It’s the slow time, hopefully a time of rest – but really this time of year is for thinking, and you can hear the wheels turning in all the justice advocacy movements right now. So in this strategy-planning time of year, here’s a great discussion with long-time labor organizer Steven Lerner on some of the actions we can take next year to intensify the pressure for reform.
I don’t think people are mad at somebody who invented a product or founded a company. It’s that people see that Wall Street is not productive. Their wealth and their riches, they do not come through any normal means — they come through cheating and gambling and ripping us off, which I think troubles us in a different kind of way.
You have a tiny group of people who basically are making decisions that control all of our lives. So it’s a very simple notion: why don’t we bargain with them collectively? [...] If we all refuse to pay at the same time, it would put enormous financial pressure on them.
A great article appears in Worldchanging today, Spotlighting the Shadow Economy, explaining why corruption is an issue that sustainable practices will have to tackle. The two things are mutually incompatible. And yet the environmental lobbies have not woken up to this fact.
Author John Elkington points out that sustainability experts focus on as many as a dozen different issues for change, but corruption is not one of them.
But whichever of their twelve priorities you choose to look at – be it shortages of clean water, climate change, poverty or economic instability – corruption is almost always a contributory factor. Think of carbon-intensive industries lobbying governments to stall climate-friendly regulations, dictators salting away billions in Swiss bank accounts…
-Â Spotlighting the Shadow Economy
Two compelling stories from Simon Johnson in two days.
He says the Republicans eagerly await the next round of election money from Wall Street players ready to take revenge on politicians who have tried to reform them.
The administration prefers a bipartisan approach â€“ avoiding confrontation on the true nature of â€œtoo big to failâ€ or even explaining how much worse our problems became during the Bush years â€“ but that just canâ€™t work when the other side refuses to cooperate.Â Given Republican relationships with big banks, there will be no serious attempt to cut financial institutions down to a size at which they could be allowed to fail â€“ no meaningful version of the Volcker Rules will make it into law.
Goldman and the other big Wall Street firms have already won big on this round.Â They will plow even more money into defeating political candidates who have opposed them â€“ for example, on credit card legislation.Â The Republicans see this coming and are rubbing their hands with glee.
- Simon Johnson, February 5, 2010
Then he says the crisis in Europe will be too much for U.S. banks – credit will tighten, forget recovery.
As the international situation deteriorates â€“ or even if it remains at this level of volatility â€“ banks will hunker down and credit conditions will tighten around the US.
And if the European situation spins seriously out of control, as it may well do early next week, the likelihood of a double-dip recession (or significant slowdown in the second half of 2010) increases dramatically.
- Peter Boone and Simon Johnson February 6, 2010
Ray Anderson reflects on the 15 years passed in his effort to transform a billion-dollar carpet manufacturing operation, from a petro-intensive resource “plunderer” into a zero-footprint, eternally sustainable company.
It’s looking good – he’s 60 percent of the way up that mountain he talks about, and he and his people can now see the top. They know they’re going to get there.
I love how he talks about the culture change in his company, and how his products are actually vastly better now, because of the “lens of sustainable design” that the company now looks through.
Most importantly, as Anderson states, the business case for sustainability as a profitmaker has now emerged – and Anderson’s company, Interface, has prominently helped to blaze a trail into this emergence.
I was struck by something Anderson wrote in his book, Mid-Course Correction, published back in 1998, before today’s melting ice had really started to scare us.
Suppose, said Anderson,
that global warming, to cite just one threat, turns out to be so vividly demonstrable and undeniably true that the whole world wakes up one day with a gigantic cry of alarm. Suppose consumer outrage erupts and markets shift overnight. Where will the capacity to respond be found? A lack of capacity for response could be a stupendous stumbling block to Earth’s welfare.
This is a huge dynamic force for sustainability. All it takes is consumer perception to change, and suddenly all the old companies become outlaws, and only the new ones will do business. This was Anderson’s epiphany over 15 years ago.
Anderson’s goal of becoming the first completely sustainable industrial company has taken 15 years to get to the 60 percent mark. Interface is on target for closed-loop, zero-waste, zero-ecologically imbalanced manufacturing by 2020. It will then have almost a three-decade lead on any of its competition.
Much may depend on fiscal policy. Economists agree that most of the 2.8% growth in the third quarter is a result of the stimulus. As I’ve said before, more stimulus would work wonders right now.
Meanwhile, where is reasonable security of tenure, and strategic job-holding for willing workers? Only in sustainability – that third economy I mentioned the other day.
John Podesta at CAP opines that sustained job creation cannot be solved with short-term solutions, logically enough. Podesta cites CAP’s white paper proposing a wide-ranging set of policies for government to enact in order to create good jobs for the today and the future.
Included in Podesta’s prescription are a nationally chartered Green Bank to ensure investment into sustainable projects, and tax adjustments to support retrofitting.
Today, contractors offer unsecured home improvement loans for energy-efficient and renewable energy products, with a typical energy savings of 20 percent to 40 percent. But this market is smallâ€”approximately 5,000 loans per yearâ€”because interest rates are 10 percent to 15 percentâ€”too high to be attractive for the typical homeowner. A program to â€œbuy downâ€ these loans would reduce the interest rate on a typical $7,000 loan from 12.99 percent to 6.99 percent at an approximate cost of $1,200 per loan. Loans would be a maximum of $20,000â€”typical loans are $10,000â€”with a 12-year term. In the meantime, the Obama administration should direct Fannie Maeâ€”which oversees an existing energy loan programâ€”to reduce its rates, which now range from 11.5 percent to 14.0 percent. This would also lower the cost of a buy-down program.
Retrofitting looms as an enormous growth industry. Our greatest source of local and readily available energy resides in the waste coefficient of our current usage. We waste so much energy (some estimates call it 97.5% waste) in all of our infrastructure and style of living in the U.S that efficiency alone results in immediate dollar gains.
Brad Johnson writing at Grist offers shirtcuff analysis estimating that 1.7 million new clean-energy jobs could be created as permanent careers PER YEAR, commensurate with public and private investment of 150 billion dollars each year. That’s not a lot of money, for the results.
The stronger the carbon cap is in a carbon market, the greater the investment. A $150 billion carbon market would be about double the size of what is being considered by Congress. That investment would be sufficient to construct a nationwide smart grid, retrofit every building in America for energy efficiency, and produce 20 percent of electricity from renewable sourcesâ€”all by 2020.
- How to make 1.7 million new clean energy jobs permanent
These are some of the astonishing gains buried under our dying economy, lying in wait for the intrepid to set them free.
Nouriel Roubini paints a stark picture of our economic prospects and tells a tale of two economies, one rich, one poor. Personally, I’m heading for the third economy, the one being newly created right now all around us as a sustainable economy.
Roubini is one of the few trustworthy economists around, having predicted and long warned about the housing and financial collapses. The idiocy of the media in labeling him the doom side of probability (as if there were another side) belies the fact that all he does is look at the numbers with a clear eye.
Roubini’s Tale of Two American Economies details the state of play in our current depressed economy. We’re losing jobs, credit is unavailable, small businesses and householders are being forced to bankruptcy, and this will continue for some time yet.
Meanwhile, Roubini points out what we had already noticed, that the stock market is up and so are bonuses in the financial sector. As he states,
The story of the U.S. is, indeed, one of two economies. There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn.
Personally, I’m tired of this. I’ve been watching public policy and economics for over a year here, and I have the picture down now.
Reading my earlier posts there’s plenty of collateral for saying that politics is broken, because business largely owns it. The media are hacks and even if not are controlled by the same business that owns politics. The economic system fuels with exploited money the myth that its underlying dynamic (free market) both actually exists (wrong), and actually creates good (not demonstrable).
All of this can be improved, and Obama is a great force for good, loosening up this national gridlock. But Obama himself struggles still to get the financial industry to extend credit to the productive economy. And Roubini notes that one-fourth of our economy’s jobs can easily (and thus will) be outsourced in coming years. The jobs are never coming back, says Roubini.
I truly wonder how Americans will take this state of affairs as the near future rapidly unfolds. Anyone working in the old economy will become a kind of serf, in a master and servant relationship to holders of capital. And that capital itself has been created in a deeply flawed model of extraction that has never put a true price on its acquisition.
All of our economy is built on externalizing the destructive costs of resource extraction onto future inhabitants of the planet. Almost none of our current system is sustainable, with the exception of enterprises such as Ray Anderson’s.
So there’s an economy for the rich, and one for the poor. If you’re not in the first, you sure don’t want to be in the second, even in the U.S. As we begin to count the true cost of our economic system, provocative examples of the damage it creates start to arise:
On the basis that the old economy was wrongly constructed to begin with, what’s actually to preserve here? The old jobs are never coming back. Time for new jobs.
Here’s a new job: green chef. In a Fortune Magazinearticle just today, 6 green cooks are profiled, the first one Brittany Baldwin in Portland, who caters personal meals using ingredients straight from her own local half-acre farm. Locavore economy is the new gourmet. And actually local food for everyone may be one basis of the new economy. See my fuller exposition of this in my other site, the Local Food Grid.
Copenhagen is coming in a couple of weeks. I believe I’m about done with following this old economy. Expect to see more on sustainability from here on.
There’s not much I can personally do to reverse climate change, beyond the activities available to any citizen. But on the slim chance we can survive the global climate crisis that is already on the edge of the tipping point, I’m focusing on building the new economy that will replace the old one.
To me the one person who most symbolizes the new economy is Paul Hawken. If you thought Roubini was scary, try an overview of the world situation from Paul in this 50-minute speech given in Seattle in September. Just remember, he’s only using the same clear eyes that Roubini uses. But Hawken has answers.
Calculated Risk notes that the Obama administration is considering the elements of the next stimulus package. Unemployment is right around 10 percent and the 2010 elections are close.
Beyond pure political calculation however, it’s clear to me that Obama wants to help the productive economy and understands the value of fiscal policy to strengthen and rebuild it as it limps through this recession. He has seen the first stimulus work – as has anyone with eyes open.
Another stimulus would be the best thing that could happen to us right now.
The economy needs more stimulus to help us out of the recession, says Nieman Watchdog in its latest project, Reporting on The Collapse. The stimulus effort helped us stave off worse disaster, and is helping us recover, and could do even better with even more.Â A time that calls for aggressive fiscal policy is not the time to worry about deficits, says Nieman.
I agree: the only reason we hear concern about deficits at all is that it serves as a straw man for opponents of the administration to wring their hands over, in the absence of any useful contribution to make. I think anyone who’s watched impartially hasÂ seen the stimulus work – in fact we’re currently seeing states lay off workers now as the stimulus funds are used up.
Nieman Watchdog is a project created by the Nieman Foundation for Journalism at Harvard University. The project performs some of the background thinking for the media, and suggests questions that journalists could be asking. You can find the Nieman feed in the sidebar on the right for latest stories.
Nieman concludes that mainstream media has failed to cover the economic collapse in any meaningful way. Journalists should give the public information and analysis it can can use to understand what has happened: how, why and where to go from here.
The real story, about why so many believed in the efficient market theory and why it caused them to make colossal mistakes, has not been driven home to the general public. Of course students of economic policy know how profoundly the shock wave from last year has shaken the foundations of conventional economic thinking. But save for the analysis of a handful of writers, the story has never made it into the news. Yet, without that story, it is impossible to have a rational political debate about what do to get out of the trouble we are in and prevent it from happening again.
If bad economic theory got us into this much trouble, shouldnâ€™t we be asking our current policy makers about their economic assumptions? Shouldnâ€™t we be asking about the theory underlying current decisions? And why should such discussions be left to a few experts?
- Doing a better job coping with economic disaster
Nieman is running a series of analyses of the collapse and its aftermath, with the help of Baker and Galbraith – both of whom argue for more stimulus.
Nieman reports that Galbraith in an interview “faulted a prevalent view in the press that ‘getting credit flowing from the banks’ will spur recovery. This is exactly backward, he said. ‘First, comes household recovery and then the credit will flow,’ he said.”
…full restoration of private credit will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.
Dean Baker, asked for stories the press should be pursuing, reported to Nieman that deficits are the only sane fiscal course right now, and that the economy seems quite able to handle them.
The basic story is that we need to have large deficits now for the next several years in order to boost the economy back to full employment. Forcing a large portion of our workforce to endure a prolonged period of unemployment will inflict an enormous cost on those workers and on their children (i.e., those future generations whom the deficit hawks claim as their main concern).
Baker explained that there actually was a ” mathematical basis” for the figures that stimulus advocates were advancing, and the media often neglected to understand or to publish this point.
So what are the chances of getting another stimulus? They don’t seem great to me at the moment, but when the health care dust settles a little the administration may decide to help Democrats in the 2010 elections by stimulating the economy more. This would take some energy as well as courage. But it would count as a truly responsible feat ofÂ public policy.
I think it’s only from ignorance and uncaring that we allow job losses to bear the brunt of economic contractions, there’s actually no economic need for it (the Federal Reserve is supposed to be charged with preventing it in fact).
Recessions are the perfect time to retool, to conduct research, and to retrain the workforce for the future. In both business and government, sustainable budget policy – if there were such a thing – would account for such periodic adjustments.
If the call for more stimulus increases and takes hold, we could witness a marvelous gain as the situation etches into our cultureÂ the knowledge that recessions can be countered by fiscal policy.
We’re seeing a lot of stories about big bonuses to the recipients of taxpayer bailouts. What’s odd is that the outrage we read doesn’t seem to penetrate into the financial industry. The moral voice doesn’t seem to carry through the insulations of layers of money.
Economist Dean Baker described to Nieman Watchdog how those layers of money are being created.
Baker observed that there have been a number of news articles recently about big banks returning to profitability, but most of those stories fail to make the point as to how those banks are becoming profitable — namely, by borrowing money short-term from the Federal Reserve at near zero cost and then loaning that money back to the Treasury by buying U.S. government bonds that pay around 3.5 percent interest.
- Story ideas, from an expert
Kevin Drum expressed the outrage well.
There’s an insanity here that’s almost beyond analysis.Â Wall Street can spark an economic slowdown that misses destroying the planet and causing a second Great Depression only by a hair’s breadth â€” said hair being an 11th hour emergency infusion of trillions of taxpayer dollars â€” and then turn around and use those trillions to return to bubble levels of profitability within a year.Â And they can do it even though the rest of the economy is still suffering through the worst recession since World War II.Â It’s mind boggling.
Is there any silver lining here?Â Probably not, but I’ll try: If Wall Street can shrug off the worst recession of our lifetimes as if it’s a minor fender bender and get the party rolling all over again in less than 12 months, it means the next bubble is already in the works and its collapse will be every bit as bad as this one.Â That in turn means it will almost certainly happen while today’s politicians are still in office.Â So maybe news like this will finally spur lawmakers to realize once and for all that the financial industry needs to be cut down to size.Â Half measures won’t do it.Â Self-regulation won’t do it.Â Compensation limits won’t do it.Â Byzantine, watered-down rules won’t do it.Â Something like a Morgenthau Plan for Wall Street is the only thing that has even half a chance of working.
- Burn it Down and Salt the Earth
The aspect of all this that cause the most surprise is the willingness of Wall Street to do this in the open. Again, that lack of any resonant moral voice carrying to the Street. Goldman Sachs especially is shaping up to become an icon as legendary and popularly hated as Rockefeller in his day.
Elizabeth Warren, chair of the Congressional Oversight Panel, and charged with overseeing the U.S. banking bailout, is shocked at the brazenness of the industry culture, its ingenuous oblivion.
“I do not understand how financial institutions could think they could take taxpayer money and turn around and act like it’s business as usual,” Warren says. “I don’t understand how they can’t see that the world has changed in a fundamental way – it’s not business as usual. All I can say right now is they seem to be winning this argument.”
- Wall St. Is Winning: Elizabeth Warren “Speechless” About Record Bonuses
“This is a moment when all around the country people are saying we’ve had it about up to here with these large financial institutions that want to write the rule then take our money. I find it astonishing that they have the nerve to show up and say, ‘I’m a big financial institution. I took your money. And now I’m going to lobby against anything that might offer some protection to ordinary families in this marketplace,’ ” Warren says.
- “Astonishing” That Big Banks Are Taking Taxpayer Money, Writing the Rules, Warren Says
As to why we coddle these giants of finance, this recent NYT story offers a window into how our culture contains much forebearance for financiers, perhaps from the assumption – now proved obsolete – that what they do is both difficult and incomprehensible to most of us.
Goldman Sachs and its perennial rival Morgan Stanley were allowed to transform themselves into old-fashioned bank holding companies. That switch gave them access to cheap funding from the Federal Reserve, which had been unavailable to them.
Those two banks and others like JPMorgan were also allowed to issue tens of billions of dollars of bonds that are guaranteed by the Federal Deposit Insurance Corporation, which insures bank deposits. With the F.D.I.C. standing behind them, the banks could borrow the money on highly advantageous terms. While some have since issued bonds on their own, they nonetheless enjoy the benefits of their cheap financing.
A big reason for Goldman Sachsâ€™s blowout profits this year has been the willingness of its traders to take big risks â€” they have put more money on the line while other banks that suffered last year have reined in such moves. Executives say there are big strategic gaps opening up between banks on Wall Street that are taking on more risks, and those that are treading a safer path.
- Bailout Helps Fuel a New Era of Wall Street Wealth
Right. But it’s hard for taxpayers to see that risk the story mentions.
The systemic view of what’s happening here is best explained to my mind by a couple of comments on Ezra Klein’s blog a few weeks back:
Since the early 1970′s real wages have been flat to falling. Workers’ share of GDP has been falling. Management used to reinvest profits in the business, and/or pay dividends. But since the marginal tax rates came down beginning in the 1980′s, management instead pays itself ever more exorbitant compensation packages.
To make up the difference, ordinary people stopped saving then started borrowing. The financial sector aided and abetted this by devising ever more clever means to hook people on debt.
Now the golden goose is dying because people can’t afford to buy stuff any more. People are cutting back on credit and saving as much as they can. Business can’t get credit because the banks are hoarding the money and so no one is hiring. The gov’t is stymied by “deficit hawks” who would rather see unemployment keep rising than spend public money to make up for the decline in private demand. And the rich? The people whose share of income has more than doubled over the past few years? Don’t even think of raising their taxes back to where they were in the Clinton years. That’s Communism!
A second commenter notes this:
I would add that what I find really remarkable is that many of the rich seem to be willing to allow the golden goose to die.
Peter S. Goodman wrote about this in the NYT last month:
The shock that accompanied the end of the American real estate boom once seemed a sentinel event that would bring tighter government scrutiny of the financial realm. Yet as fear of catastrophe fades, the question is how quickly the momentum in Washington for tighter financial rules is diminishing and whether unemployed workers and strapped homeowners will feed a groundswell for change strong enough to offset government turf wars and the influence of financial industry lobbyists.
So the question now is how many people have similarly changed their sense of what the American economy needs. Mostly, it is a matter of whether the country is still feeling lucky; whether the recent crisis will come to feel like an unavoidable toll on the highway to fortune, or whether something deeper has shifted in the American psyche, leaving us shaken in a lasting way.
- The Financial Crisis and Americaâ€™s Casino Culture
But is it just hubris, or is it a last-ditch effort to steal as many eggs as possible before the entire farm goes under? Maybe oligarchs always think this way. Simon Johnson has the oligarchical analysis:
First, obviously nothing can stop Goldman Sachs and JP Morgan.Â With unfettered access to the Federal Reserve and no effective controls on their ability to take risk, they are in the catbird seat.Â The weakness of other big banks is further icing on their cake.Â GS and JPM are symbols will loom large over the national and international economy for a long time to come, with the main threat (to them) coming from their rather too blatant market share in many products.
- Who is Carlos Slim?
Johnson suggests here that key people in the Obama administration are beginning to understand “what they have wrought” in catering so slavishly to the crisis “experts” (many of whom were enlisted directly from intimate relations with the industry, and may never have really left).
Obama from all this remains the mystery. He said coming into this crisis that he would try one thing and if it didn’t work he’d try another. We can only watch him as he negotiates his learning curve. I like him, I think him greatly talented, and vital to any chance of better days ahead for us.
I have to suppose that what we see him achieve reflects all that any good president could have achieved. He’s leaving a lot of deep cancers that most people would like to see cut out. But in truth the system health is so rotten, with political and institutional gridlock, theft, incompetence and sheer inertia so widespread, that he may have to spend some time raising the general health and immunity of the American nation before he can operate.
Here on the eve of Obama’s speech on health care before Congress, I just caught up with a Frontline special from 2008 on how five industrialized nations around the world handle their own health care.
It’s compelling viewing. I felt somewhat ashamed of how poorly America has done when it comes to this most basic of needs for sustaining a society. The countries examined are Britain, Japan, Germany, Taiwan and Switzerland. We could take lessons from any of them.
Paul Krugman published a great article in the New York Times last week, summarizing the history of economics since the Great Depression, and showing how economists forgot the lessons of Keynes, and started to believe again that markets are perfect. The article is called, How Did Economists Get It So Wrong?
Krugman’s article is close to 7,000 words, but it’s a lively read because he writes engagingly about an otherwise dry subject.
Krugman tells a journalist’s story of classical economic theory following Adam Smith, with its central belief in markets as perfectly rational mechanisms. It took the catastrophe of the Great Depression to overturn these simplistic beliefs and introduce the insight of John Maynard Keynes.
Itâ€™s important to understand that Keynes did much more than make bold assertions. “The General Theory” is a work of profound, deep analysis – analysis that persuaded the best young economists of the day. Yet the story of economics over the past half century is, to a large degree, the story of a retreat from Keynesianism and a return to neoclassicism.
From this, Krugman illustrates the rifts among the various schools of economic thought, and the steps by which the teachings of Keynes have beenÂ successively discarded in the last half-century. Macroeconomics today is in a pretty sorry state, and the article sketches the definitive picture of its shortcomings.
I recommend the article as a cornerstone reference for you if you’d like to know how we could be so blind to the housing bubble, how the finance industry took over the economy, why the Federal Reserve System allowed it all to happen – and where we go from here.
Many economists will find these changes deeply disturbing. It will be a long time, if ever, before the new, more realistic approaches to finance and macroeconomics offer the same kind of clarity, completeness and sheer beauty that characterizes the full neoclassical approach. To some economists that will be a reason to cling to neoclassicism, despite its utter failure to make sense of the greatest economic crisis in three generations.
I studied economics, and always knew it as an incomplete science. Economics has always lacked a solid base of theory that embraces certainties. Newton’s observations deriving from the force of gravity, for example, have a sustained reliability to them. But economics has no such observable foundation.
Economics has always been looking for some hard math at the macro level, and Krugman’s article shows how the finance industry believed that it had that very thing, until last year’s crisis took the entire industry down.
What has become dismally clear, again,Â is that the discipline of economics doesn’t really understand how the economy works.
Here in its entirety is the Frontline episode from Tuesday, June 16th, called Breaking the Bank. It’s a nicely dramtic telling of the events that shook the banks and the world markets. It’s also a very clear exposition of the fundamental change that occurred in the collapse of Wall Street in late 2008. Essentially, the government is now in charge.
The episode contains the usual wonderful stuff from Simon Johnson, to the effect that we really kind of went ahead and nationalized the banks back around the time of the Lehman bust, and the government-brokered acquisition of Merril by Bank of America.
Entertaining and enlightening. Below the fold is more from Simon Johnson, in the full transcript of his background interview the Frontline people did with him preparing the show. Johnson’s perspective really is valuable, and resonates quite soundly with me. I think he’s worth reading. Here’s the show:
Simon Johnson in his interview with Frontline provides a very good overview of events of the last year, from his banking-crisis worldview. Here’s an excerpt.
Q. You’re talking about the Oct. 14 meeting when Paulson picks up the phone on the Sunday and says to the nine big banks, “I’m your new partner.” Was it sort of the crossing of the Rubicon for both Paulson personally and the federal government, getting in the business of the banks?
A. I think we nationalized the banks in the U.S. on that day. Seriously — substantially nationalized them. The government got a lot of say in how they’re run, a lot of constraints, a lot of responsibilities. A lot of downside risk was taken on that day. It wasn’t full nationalization. We didn’t get upside participation; we didn’t get to change the board of directors. We got the worst kind of nationalization, and I really don’t know how much thought went into that. I suspect rather little.
It’s amazing that Hank Paulson could go from Mr. Moral Hazard, Mr. Goldman Sachs, a private-sector kind of model to being the guy, I think, who nationalized and socialized in a very bad, unproductive way that’s hard to extricate ourselves from the U.S. banking system.
The New Yorker has an article on health care in America, and why it costs so much for so little extra benefit. This will be the best thing you read all year about our medical system. Written by a doctor who is also a very good writer – I envy his skill. It’s called:
You will want to read the whole thing, send it to friends, and keep it as a reference for a long time to come. Here are a few excerpts that I bookmarked to Diigo as I read it:
When you look across the spectrum from Grand Junction to McAllen – and the almost threefold difference in the costs of care you come to realize that we are witnessing a battle for the soul of American medicine. Somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.
As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.
When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care. Otherwise, you get a system that has no brakes. You get McAllen.
Whom do we want in charge of managing the full complexity of medical care? We can turn to insurers (whether public or private), which have proved repeatedly that they canâ€™t do it. Or we can turn to the local medical communities, which have proved that they can. But we have to choose someone – because, in much of the country, no one is in charge. And the result is the most wasteful and the least sustainable health-care system in the world.
Something even more worrisome is going on as well. In the war over the culture of medicine – the war over whether our countryâ€™s anchor model will be Mayo or McAllen – the Mayo model is losing. In the sharpest economic downturn that our health system has faced in half a century, many people in medicine donâ€™t see why they should do the hard work of organizing themselves in ways that reduce waste and improve quality if it means sacrificing revenue.
When you look across the spectrum from Grand Junction to McAllen – and the almost threefold difference in the costs of care – you come to realize that we are witnessing a battle for the soul of American medicine.
Here’s a comment left on a blog that I want to remember:
The subprime mortgages aren’t the real evil. They are like the kid who acts as a mule for a big-time drug dealer; involved but fungible. If it wasn’t subprime mortgages it could have been something else, such as tech stocks or tulips. Total subprime mortgages were worth less than 1 trillion, of those, a few hundred billion worth of defaults. That is a lot of money, but an amount that could have been absorbed by the economy without causing particular harm.
The real evil is unregulated derivatives. Credit default swaps alone are estimated at over $60 trillion. Those are all just side bets on the original 1 trillion of subprimes. It’s like a craps table. The guy holding the dice drops a $100 chip on the table. If he loses, he goes home $100 poorer. But the derivatives markets then bet the farm on that same roll of the dice. And I mean the whole farm. The entire world’s domestic gross product is estimated at about $60 trillion. Derivatives makers and dealers bet the equivalent of the world’s economy on whether some poor schlub would default on his mortgage.
Deal with everything else but not unregulated derivatives, and this will all happen again. Deal with the derivatives market, and everything else is just mopping up.