make her and her kids fat and diabetic. You could say that's her choice and her problem, but it's not her kids' choice. Furthermore if you do make that claim, you are ignoring that a not inconsiderable part of the price of the products pays for advertising which has persuaded her to buy them, using sophisticated techniques of psychological manipulation.

Another assumption your professor asked you to make is the assumption of perfect information: that B knows all about the stuff she is buying. But the only reason she even has a chance to know what's in the food is because of a law that requires the manufacturers to put the ingredients, and some nutritional information, on the label. But B probably doesn't know enough to interpret this information meaningfully, even so.

After B gets home and her family eats the stuff, the packaging ends up in a landfill. The paper and cardboard means that forests were destroyed and converted into tree plantations, and sulfuric acid was discharged into rivers. You probably know all about the plastics but don't forget that some of those plastic bags end up blowing away, landing in the ocean, and ultimately circulating in a vast gyre in the middle of the Pacific Ocean -- a sea of biologically inert, forever dead petrochemical waste.

I could go on. You can think of more stuff for yourself. But the point is, the assumption is not simplifying, and the theory built upon it does not illuminate the world or guide us toward understanding. It is simply wrong. Externalities absolutely overwhelm every economic transaction. The dollars that change hands in the transaction itself are trivial. To start out thinking about it in any other way is to make a fool of yourself.

Next: Public goods






* That's already sort of odd. When we do science, we don't generally make assumptions that we know to be false. Sometimes we make assumptions that might be true, which we call hypotheses, and we test them. If they turn out to be wrong, we discard them. Scientists sometimes build models which they know are simplified, but they test them to see if they make accurate predictions, so they can figure out what data are essential and what can be ignored. Economists, however, do not do this. Their models manifestly do not make accurate predictions, but they stick with them anyway.

Flying with your head in the seat of your pants

As you may recall, while the official results of the investigation won't be released for many months, it appears that commuter plane went down near Buffalo because the pilot, in reaction to a stall warning, pulled back on the yoke and pointed the nose up. I've never taken a flying lesson in my life, but even I know -- probably from reading WWII novels or something -- that a stall is when you don't have enough air speed to provide lift. Pointing the nose up in response to a stall just kills what air speed you have and down you go, splat. What you are supposed to do is to point the nose down, thereby taking advantage of the mysterious force of gravity to increase your air speed and restoring lift. I know that's what Chesley B. Sullenberger would have done.

So here's the Republican response to the economic stall: a federal spending freeze. They want to point the nose up, and send us into a tailspin right into the ground, because Milton Friedman told them to. Are they really such idiots? No, they're evil. They know perfectly well this would be insane, but they also know it isn't going to happen, so they can lie about it, and whip up the wingnuts into a frenzy.

Scum.

Science Marches On

But maybe it should stop. Fart molecule could be next Viagra. (Actual headline.)

Morality and Reason

I'm not quite buying into the hype - it remains to be seen what benefits to humanity will ensue from research using embryonic stem cells. But, while we can argue over the appropriate allocation of scientific resources, I am very happy to see that the new administration will not allow irrational ideology to stand in the way of scientific investigation.

There is of course a difference between ethics and facts, and we can't have productive discussions if we don't keep them straight. So you might say to me well, if somebody believes that human life begins at conception and zygote or a blastocyst are human beings, that's just their belief, you can't argue with it. In this case, however, I can, because such a belief is illogical and traps anyone who holds it in inconsistency and absurdity.

The embryos in question under the ban president Obama just lifted are left over from in vitro fertilization. If they aren't used for research, they will be destroyed anyway. Ergo, if destroying them constitutes "destroying innocent human life," the bishops and evangelical fundies should be far more vociferous in their opposition to IVF than they are to stem cell research, because far more embryos are created and destroyed for purposes of IVF. If they are used in stem cell research, there is at least some benefit, but either way, innocent human life is destroyed. But the bishops and fundies aren't opposed to IVF, aren't clamoring to outlaw it, don't even discuss it. Why not?

Second, it doesn't require IVF to destroy zygotes and embryos, it only requires nature. Most of the human embryos that are created by doing what comes naturally never develop into babies. In fact most of them never make it to become fetuses. Most of the time, the woman never even knows she was pregnant, or she may only suspect it due to a late period. If these lost embryos are indeed innocent human life, then this is by far the greatest public health catastrophe on earth, and we should be redirecting all of our scientific resources away from diseases that afflict people who have already been born, and toward ending this horrific holocaust. But I have never heard anyone calling for an end to the slaughter.

Finally, it is very difficult to justify the position that a microscopic ball of slime with no nervous system is a baby. This supposedly "ethical" position is in fact a mystical, irrational belief, specifically that upon the fusion of gametes, an unobservable, non-material entity called "God" endows the slimeball with a non-material, unobservable entity called a "soul," and it is this soul which makes a human being, not the capacity to experience or to think. Since there is no evidence for the existence of a soul, nor can there be any such evidence in principle since it is by definition outside of the observable universe, nobody ought to believe this. It's just a bunch of made up words that don't mean anything.

The really good news? The percentage of Americans who tell a pollster they have no religion has nearly doubled since 1990. And I'm linking to Fox News just so they can suck on it.

Let 100 flowers bloom

Whoo, I don't know how people like Revere and PZ Myers do it. I'm in the middle of two proposals, three papers and a conference presentation, and I'm supposed to be reading transcripts and analyzing data (ha!), and here I am trying to do a blog post every day. Why did I get involved in this scientific research biz anyway?

Well, in the middle of all this NIH finally puts out the money to stimulate us all. It's like the neighborhood candy factory exploded and we're all falling over each other trying to scoop up the sweets. One of the tasty treats is $200 million worth of "challenge grants," for 2-year projects of up to $1 million each. There's a long list of stuff they want done, from "Mechanisms and measurement of human thermogenesis" to "Building trust between researchers and communities through capacity building in Environmental Public Health," to "Vascular networks in engineered tissues." Our piece of the pie, if we are lucky enough to get one, will have to do with enhancing physicians' clinical skills.

Other money will pay for equipement and laboratories, bring in new fellows and expand existing projects, and pay for a lot of comparative effectivness research to make health care better and cheaper.

The official point of all this is to create jobs but it's also going to create an avalanche of scientific knowledge. It's all going to hit us at once a couple of years from now and then we'll have to digest it and apply it. A lot of it is basic science that will take a long time to pay off, some of it is clinical science that can lay the groundwork for trials that will lead to real payoffs in just a few years, some of it is translational work that has the potential to improve health care very quickly.

It's all happening in haste and maybe it isn't the best way to do things, but this is a major investment in work that can make our lives better, that nobody but the government would ever pay for. That, my friends, is socialism we can believe in.

¿Tienes preguntas? ¡Tenemos respuestas!

Yes, I certainly think that the average person is capable of understanding the basic issues underlying the need to reform our health care system. Where the dollars come from and where they go is certainly a good place to start -- one problem that Victor Fuchs mentioned which I didn't note yesterday is that people tend to think of employer provided insurance as a free lunch, without realizing that it actually reduces their wages.

But a lot of the key information does get repeated in public, constantly, by reform advocates, and it doesn't sink in. One obvious and compelling point that doesn't seem to get much traction in the public consciousness is the enormous administrative waste created by the patchwork system of private insurance. Medicare spends only 1/10th as much on adminstration. But people are so conditioned to think of government as inefficient and wasteful that this incontrovertible fact just doesn't compute -- it doesn't fit into the pre-existing frame.

The people have had sand thrown into their cognitive gears by Republican politicians and the hairhats on TV who support and enable them. While average people can certainly understand the issues, the clowns on CNN and ABC evidently cannot, and of course Fox News lies on purpose. (ABC also employed John Stoessel, who I would actually classify as the biggest liar of all.) The right has succeeded in infesting our discourse with meaningless rhetorical tropes that effectively substitute for facts and arguments. Free markets™, Big Government™, Rationing™, Socialism™, Free Choice™, and so forth, don't actually mean anything. But all you have to do is say them and people think you've successfully categorized a proposal as good or evil.

Now, as for Electronic Medical Records. There is what I will call the radical proposal, and there is the moderate proposal.

The radical proposal actually has a lot of advantages and on purely technological grounds it would provide the best infrastructure for a true health care, as opposed to disease care system. This proposal is that your medical records are not located in your doctor's office, and the hospitals and other places where you are treated. They are located on a web server in Palo Alto with backups in Tuvalu and on your own thumb drive if you wish. They belong to you. You control access. You can give the passwords to your primary care doc -- and presumably you would need to -- but you could if you wished make some parts off limits even to him or her, though I would not recommend it. You authorize your PCP to provide access as needed to other providers, to the portions of the record which are relevant for them. The payer -- probably an insurance company for now, but we can hope some day it will be otherwise -- automatically gets sent billing information, including whatever diagnostic info they require, but that's all they get. The doctor doesn't even need to send them a bill.

So, if you're on a trip to Las Vegas and a slot machine falls on you, the docs there can get access to your records and find out all about your drug allergies, medication needs, and history of pulling over slot machines onto yourself in order to generate lawsuits. Small physician practices don't need to buy any software or systems because the software resides on the server in Palo Alto. All they need is a web browser. (I recommend Firefox, and it's free.)

Nobody can write anything in the record that you don't know about, and you can write your own comments disputing anything you don't like, and/or petition to get things changed. Nobody without the passwords that you control can get access to the records, except perhaps in carefully defined emergency situations.

Sounds utopian, right? Not going to happen, at least not any time soon. And I don't have to spell out for you the huge privacy and security concerns this would raise. Perhaps they are insurmountable, perhaps not.

So what we will get instead is every institution having its own, stand-alone system. There will be various competing off-the-shelf systems, and some big academic medical centers will have proprietary systems built just for them. They may or may not be able to talk to each other and exchange information easily. That's very difficult because they won't all use the same information architecture so there will have to be all sorts of software written to convert info and move it around. And small practices will still not be able to afford it or use it efficiently if somebody else buys it for them.

So we'll see.

As for preventive medicine, yes there are some procedures, notably some immunizations, which are or can be cost saving. Having doctors counsel people about smoking cessation isn't very effective, but it doesn't cost much either so it may have a net saving. But screening procedures, prophylactic statins, stuff like that, may be cost effective, meaning that the money spent is worth it, but that's not the same as cost saving, meaning the net cost is actually less. And right now, except for the autism nuts, we have near universal immunization, so there isn't much potential left there. We'll have to look elsewhere for savings.

Victor Fuchs pretty much nails it

Victor Fuchs is a health care economist who among other distinctions wrote a famous book called Who Shall Live, which Prof. Fuchs discusses here. This week in JAMA (subscription only, but here's the opening paragraph. A big razzie to JAMA for making this closed access.) he discusses the prospects for health care reform. Since everything he says is the pretty much the same as what I have already said here in recent weeks, he must be right.

Fuchs says, first of all, that the Clinton effort failed because, while a majority supported reform of some kind, proponents never got behind a single plan but rather divided their energies, while opponents were united; and that the public never properly understood the issues. Both true. Alas, the situation is really no different today. Also true.

Given that we are in a period of economic decline, Fuchs argues that controlling costs has to be a salient goal of reform. Hey, I just said that a few days ago. Fuchs makes the following points about cost containment:

• The best shot for a quick knock down of costs is reducing administrative expenses. These are what insurance companies provide, and also come along with means tested programs. Universal coverage will pretty much pay for itself if it eliminates this waste. (However, as the wise professor is surely aware, the insurance companies aren't going to sit still for that. We will without a doubt see an encore by Harry and Louise or their modern descdendants.)


• Long term, we need an equivalent of the UK's NICE. How often have I said that? As I also noted a couple of days ago, conservatives -- pretending to stand for freedom but in fact standing for drug and medical device manufacturers who fatten their campaign coffers -- call efficient and effective medicine tyranny. This is utter nonsense, but will the people listen to Victor Fuchs, or the idiot talking heads on teevee?


• Ultimately, cost containment requires establishing global budgets (as the UK does for all health services and Canada does for hospitals, although Fuchs doesn't mention it). Yes, but just wait for the screaming and yelling about rationing. Again, will the people get this, or will the hair-hatted phonies on teevee scare them with images of sending Grandma off on an ice floe?


• More emphasis on preventive medicine may be good for our health, but it won't save money. Hey, didn't a blogger we all know just talk about that?


• Electronic Medical Records aren't cost effective for small physician practices, although they may have a payoff in large systems. See above bullet.

Fuchs also draws attention to the likelihood of adverse selection torpedoing a proposal to offer a Medicare buy-in to people age 55-64. Maybe a good point, on the other hand that would not be a problem if we had mandated coverage, because the Medicare buy-in would likely be the best deal for everyone. Of course, it would also set the insurance companies on the slippery slope to oblivion -- a good thing, but here come Harry and Louise.

So, the bottom line is, good public policy will be very tough politics. Let's not waste time in yacking about it, however. Organize!

A time to worry

I don't know about you, but reading the NYT these days is making me very, very nervous. The global economy is cratering and the situation is completely out of control, with economic stress already bleeding into social unrest in eastern Europe and very shortly, I fear, in many other places.

The situation is quite unpredictable and I'm certainly not going to tell you where I think we'll be six months from now, let alone in five years. But we all know where the last Great Depression ended up. Fortunately, here in the U.S., just as in the 1930s, we aren't seeing the far right get any traction from this and right now, it seems to be setting the stage for a somewhat more just social order in our country. Whether that political momentum will be sustained if people are hungry and cold two years from now, despite Mr. Obama's best efforts, remains to be seen, however.

For me the greater worry is in what had been viewed as the emerging democracies of Europe and even, potentially, in central Europe where we thought "never again" was a slogan we could believe in. I'm also greatly concerned about political stability in the Middle East, not because I think there is some Islamofascistocommunistoterroristo threat to the United States, but because that balck goo under the sand will pull us all into the maelstrom, and of course the people of the region could suffer even more than they have already.

Interesting times, for sure.

Knowledge is Evil

That appears to be the new conservative slogan. As I mentioned a few days ago, the economic stimulus act includes money for comparative effectiveness research -- figuring out which treatments work best, and at what cost. I also mentioned that, to the loyal opposition, learning this information is the line of march to tyranny. WaPo's Steven Pearlstein, who is not exactly Vladimir Illyich Ulyanov, follows the bouncing meme through the echo chamber from the Washington Times to Betsy McCaughey to Matt Drudge to Rush Limpbag to the WSJ.

It seems that if we actually know that one procedure or drug works better than another, or that it costs a million dollars to get a small increment of benefit, the government will deprive us of our God given right to choose the worse option, or to misallocate our resources and get less for our money. The term for this particular form of totalitarian oppression is "rationing."

Of course, the real force behind this ostensibly principled, ideological stand is the drug and medical device industry, that wants to keep selling us its most expensive products whether or not they work, or work any better than the cheap ones. But as ideology, it is probably more idiotic than most of what conservatives "think." We currently ration health care by giving it to some people and not to others. Poor people and old people, oddly enough, can have the most expensive treatments, for the most part with little restriction. Medicare currently has some standards for what it will pay for, but they are based on whether a treatment is considered experimental, not on its cost effectiveness.

The taxpayers subsidize this privilege, and you might think that would upset the Loyal Opposition,but apparently it does not. Nor are they upset by the coverage limits many middle class people face who are lucky enough to have insurance, that already deprive them of some care based solely on price, without any consideration of value. It is obvious that there is no rationality behind the demonization of rationing, it's just yelling and screaming unencumbered, as Click and Clack would have it, by the thought process.

Here's a simple thought process. We live in a world of scarcity. The bounty we enjoy is not infinite. If we spend a million dollars to extend a sick person's life by one month, that is a million dollars we do not have with which to do something else -- perhaps, for example, prevent a thousand people from getting sick in the first place, or cure them early and easily. If we are able to properly understand that choice, then and only then can we make it.

Will that make us less free? Only if you equate ignorance with freedom. And it is true -- if you are ignorant, you do not need to concern yourself with difficult choices, and you do not have to know what you are giving up. You are free to believe in falsehoods. And that is indeed the essential ideology of conservatism.