One con argument against welfare in general and government supplied health care in particular is the notion that healthcare costs can't be controlled because they are labor intensive. This notion reflects the general disrespect for human beings and labor that is behind elitism and the push to replace people with machines in more and more businesses. It sounds plausible from a micro-economics view, but from a macro-economics view it reflects misplaced causality and misidentification of the culprit for cost increases. Especially in healthcare. Actual Labor costs are not the issue with healthcare. Profiteering, speculation, bureaucracy and administrative inflation are.
Discussion
I wrote about Hillary Clinton's struggle with Affordable Health Care, [see: Hillary 1992] as it occurred in the first few years of the Bill Clinton Administration in an earlier post. I remembered the role of Bernie Sander's & Edward Kennedy's perfectionism in shooting it down, but I'd quite forgotten the role that Senator Moynihan played. Daniel Patrick Moynihan was an eccentric, narcissistic and brilliant academic as well as a "maverick" politician. He often operated on Gut Feeling backed by an encyclopedic knowledge of subject. And he played a large role in the healthcare debacle. He was all for "welfare reform" but against the Federal Government reforming Healthcare. The reason he cited was "Baumol's Disease"
“The Moynihan Corollary to Baumol's Disease”
Carter W. Page was referencing Moynihan today in his feckless defense of his own treason on dealings with Russia. I first started looking at Moynihan's record on Russia to critique his argument. But Moynihan predicted the collapse of Communism, and it being due to Russian Kakistocracy, and so he would have been scathing on the kleptocracy that Russia has become since then, were he still alive, so there was no point even arguing with the moron. But while rereading summaries on him I came across a lecture by Larry Summers on the subject, and another article referencing "Baumol's disease", and I immediately wanted to critique it. The Peterson Institute for International economics has an article titled "Getting the Job done" about cost control and healthcare. The article defines Baumol's disease:
“Baumol's disease is the name of a theory of a New York University business school professor, William J. Baumol, suggesting the near impossibility of imposing airtight cost controls on labor-intensive services. The Moynihan corollary holds that it is an even harder challenge in services supported by government. Federal budget-balancing, he suggested, will be all the more difficult as a result.” [Peterson]
Apparently Moynihan was a big proponent of the notions behind Baumol's disease. That certainly was part of the reason he was for ending welfare programs like SNAP and replacing them with Job Training and similar "welfare reforms" that . On Healthcare, The Peterson institute article Cites Baumol & Moynihan's example of a Symphony:
“is that it takes the same number of musicians to play a symphony as it did two centuries ago, but the costs of an orchestra have risen exponentially without any gains in productivity along the way. The corollary, promoted by Moynihan during the healthcare debates of the Clinton years-that it is particularly hard to curb costs in services delivered by the government-continues to resonate.”
The trouble with this argument is that it's not the salaries of the musicians that have gone up exponentially. On the contrary, adjusted for inflation many musicians work for less than they worked for two centuries ago. The conductors, administrators, board members, lawyers and other salaries have expanded, but not those of the musicians. If the problem were musician labor, then it wouldn't be a problem. Baumol's disease could be seen as a disease of privateering and bureaucracy. But for some reason he, and other conservatives, choose to not see it that way.
The Article notes that:
“Moynihan tried to persuade the First Lady, who was in charge of health care for the administration, to pay attention to Professor Baumol of NYU.”
It also concedes that Hillary and Bill actually listened to Baumol and consulted with him:
“Johnson and Broder write, the Clintons tried to woo Moynihan by consulting Baumol on their proposals for healthcare cost containment.”
So like with Bernie Sanders (then in the House) and Senator Kennedy, Hillary jumped every hoop set in front of her and they even:
“sought to enlist the scholar to send memos to Moynihan that some of these schemes could work,”
But Moynihan had already made up his mind that:
“any cost containment would fall too heavily on New York's teaching hospitals and doctors. He wrote in some of his letters that he found the Clinton healthcare program "coercive" and oblivious to the complexities of the problem. ”
And so:
“it was to no avail.”
So here was a man who claimed that cost containment would be impossible due to “Baumol's disease” and bases his decision on the fact that any cost containment would fall on the salaries of the administrators and doctors in the teaching hospitals. That in itself tells me that he was using “Baumol's disease” as an excuse, not a reason. Since if Baumol's disease were the problem, then doctors salaries would benefit from medicine being made universal....
The real problem isn't with cost
The real problem with public services is not with containing the cost of providers or users as users, but of containing the privateering and profiteering that inevitably attends power. Some markets, like healthcare don't reach everyone unless they are managed as utilities for the public good. But the moment you hire managers you find some (most or all) seeking to siphon off resources for their own private, separate good. With a utility like health care, the services are both non-refusable, and life or death. So extorting resources due to authority is easy and blaming the victims easier. The real problem is always making sure that they are paid for, deciding who will pay for them, and making sure the funds are handled with "fiduciary care" and actually go where they are intended. And that the resources are garnered and used to reach everyone who needs them.
The real Objection is usually Optics & whether the Pirates Benefit
Moynihan admited that his real objection was that:
“it was bad strategy and bad politics to expand an entitlement and force those satisfied with their own healthcare to pay for it.”
Which is the argument that the Republicans are using to sabotage ACA now.
No Ability to Loot
The real problem, from the point of view of elites, as the Article quotes Moynihan and Baumol:
“It is characteristic of 'stagnant services' to drift into the public sector. Why? Because there's little or no money to be made….This means that the public sector will continue to grow. ”
Of course, the issue was that a percentage of doctors, administrators and investors weren't going to be able to profiteer off of a system that controlled costs, that reached everybody and where wealth can't be extorted from both the private sector and the public sector. Which is the current system.
Real life has seen that private sector healthcare costs have grown so fast that rationing by poverty is becoming an issue. We are moving to a three tier healthcare system. Excellent care for the well heeled (well healed?), mediocre care for the working middle class and no care for the poor and indigent. Yet the total costs of the system are greater than if they were provided by the public sector in the same manner as other countries! Baumol was right based on policies of his time:
“Baumol estimates that by 2040, education and health will require 55 percent of GNP. He insists there is no guilty party here. The cause is to be found in the nature of the technology services.”
"The nature of the technology services" is that price of technology reflects managerial costs, R&D and a hefty premium for rentiers and owners. Often the labor and materials going into an expensive machine are a tiny fraction of the cost. Much of it is markup and financial profiteering (privateering). In retrospect "Bauman's disease" is a false argument that confuses the causality of healthcare and other bureaucratic costs. In any hierarchical organization labor output goes down as one moves up the organization, and rewards are arrogated. Bureaucracy is not labor intensive, it is management intensive, profiteer intensive. Contracting out wisely may reduce costs in the short run, but it usually creates a rival private and contractual obligation to rent seekers on top of the people doing the contracted work. Bauman's disease identified the wrong problem. It also obscures the real solution; which is more democratic and local control and involvement over the institutions that provide these services; "proper management.
Shifting the funding of healthcare from punitive taxes to marginal income taxes on unearned incomes (speculation, a transaction tax on trades, unearned rents, corporate privilege) would fund most of our needs. Blaming labor is a mistake.
- http://holtesthoughts.blogspot.com/2017/07/what-really-happened-with-1992-hillary.html
- Peterson Institute, Article by Steven R Weisman titled "Getting the Job Done"
- https://piie.com/commentary/op-eds/getting-job-done-lessons-moynihan
I may add illustrations later
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