A few weeks ago, Corvo, apparently representing the insurance industry, posted a diary advocating that Universal Healthcare might not be a solution to our healthcare problem.
His premise for this statement was:
Milton Friedman said so.
MF is the most respected economist of his generation.
I had several issues with this notion, starting with the feeble argument from authority. Corvo and I got into a long thread which degenerated into him basically becoming enraged that I didn’t simply swallow his assertion and get on with the agreeing. I think it’s revealing of right-wing propaganda’s insidious and false nature that most people are expected to bow before authority or gentle bullying. Right-wingers tend to resort to anger and intimidation if these don’t work. I’ve seen it all too frequently before when I have the unmitigated gall to talk back to them.
At any rate, I think most Kossacks are aware of the idiocy of attempting to apply free-market principles to something like healthcare which doesn’t bend to those pressures. So let’s instead talk about Milton Friedman.
First of all, Economics is not a science.
This from dictionary.com:
- a branch of knowledge or study dealing with a body of facts or truths systematically arranged and showing the operation of general laws: the mathematical sciences.
- systematic knowledge of the physical or material world gained through observation and experimentation.
Science’s knowledge is not in the collection of raw data. Though this has its merits, a scientist spending his or her entire life simply counting stars would be mocked as a time-waster. Even a scientist spending his or her life doing nothing more than cataloging stars wouldn’t be of much note. There are two more steps to the process that gives a science its power.
Once knowledge has been gathered, a pattern can be observed. All stars with a certain temperature have lines showing element X in their spectra. All plants with some and such fiber have gene sequence Y. Whatever.
Finally there is the magical element of science, the one that frightens Luddites and energizes industry: application. Observation leads to analysis, analysis leads to prediction, prediction equals control. Predictions told us, before we’d ever done it, that a precisely-machined arrangement of parts made of Uranium, brought into close contact with each other in exactly the right speed and sequence, could cause that Uranium to spontaneously melt down, or split at the atomic level, and cause a massive explosion. It was a terrifying discovery, but as the t-shirt says: Science: It works, bitches. There is no substitute for a successful prediction in science. If the prediction fails, as it did famously in the cold fusion case, reality passes judgment. People move on. It’s not a question of belief. Clapping harder will not make your theory true.
So what predictive power lies in economics? Let’s look at some of the axioms of laissez-faire economics, championed by Milton Friedman.
The laissez-faire means that the neoclassical school of economic thought holds a pure or economically liberal market view: that the free market is best left to its own devices, and that it will dispense with inefficiencies in a more deliberate and quick manner than any legislating body could. The basic idea is that less government interference in private economic decisions such as pricing, production, consumption, and distribution of goods and services makes for a better, or more efficient, economy.
So we’re to assume that, left to itself, any market would provide us more efficient healthcare than any government. Right away we have to question what’s meant by efficient. If I’m to take this exercise seriously at all, I would assume that either the price would become cheaper, or that the service would become more effective, or a combination of both. However, there’s a problem with the market as it exists today. It’s not free.
Indeed, healthcare isn’t a product. It’s a service. It’s not made on assembly lines. It’s made in discrete moments where a knowledgeable person, a doctor, makes a decision regarding what to do, or not do, to a patient. The payment made for this decision is the fee for an office visit. So how do we shop around for better fees?
Well, we have to go to our insurance provider. In 2000, 61.4% of U.S. workers received their insurance from their employer. Right away we have a problem with freedom to choose. I don’t know about anyone else here, but when I’m interviewing for a job I think of the quality of benefits as something I can only tangentially factor into my employment decision. Other factors are salary, work environment, location, and stability of company/industry. I’m not free to choose my health insurance provider when I have all those other factors to juggle, unless I choose my job entirely based on health benefits.
Your average free-markethole would at this point chide us gently and say, "Tsk, tsk, you always can choose your employer. It just depends on what factors you’d like to use." However, when you work in a specialized industry you may only have one or two choices. Or you may have none. There is no "market" for the decision to fall back on. Tying my decision of job to health benefits deprives me of the ability to vote with my feet when my employer becomes otherwise abusive of his perogatives.
Additionally, this line of argument overlooks a crucial element of the free-market equation: knowledge. When picking a job I only have the vaguest knowledge of what the healthcare benefit packet will look like once I get it. I don’t know any employers who allow you to try their insurance before you "buy" it by accepting your job offer. Maybe Kossacks can enlighten me on this. Even if that was the case, I don’t know of many employers who keep their insurance rates tied to the employment agreement, because my insurance rates and coverage conditions have mutated wildly from what they were when I originally took my current job. Does that mean, free-marketholes, that I have to change jobs every time my employer jerks around the insurance arrangements?
Fundamentals of Theory
I’m certainly not a leader on this particular intellectual path, but I think it’s worth pointing out at this juncture that I believe economics to be a junk science. My reading on the subject has revealed very little in the way of empiricism regarding how economies work. I’ve seen too many axioms presented as tautologies to take it very seriously.
A fact for you to ponder as I continue: the so-called "Nobel Prize" in Economics that Milton Friedman’s gravitas is supposed to come from – it’s a fraud. The prize is actually awarded by the Bank of Sweden in the name of Alfred Nobel. It was not one of the original 5 prizes in Nobel’s bequest, and follows the neo-conservative pattern of hijacking someone else’s marketing success in order to sell a shitty idea. The fact that economists feel compelled to do this in order to grant themselves "scientific" cachet ought to tell you something about the field’s credibility overall.
I’d like to propose the theoretical grounding for a new way of understanding economics. Economists attempt to place conditional axioms over human behavior. I think this is the wrong way to do it. Instead I’d like to take patterns I’ve learned from computer systems and apply them. The first complaint I’m going to get is that people are not computers. That’s true. But I’ve got a 12-year career in watching people use computers. If you think of economics as a set of rules much as a computer system has a set of rules, you realize that the desires of the people using it don’t much matter. The system will behave in a certain way that is predictable because people, as an aggregate, are not possessed of much in the way of free will. Their desires collide with the system’s possibilities and the result is very, very predictable. I’ve made a career out of handling the vagaries of the computer system-to-human being interface.
The first thing to realize is that system performance is not spoken of in capabilities by a system programmer. I am not interested so much in what the system can do. I am much more concerned with what it already is doing, and what it will do when it reaches a certain threshold of use. In other words, I am concerned with its boundaries. A process is considered to be bound by the system resource that it will exhaust first. Some processes are memory-intensive. Therefore they are bound by how much memory is available to them. Some processes are I/O intensive. A process that writes millions of small files to the disk will run out of resources when it exceeds the capacity of the system’s input/output bus. A process bound by processor resources is one that performs intense mathematical calculations. Processes that render large pictures or perform other sustained mathematical equations are considered processor bound.
Applying this thinking to our own economy, I find the one constant that has stood out since the end of World War II is that our system currently appears to be energy-bound. A shortage in system resources causes a slowdown. In economic terms we would call it a recession. Laws of supply and demand, which ordinarily balance out what we need from what we can afford, cease to function when a binding condition is encountered. In pre-Depression economies it may have been more proper to speak of money supply or gold supply, or land supply as binding conditions. Since money became virtual with the breaking of the gold standard, money supply has no longer been a binding factor, and the capabilities of our economy appear to have expanded until they reached the next natural binding condition, energy.
I tried doing some research on the post-WWII recessions. There were just four recessions in the quarter-century following WWII. I could only find data on one that was of any significance, and that was the recession of 1958. This coincided with a global downturn in the economy but to the American worker was apparently barely a blip, as this quote seems to indicate:
In the United States, unemployment rose but there was little or no decline in personal income and no decline at all in consumption expenditures.
The only other recession I could find that seemed to me that it might have some meaning is the one of 1953 – which coincided with the Korean War. None of the economic declines of the Post WWII period appear in popular literature of the time or as any significant feature of the cultural landscape until the early 1970’s. A brief waffle around 1969 may have coincided with the phenomenon of oil production peaking in the United States – I submit that the changeover to gradually importing foreign oil had something to do with that one. Of course, the next recession starts in 1973, exactly coinciding with the Oil Embargo. After that, every successive economic cycle seems to be tied to energy prices. Consider the following data:
1973, an Oil Embargo occurs. The recession that follows lasts 16 months.
1979, a second Oil crisis occurs. Another recession follows, lasting 6 months. This recession is almost entirely based on the Iranian Revolution and at this time the Saudi oil regime, realizing their economic success is joined at the hip of ours, did their best to offset the impact, thus shortening the recession, but not enough to keep Jimmy Carter in office. I daresay the recession of 1981-82, which followed barely a year later, is so close in time that it probably qualifies as an aftershock of that recession. Remember, at that time Japanese cars were rapidly entering the American economy due to the chugging inefficiency of American models.
Oil prices spiked again in 1990 as Iraq prepared to invade Kuwait, and once again recession gripped the economy of the United States. George H.W. Bush may have thought that reneging on his promise to not raise taxes ejected him from the Presidency, but as a victim of that recession I can tell you it was his utter cluelessness about the plight of the average American that brought it on. I first became aware that elections had consequences in 1990, when I realized my President was a dipshit.
Similarly, though the economic policies of Bill Clinton provided a firm ground on which to grow the American economy by balancing our budget and encouraging worker-friendly policies, the boom of the late 1990’s was far more rooted in the sudden drop of oil prices in 1997. I remember quite clearly reading about poor Texas oilfield lessors, choking to death on the lack of income because the economy was awash in cheap oil.
The recession of 2001 came after the price of oil once again peaked. An economic bubble inflated by incredibly cheap oil was pricked by the sudden re-emergence of a price cycle that probably was cut off prematurely in 1997. In other words, our economy roared along with 1960’s-level prices at 1990’s-level consumption rates. When 1990’s level prices returned, reality set in.
So what’s our economy doing now, you ask? Oil prices are at record highs. Gas prices too, although even adjusted for inflation they could be higher.
Well, there are a lot of people, myself included, who think that unemployment is being vastly underreported, that economic suffering is being vastly understated, and that the average American is living through worse economic times than is generally acknowledged by the D.C. Cocktail Party Circuit.
But the point of the above exercise was to show that most of our economic hard times seem to coincide with the constriction of our energy supply. Therefore, our economy is currently energy-bound. This gets to the heart of why I’m such an adamant critic of the notion that controlling pollution (by way of introducing renewable energy) would cause economic misery. This is the ass-hat theory of Bjorn Lomborg and other GW deniers, and it flies in the face of nearly all of the data we have available on how energy relates to the economy.
Introducing renewable energy to our economy as a staple would immediately reduce the cost of energy. Since renewable resources are cheaper, and not constrainable by monopolist mining interests, renewable would remove the binding condition that has constrained our economy since the late 1960’s and permit a massive expansion to occur, on a level unseen since the Post WWII era. My belief is that the Peak Oil catastrophists are overstating their case. What’s happening with the U.S. economy right now is that we keep bumping up to the capacity of energy output, retracting slightly as we absorb that constricting force, and then expanding infinitesimally out to it again. The only people making demonstrable gains in this situation are those sitting at the spigots of our energy sources. We’ve reached a point where further gains are nearly politically impossible since our Washington elite have been bought completely out by the energy industry, and the only gains in efficiency are happening almost as a grassroots movement by people alarmed enough by global warming and oil price sticker shock to do something about it.
There are other binding conditions to our economy, and it’s no accident, in my opinion, that those conditions are all at the battleground of the great debates of Conservative vs. Liberal philosophy.
Healthcare is a binding factor for our economy because our modern, highly integrated society depends on the health of our workers. Laborers in the information economy are specialized individuals and when one of those people goes missing in a tightly integrated organization, their knowledge of a system can have a dampening effect on productivity. I know this for a fact because I manage an IT team. We are no longer assembly-line workers and we are not plug-in units. All the management theory in the world cannot make us so. Healthcare security is important in the modern world because without it we cannot plan for health expenditures in the framework of a bi-weekly paycheck. A single health disaster can cost a high multiple of a worker’s yearly salary. The ordinary rules of supply and demand that govern other commerce are not present in healthcare. You cannot bargain with multiple providers for insurance: you are either in the network, or you are out. Movement between insurers is prevented first by the function of insurance tied to employment, and secondly for those who purchase insurance outside of employment, the pre-existing condition, or other barriers to qualification. Without the ability of the purchaser to freely, rapidly choose competing providers of insurance, price is controlled entirely by the provider. Since the insurance provider also controls the actions of the healthcare provider, all control now resides in the hands of an institution that has no economic accountability to the patient. The patient is also not in possession of even a fraction of the information required to make a decision regarding his or her own health. Patients do not choose illness and cannot choose to not treat illness – they can only postpone it and make it worse. Fear and pain are the driving factors behind the "demand" for healthcare. Raising prices does not reduce "demand" because people do not get sick on the whims of actuaries.
The information age demands educated individuals. Without an education the modern economy has very little use for us as workers. Jobs that pay well require the ability to synthesize information, read and write clear English, understand and manipulate computers, and interpret advanced business processes. Studies prove that a well-educated worker returns to the economy many times the cost of their education. Restricting education to those who can afford it only foments the creation of a permanent underclass who, in an information economy, literally have nowhere to go. It is a prescription for the Morlocks and the Eloi. I advise proponents of privatizing education to fortify their gated communities.
Finally, the bounding condition of housing has caught up to the Industrial Age. Previous eras of American History were free of this one constraint due to a resource unavailable to any European economies: the frontier. Although it is difficult to get too enthusiastic about the great openness of a frontier already occupied by technologically backward natives, it is true that for a time in the early era of American history, those made homeless by poor economic circumstance could simply wander a little further west. The government would simply give them a home if they but made an effort to work the land. This meant that the supply was essentially free.
Even in settled European economies prior to the Industrial era, human beings could always choose to live away from cities. Squatters could find some common area to pick as their own. In the age of Industrialization, however, this is virtually impossible. Even in the remote areas of Wyoming, the most thinly-populated state in the lower 48, it would be difficult to park yourself in the mountains or the plains for long without being chased off by either governmental agents or private security teams.
These are therefore the four binding conditions of our industrial economy. As binding conditions they are not subject to the rules of supply and demand, since the demand is involuntary (even for education), and the supply therefore does not need to follow any law of equilibrium. A natural consequence of this thinking is that if we do not in some way regulate the supply of these needs, our economy will suffer needlessly. The retraction of much of the utility of education has already shown itself to have disastrous consequences to our economy, as an uneducated, anti-intellectual populace is prone to believing the ludicrous and entirely untrue. Further dumbing-down of America will result in a useless division of class, in a nation where highly-educated people are the only ones with a future.
And the constriction of energy and healthcare availability have choked our economy for years. The ready availability of all of these is a requirement for our economy to function. As I’ve noted before, using free-market rules to control a binding condition is like using painkillers to control hunger. It may mask the problem for awhile, but the effects are in the end destructive. Starving people, especially ones who aren’t finished growing yet, causes them to become stunted and withered. Starving our economy will have a similar effect. And the effects of this poor economic nutrition are literally showing up in the real world – United States citizens are falling behind the rest of the world in height. We really are becoming a third-world banana republic.
There's a final binding condition which is extremely difficult to measure, but which I think is important to note. That's credibility. In particular, it's a measure of how much the participants in an economy trust the rules of that economy to be consistent. An economy with little or no credibility undergoes a runaway condition such as inflation which destroys the significance of one or more of its key elements. Measuring credibility with some key indicator is probably very difficult, but one thing is certain: when it's gone everyone knows it.
The economic uncertainty of the majority of Americans today is a direct result of shitty ideas propagated by an intellectual prostitute whose real goal was to please his wealthy friends with ideas that fit their rapacious schemes. If we are to maintain a sustainable society we must immediately abandon the sloppy thinking that led us to this pass and start thinking in concrete, demonstrable terms. I believe I have described the outlines of a framework for sound, repeatable analysis of what is really going on in our economy.
The most important thing to realize is, we cannot afford to entertain ideological fantasies regarding the composition of our modern society anymore. Reality is here. It knocks most loudly and insistently, and it is not the world that Milton Friedman or any of his ilk have ever described.