On the Macroeconomic Subtext of Healthcare Reform

In the current healthcare reform debate, one statistic frequently cited by politicians and pundits indicates that Americans spend between 15% and 17% of their income on healthcare.

While the citation of this figure might be understood as an expression of empathy on the part of politicians and pundits toward the plight of ordinary citizens who must incur increasing healthcare costs as a prerequisite for maintaining employment (and thereby contributing to economic growth through consumer spending), the macroeconomic context in which healthcare reform is frequently debated suggests a different sort of interest.

The US economy, and the behavior of politicians, pundits, bureaucrats, and business leaders who seek to promote US economic interests frequently conceive of their task in terms of profit growth.  

In late 1980, the DOW stood around 1,000.  In late 2009, the DOW stands around 10,000.  This is an increase by a factor of 10.  Over the same period, the US population grew from around 200,000,000 to 300,000,000: an increase by a factor of 1.5.  These intensive economic growth patterns (which must outstrip population growth) are understood to be the cornerstone of US economic success -- mainly, that those who have access to surplus income for investment get richer, while everybody else is served an increasingly smaller slice of the pie.  Although typical wages have increased steadily over the past few decades, the growth of CEO salaries have increased far more dramatically, from about 40 times typical worker pay in 1980 to well over 400 times typical worker pay in 2000.  This type of economic growth disproportionately benefits the wealthiest Americans at the expense of ordinary citizens.

As healthcare costs increase faster than GDP, numerous industries suffer as a result.  If citizens spend their shrinking slice of the pie on inflated healthcare costs rather than on televisions, cars, and dining out, the economy suffers.  So do investments in education, infrastructure, and the like.  Moreover, unexpected healthcare costs are a leading cause of bankruptcy in the US, which further detracts from the potential contributions of consumer spending to overall economic growth.  A driving interest in controlling the increasing cost of healthcare is to keep consumers and corporations spending.  If consumers don't spend and corporations don't invest, the economy doesn't grow.  If employers are responsible for increasing healthcare premiums, fewer funds are available for the types of corporate investment that promote economic growth.  Even personal savings are here out of the question, as personal savings don't contribute to economic growth either (unless those savings are held for the purpose of putting a child through college -- since a college degree, on average, increases lifetime worker income by $1.3 million).

So one major factor in the current political calculation is the desire on the part of politicians to free up more funds specifically for industries that contribute more directly to economic growth -- and thereby to promote the continued enrichment of the wealthiest Americans.

Another major factor in the current political calculation has to do with the impact of illness on the productivity of workers.  At present, the annual cost of chronic illness in terms of lost productivity in the US is estimated at aver $1 trillion.  In a very direct way, if workers take fewer sick days, employers benefit because worker productivity increases.  Worker productivity has nearly doubled since 1980.  Thus, increased access to healthcare contributes to economic growth because access to regular health services makes for more productive workers.  Increased worker productivity is an important factor contributing to US economic growth -- a situation wherein for the same pay, a given worker renders an increased benefit to his or her employer.

The so-called "public option" is therefore an important means of addressing both these key factors -- by decreasing healthcare costs and increasing access to healthcare -- both of which serve to promote economic growth.  Those who oppose the "public option" reveal not only the short-sightedness of their vision, but reveal a profound disingenuousness in their rhetoric: that is, the same people who argue that government can't run anything efficiently are the same people arguing that a public health insurance plan will put private insurers out of business.  While this opposition is typically framed in terms of an ideological opposition to government interference with competitive market forces, it is important to note that industrial-scale corporations routinely do everything in their power to eliminate competition at every opportunity: by under-pricing competitors at a loss, purchasing competitors outright, or manipulating legislation to produce favorable results.  There are few industrial-scale corporations that would not prefer monopoly status to the status of one competitor among many.  The central point here is that the systems of vertical integration so characteristic of industrial-scale commerce (and monopoly) are precisely those systems which are promoted by politicians who advocate the de-regulation of industry.   It seems reasonable to suppose in this case that, while opposition to the "public option" is framed as ideological, it is more likely the product of back-door negotiations between certain politicians and the healthcare industry itself.  

In many respects, then, an important subtext to the ongoing healthcare debate relates more to factors promoting specific macroeconomic benefits than to moral imperatives relating to the personal benefit of individual citizens.  That individuals benefit from affordable healthcare is almost a politically expedient side-effect to the greater benefit rendered to the wealthiest Americans and the largest corporations.  And yet, it is individual citizens who are in the end asked to pay for this healthcare reform -- who are asked, in essence, to subsidize the economic growth of which they receive a steadily decreasing share.  President Obama has pledged that he will not sign into law any healthcare legislation that increases the national debt.  While this may seem like a noble goal, it is, in a sense, just another way in which citizens are treated as a means to the end that the profitability of corporations continues to grow.

Privatization is an important tactic used by the wealthiest Americans to entwine their interests with those of government -- that is, to bring their personal interests more closely into alignment with those of government.  In an economy whose growth relies on easy access to credit -- essentially, debt as currency -- why shouldn't government incur some cost to see its interests so well served?  The government has, after all, demonstrated its willingness to incur large amounts of debt to rescue bankers and pursue protracted war efforts.  That the government is so reluctant to incur additional costs for the benefit of the healthcare interests of the citizenry is an indication that the benefit of the citizenry is not a primary motivation behind the current healthcare reform debate.

What positive conclusion can be drawn from all of this?  Primarily, it is that the wealthiest Americans and the largest corporations should bear the greatest part of the cost of healthcare reform precisely because the wealthiest Americans and the largest corporations derive the greatest economic benefit from healthcare reform -- even if they are paying for the healthcare of citizens who are not their employees.  Of course, this conclusion is profoundly out of step with the contemporary political climate in the United States, which in recent years has been driven by an unprecedented inclination towards the privatization of profits and the socialization of losses (most dramatically evidenced in the recent financial crisis).  Thus, presented with the possibility of immediate relief from the pressures of disproportionately increasing costs and proportionally decreasing incomes, many Americans will gladly accept whatever healthcare reform is enacted -- even if the final legislation is perceived as far from perfect; and though the effect of whatever healthcare reform legislation ends up being enacted will be to further the exploitation of workers for the benefit of the wealthiest Americans, this exploitation can be easily framed as a significant and long-overdue social benefit.  Those who remain dissatisfied after the issue is settled will likely be dismissed as extremists, radicals, and malcontents; and since much of what causes their dissatisfaction will remain in the realm of political subtext -- not widely discussed in the mass media -- they will have little in the public discourse by which to justify their claims.

Oligopoly IS Free Market Economies

As American schoolchildren, we are taught that in traditional free-market Capitalism, producers compete for consumers by making a better product at a lower cost. We are taught about the dangers of monopoly power, the pitfalls of Communism, and something or other about the success or failure of laissez-faire economics. We are taught that free-market Capitalism works the way it does because when a consumer is presented with a choice, he or she will behave according to a certain conception of rationality: consumers will purchase the most product available at the lowest price available.

But how do producers compete when costs are as low as possible? Or when prices are as low as the competition will allow? This latter question may seem strange: why extend to one’s competitor the power to price one’s own product? Because our globalizing, vertically-integrated economy is founded upon such a pricing scheme, which is the consequence of a market structure known as oligopoly.

Oligopoly means that a very few firms have extensive influence over groups of markets, a situation that results from decades of wide-spread acquisitions and mergers. Such an environment changes the nature of economic competition: two parent firms that that have competing subsidiaries in one market may require different subsidiaries to cooperate in another market. As John Malone put it in the Financial Times: “Nobody can really afford to get mad with their competitors” (May 28, 1996).

Consider Coca-Cola and Pepsi Cola. There are few differences between these two products: they are delivered in much the same way (bottles and cans), they contain many of the same ingredients (high fructose corn syrup, caramel color, water), and the difference in cost is negligible. Yet we say they are competitors. In what sense, then, do they compete, if not for access to consumers’ wallets?

In markets dominated by oligopolies, producers appeal not to consumers’ wallets, but rather to their hearts and minds; brand name identity is a vital part of this condition.

The brand is largely a symbolic entity, composed often of a material product, stylized packaging, and a marketing strategy that emphasizes novel features (frequently described as “revolutionary,” “advanced,” or “innovative,” although just as frequently such features represent relatively minor or obvious improvements over existing products).

Coca-Cola competes by creating marketing strategies that attempt to make its consumers feel better than consumers of competing brands. Often these marketing strategies rely on one subsidiary endorsing another to lend some aspect of one brand’s symbolic qualities to another.

When pictures of the Little Mermaid show up on soft drink cans, is this Disney endorsing Coca-Cola or is this Coca-Cola endorsing Disney? Really, it is neither and both; the question is like asking whether the hand endorses the mouth by eating.

Producers under oligopoly use marketing to compete for access to markets, and consumers are left to compete with eachother. Because vertically-integrated companies are able to control all aspects of a product, from design to production to distribution, oligopolies are able to leverage this ability to influence the behavior of consumers (by manipulating supply and demand). Because the economic value of a product is to a large extent determined by the perception of scarcity on the part of consumers, an oligopoly is able to charge whatever it wants for certain products by limiting the availability of that product. We see this every couple of years now when Sony releases a new version of the PlayStation: a limited supply coupled with successful marketing forces consumers to compete, while Sony, the producer, rakes in the profits.

The real danger of a globalizing oligopoly is that it makes brand identification akin to a form of nationalism, while the entities to which consumers pledge allegiance have no national allegiances themselves. Globalization, for all the well-deserved criticism maintained by the activist left, may be a natural and inevitable consequence of human evolution. At the same time, this neither means that the United States ought to be the monopolist of globalization, nor that the United States ought to sit by passively while multinational corporations subvert national boundaries and exploit poverty for the purposes of cheap labor. At the end of the day, the exploitation of the global labor force really benefits only a very few individuals, and consumers are left to finance their own subjugation.

Energy Independence and Energy Leadership

Whether cars are fueled by ethanol or gasoline, the traditional internal combustion engine, at best, is only about 30% efficient. This means that 70% of the energy we put into our cars is thrown away.

New hydrogen reformer technology is able to convert gasoline into hydrogen fuel for automobiles. This conversion equipment can be installed on-site at existing gas stations, using our current energy distribution infrastructure to provide refueling points for "early-adopter" consumers of hydrogen fuel cell automobiles.

Because hydrogen fuel cell automobile engines can achieve about 80% efficiency, as a long-term energy strategy this represents an achievable solution to our National problem with foreign energy dependency. Reformer technology is not, however, an instant solution.

These high efficiency ratings will depend on continued research into effective ways to manufacture and store hydrogen, including such technologies as polymer electrolyte membrane fuel cells, wind turbines, supercapacitors, and possibly even metamaterials. Incorporating hydrogen into the electrical infrastructure could give consumers real choices regarding where they purchase their energy.

Furthermore, the jury is still out as to whether the use of ethanol puts more pollution into the environment than burning a similar quantity of gasoline, since, typically, most of the energy used to produce ethanol comes from coal-burning powerplants.

It took 20 years from the time reports of global warming first appeared in the popular press until the time when the general press decided to agree that global warming is a real problem. Neither America nor the Earth can wait that long before we thoughtfully examine our energy habits.