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July 12, 2009

Economist's View - 4 new articles

"The Hottest Places in Hell are Reserved for Those Who, in Times of Moral Crisis, Maintain a Neutrality"

Tom Bozzo says to watch this video [parts of transcript below]:

Bill Moyers Journal: BILL MOYERS: Wendell Potter ... worked for CIGNA 15 years and left last year. ... why are you speaking out now?

WENDELL POTTER: I didn't intend to, until it became really clear to me that the industry is resorting to the same tactics they've used over the years, and particularly back in the early '90s, when they were leading the effort to kill the Clinton plan. ...

I was beginning to question what I was doing as the industry shifted from selling primarily managed care plans, to what they refer to as consumer-driven plans. And they're really plans that have very high deductibles, meaning that they're shifting a lot of the cost off health care from employers and insurers, insurance companies, to individuals. And a lot of people can't even afford to make their co-payments when they go get care... But it really took a trip back home to Tennessee for me to see exactly what is happening to so many Americans. I ... went home, to visit relatives. And I picked up the local newspaper and I saw that a health care expedition was being held a few miles up the road, in Wise, Virginia. And I was intrigued.

BILL MOYERS: So you drove there?

WENDELL POTTER: I did. ... It was being held at a Wise County Fairground. ... It was a very cloudy, misty day, it was raining that day, and I walked through the fairground gates. And I didn't know what to expect. I just assumed that it would be, you know, like a health-- booths set up and people just getting their blood pressure checked and things like that.

But what I saw were doctors who were set up to provide care in animal stalls. Or they'd erected tents, to care for people. I mean, there was no privacy. In some cases-- and I've got some pictures of people being treated on gurneys, on rain-soaked pavement.

And I saw people lined up, standing in line or sitting in these long, long lines, waiting to get care. People drove from South Carolina and Georgia and Kentucky, Tennessee-- all over the region, because they knew that this was being done. A lot of them heard about it from word of mouth.

There could have been people and probably were people that I had grown up with. ... And that made it real to me. ...

It was absolutely stunning. It was like being hit by lightning. It was almost-- what country am I in? It just didn't seem to be a possibility that I was in the United States. ...

I had been in the industry and I'd risen up in the ranks. And I had a great job. ... I was insulated. I didn't really see what was going on. I saw the data. I knew that 47 million people were uninsured, but I didn't put faces with that number.

Just a few weeks later though, I was back in Philadelphia and I would often fly on a corporate aircraft to go to meetings.

And I just thought that was a great way to travel. ... You're sitting in a luxurious corporate jet, leather seats, very spacious. And I was served my lunch by a flight attendant who brought my lunch on a gold-rimmed plate. And she handed me gold-plated silverware to eat it with. And then I remembered the people that I had seen in Wise County. Undoubtedly, they had no idea that this went on, at the corporate levels of health insurance companies. ...

I didn't know exactly what I should do. You know, I had bills of my own. And it was hard to just figure out. How do I step away from this? What do I do? And this was one of those things that made me decide, "Okay, I can't do this. I can't keep-- I can't." One of the books I read as I was trying to make up my mind here was President Kennedy's "Profiles in Courage."

And in the forward, Robert Kennedy said that one of the president's, one of his favorite quotes was a Dante quote that, "The hottest places in hell are reserved for those who, in times of moral crisis, maintain a neutrality." And when I read that, I said, "Oh, jeez, I-- you know. I'm headed for that hottest place in hell, unless I say something." ...

BILL MOYERS: Your own resume says, and I'm quoting. "With the chief medical officer and his staff, Potter developed rapid response mechanisms for handling media inquiries pertaining to complaints." Direct quote. "This was highly successful in keeping most such inquiries from becoming news stories, at a time when managed care horror stories abounded." I mean, you knew there were horror stories out there.

WENDELL POTTER: I did. I did. ...

BILL MOYERS: You were also involved in the campaign by the industry to discredit Michael Moore and his film "Sicko" in 2007. ...

BILL MOYERS: So what did you think when you saw that film?

WENDELL POTTER: I thought that he hit the nail on the head with his movie. But the industry, from the moment that the industry learned that Michael Moore was taking on the health care industry, it was really concerned. ... They were afraid that people would believe Michael Moore. ...

The industry has always tried to make Americans think that government-run systems are the worst thing that could possibly happen to them, that if you even consider that, you're heading down on the slippery slope towards socialism. So they have used scare tactics for years and years and years, to keep that from happening. If there were a broader program like our Medicare program, it could potentially reduce the profits of these big companies. So that is their biggest concern. ...

[P]art of the effort to discredit this film was to use lobbyists and their own staff to go onto Capitol Hill and say, "Look, you don't want to believe this movie. You don't want to talk about it. You don't want to endorse it. And if you do, we can make things tough for you." ...

BILL MOYERS: Now, that's exactly what they did, didn't they? They ... radicalized Moore, so that his message was discredited...

WENDELL POTTER: Absolutely. ... It worked beautifully. ... The film was blunted. It--

BILL MOYERS: Was it true? Did you think it contained a great truth?

WENDELL POTTER: Absolutely did.

BILL MOYERS: What was it?

WENDELL POTTER: That we shouldn't fear government involvement in our health care system. That there is an appropriate role for government, and it's been proven in the countries that were in that movie.

You know, we have more people who are uninsured in this country than the entire population of Canada. And that if you include the people who are underinsured, more people than in the United Kingdom. We have huge numbers of people who are also just a lay-off away from joining the ranks of the uninsured, or being purged by their insurance company, and winding up there.

And another thing is that the advocates of reform or the opponents of reform are those who are saying that we need to be careful ... because we don't want the government to take away your choice of a health plan. It's more likely that your employer and your insurer is going to switch you from a plan that you're in now to one that you don't want. You might be in the plan you like now.

But chances are, pretty soon, you're going to be enrolled in one of these high deductible plans in which you're going to find that much more of the cost is being shifted to you than you ever imagined. ...

BILL MOYERS: Why is public insurance, a public option, so fiercely opposed by the industry?

WENDELL POTTER: The industry doesn't want to have any competitor. In fact, over the course of the last few years, has been shrinking the number of competitors through a lot of acquisitions and mergers. So first of all, they don't want any more competition period. They certainly don't want it from a government plan that might be operating more efficiently than they are...

BILL MOYERS: And they do what to make sure that they [remain profitable]?

WENDELL POTTER: Rescission is one thing. Denying claims is another. Being, you know, really careful as they review claims...

But another way is to purge employer accounts, that-- if a small business has an employee, for example, who suddenly has have a lot of treatment, or is in an accident. And medical bills are piling up, and this employee is filing claims with the insurance company. That'll be noticed by the insurance company.

And when that business is up for renewal, and it typically is up, once a year, up for renewal, the underwriters will look at that. And they'll say, "We need to jack up the rates here...," Often they'll do this, knowing that the employer will have no alternative but to leave. And that happens all the time.

They'll resort to things like ... dumping, actually dumping employer groups from the rolls. So the more of my premium that goes to my health claims, pays for my medical coverage, the less money the company makes. ...

BILL MOYERS: When a member of Congress asked the three executives who appeared before the committee-- if they would end the practice of canceling policies for sick enrollees, they refused. Why did they refuse?

WENDELL POTTER: Well, they were talking to Wall Street at that moment. ...

BILL MOYERS: This is the key question for me. Can health reform that includes a public plan actually rid our system of the financial incentive on the part of the insurance industry to provide less for more?

WENDELL POTTER: It will help. It would help. Would it rid it? No, I don't think it would, because of the for-profit structure that is now dominant in this country. But the public plan would do a lot to keep them honest...

Fiscal Policy: "The Right and the Obvious Thing To Do"

Two things seem relatively clear. First, given the projected baseline for the economy, the previous stimulus package was too small. It was big enough to help, but it won't give anything near the boost the economy needs. Second, the original baseline was far too optimistic.

So I agree:

Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days, by Brad DeLong: ...Last December the Obama administration to be decided on a fiscal stimulus package which they believed would have minor effects on the economy in the first two quarters of 2009 and major effects--would push unemployment down below what it would other wise have been by more than half a percentage point--starting in the third quarter of 2009. They believed that the economy was not that weak, and that with the fiscal stimulus package taking effect unemployment would be peaking now at a rate of 7.9%.

Instead, unemployment is now probably in the 9.5-9.7% range--and without the stimulus package it would right now have turned out to be above 10%:

The financial crisis of last fall hit the economy's levels of production, spending, and employment much harder than people thought at the time. If we had known then what we know now, it would have been prudent then to propose twice as large a fiscal stimulus program as the Obama administration in fact did propose. ...

All in all, it looks like the unemployment rate in 2009 is going to average 1.2 percentage points above where the administration last December thought we would be. ...

It is interesting and important to note that the excess unemployment now forecast over 2009 relative to last December's forecast is of the ... magnitude ... of ... a $170 billion shortfall.

If I were running the government, I would be trying to make up that GDP shortfall right now: I would be rushing a clean $170 billion--$500 per citizen--aid-to-states-that-maintain-effort package through the congress this week. It would seem the right and the obvious thing to do.

At least that much, and the sooner the better.

The Caritas in Veritate: Justice

The only time I ever got an F on an exam, or even close, was in a religious studies course I took to fulfill general education requirements. You know how some of you don't get math? I felt the same way. I somehow managed to pass the course, but I had no foundation whatsoever in the topic going in, and I just didn't get it.

So I am going to let others comment on the Pope's Caritas in Veritate:

Mixing morals and money. by Christopher Caldwell, Commentary, Financial Times: To judge from his encyclical Caritas in Veritate, published this week, Pope Benedict XVI agrees with those who say that something has gone wrong with the way the world does business. ... The encyclical is not anti-global or anti-capitalist. ... Business and finance have not created new excesses. They have opened new routes for an arrogance already present in the hearts of men.

The Pope, in perhaps his most radical passage, laments the "hegemony of the binary model of market-plus-state". ... Business and government have become specialised fields; each follows a logic that dispenses with the insights of religion. Globalisation can break down cultures, and with them the moral systems in light of which it can be judged. ...

Unfortunately, one of the lost insights concerns justice. The Pope would like us to think about justice as having three aspects. There is commutative justice (the idea of properly judging the prices of things), distributive justice and social justice. National governments, which used to address the second and third, no longer have full power to do so. The global institutions that have replaced them tend to be concerned only with commutative justice – and they do a bad job, the Pope thinks, of judging the value of labour. "If the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires," he writes.

It is on the subject of justice that the Pope gives voice to a striking insight: "In the global era, the economy is influenced by competitive models tied to cultures that differ greatly among themselves. The different forms of economic enterprise to which they give rise find their main point of encounter in commutative justice."

The marketplace is a narrow meeting place... Most of what is distinctive and valuable about the cultures of trading partners gets left out. ... The idea that globalisation expands our horizons is an optical illusion. The same holds true of our technological gadgets. They may give us more instruments for communicating, the Pope says. But "it does not follow that they promote freedom or internationalise development and democracy for all".

The Pope is optimistic that globalisation does not make loss of identities inevitable. One hopes he is right. But ... he ... has no more luck than others have had in figuring out how to produce distributive justice in this day and age. ...

The Pope's surprisingly firm political recommendation is for increased global government, based on existing institutions. He urges a "reform of the United Nations and likewise of economic institutions and international finance, so that the concept of the family of nations can acquire real teeth". But this begs the very question... Before such institutions can be legitimately constituted, we need to know what their principles are. ...

Benedict is certainly right to say that, if we wish to protect the environment, "the decisive issue is the overall moral tenor of society". He is right to attack the presumption of technologically advanced societies that "confuse their own technological development with a presumed cultural superiority". And he makes a convincing case that the recent financial failures are best understood in the context of a wider moral failure.

Nick at Open Economics (he's at Notre Dame) has been writing about each chapter in the Pope's "social encyclical." Here, he discusses Chapter 3:

Caritas in Veritate, Chapter Three, Open Economics: Now for a discussion of Chapter 3 of Pope Benedict XVI's social encyclical, Caritas in Veritate. As I mentioned in my last post of this series, Chapter Three is where Benedict most directly addresses the idea of the economy. Benedict says from the outset that the economy has been misconstrued and abused for much of human history:

Then, the conviction that the economy must be autonomous, that it must be shielded from "influences" of a moral character, has led man to abuse the economic process in a thoroughly destructive way. In the long term, these convictions have led to economic, social and political systems that trample upon personal and social freedom, and are therefore unable to deliver the justice that they promise.

He ... distinguishes between different levels of justice in the context of markets:

In a climate of mutual trust, the market is the economic institution that permits encounter between persons, inasmuch as they are economic subjects who make use of contracts to regulate their relations as they exchange goods and services of equivalent value between them, in order to satisfy their needs and desires. The market is subject to the principles of so-called commutative justice, which regulates the relations of giving and receiving between parties to a transaction. But the social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function.

This section strikes me as incredibly important. It is thoroughly Polanyi-esque, implicitly arguing that the economy is embedded in society and needs to be treated as such. There is also this notion of trust that is introduced. I think trust would often be categorized by economists as an "institution," something that can likely be made exogenous when thinking about the economy, but this is naive, Benedict argues. Trust is both a foundation of and a result of the economy.

The emphasis on social and distributive justice is also important because it forces the faithful to think outside the usual Christian paradigm of justice vs. mercy. Social justice is not simply an option, as mercy might be, but a necessity. Casting the economy in these terms forces the faithful to work so that the economy does not just enable, but guarantees, social justice.

Next, Benedict seeks to redefine economic activity. In this section, I'm beginning to see some contradictions cropping up. First,

Economy and finance, as instruments, can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful ones. But it is man's darkened reason that produces these consequences, not the instrument per se. Therefore it is not the instrument that must be called to account, but individuals, their moral conscience and their personal and social responsibility.

So, it's not the economy's fault; it's the people who are running it. By the same token, however,

Economic activity cannot solve all social problems through the simple application of commercial logic…The Church's social doctrine holds that authentically human social relationships of friendship, solidarity and reciprocity can also be conducted within economic activity, and not only outside it or "after" it. The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.

To reconcile these two sections, I think we need to realize that the first paragraph is not an endorsement of charity-based capitalism. When reading the second paragraph, particularly the part about the economy not being ethically neutral, it seems that Benedict is calling on humans to structure the economy in a just manner. Thus, the blame is not so much on humans who fail to act charitably, but on those who perpetuate an economic system that inherently leads to injustice.

Benedict then continues with ideas of embeddedness:

Today we can say that economic life must be understood as a multi-layered phenomenon: in every one of these layers, to varying degrees and in ways specifically suited to each, the aspect of fraternal reciprocity must be present. In the global era, economic activity cannot prescind from gratuitousness, which fosters and disseminates solidarity and responsibility for justice and the common good among the different economic players.

Then, in another important move, Benedict calls for people to reenvision enterprise:

What is needed, therefore, is a market that permits the free operation, in conditions of equal opportunity, of enterprises in pursuit of different institutional ends. Alongside profit-oriented private enterprise and the various types of public enterprise, there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves. It is from their reciprocal encounter in the marketplace that one may expect hybrid forms of commercial behaviour to emerge, and hence an attentiveness to ways of civilizing the economy.

This is sort of a call for an economy that fosters more Mondragons, not just for people to create more Mondragons. In other words, we must create an economy where socially-oriented enterprises like Mondragon are not simply headed for failure.

Along these same lines,

In order to defeat underdevelopment, action is required not only on improving exchange-based transactions and implanting public welfare structures, but above all on gradually increasing openness, in a world context, to forms of economic activity marked by quotas of gratuitousness and communion. The exclusively binary model of market-plus-State is corrosive of society, while economic forms based on solidarity, which find their natural home in civil society without being restricted to it, build up society.

And now, recognizing the limits of traditional business:

Old models are disappearing, but promising new ones are taking shape on the horizon. Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value…Moreover, the so-called outsourcing of production can weaken the company's sense of responsibility towards the stakeholders — namely the workers, the suppliers, the consumers, the natural environment and broader society — in favour of the shareholders…Today's international capital market offers great freedom of action. Yet there is also increasing awareness of the need for greater social responsibility on the part of business.

To conclude the section, Benedict again shifts the focus to these issues in the context of globalization:

humanity itself is becoming increasingly interconnected; it is made up of individuals and peoples to whom this process should offer benefits and development…Despite some of its structural elements, which should neither be denied nor exaggerated, "globalization, a priori, is neither good nor bad. It will be what people make of it"…It is necessary to correct the malfunctions, some of them serious, that cause new divisions between peoples and within peoples, and also to ensure that the redistribution of wealth does not come about through the redistribution or increase of poverty…Unfortunately this spirit is often overwhelmed or suppressed by ethical and cultural considerations of an individualistic and utilitarian nature.

Benedict, in a Stiglitz-esque fashion, concludes by calling for a more just globalization, one that does not suppress ethics with so-called free market ideology. A more just globalization, in summary, will keep the economy in its proper place, embedded in society. It will be welcoming toward socially-oriented enterprises that operate under a stakeholder model. All this is essential to his notion of social justice. The lack of the social justice is not the fault of the economy, but of the people who have helped perpetuate the current structure of the economy. Of course, all this still leaves the question, how will the economy transition, and who will bring that about? Benedict pays lip service to political freedom throughout this chapter, but this obviously is still lacking. How will this develop into more practical recommendations? Stay tuned.

links for 2009-07-12

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