Wednesday, December 18, 2013

Profits Über Alles?

Neoliberal economics has been a wonderful driving force for progress and material prosperity—but it cannot be the single ruling principle of our lives, of our government, or of our society.

If we allow the profit motive to be the only motive, then we and our society are doomed.

We are already seeing the shape of that doom, in our health care, our government, and our industry.


Isn’t this blasphemous?
Dear God, is this
us???
So this morning, I woke up to a piece by Michael “Mish” Shedlock—a piece that, being a fellow middle-aged man, scared the ever-living shit out of me.

Mish opens his piece describing how last October 2012, he took a standard prostate cancer test and came up positive. What follows is his no-nonsense journey of beating his cancer. The whole piece is a must-read; here is the link.

(Refreshingly, Mish doesn’t inflict the needless emotional bullshit on us. I’m sure he felt scared out of his wits, and I’m sure he had quite a few dark-nights-of-the-soul, especially as he had only recently lost his wife. I have nothing but compassion for him as a human being—but as a reader, I’m so glad he didn’t roll around in the emotional muck, which is such the fashion today.)

The thing that struck me about Mish’s piece was how one of his doctors, the surgeon who performed the initial biopsy, wanted to do surgery right away. Mish adopted a wait-and-see approach, coupled with a cocktail of drugs, to see if this counteracted the cancer. And rather than another biopsy, Mish wanted more and more-frequent blood tests. The surgeon, “Dr. G.”, insisted on biopsies instead of blood tests—he wanted to perform surgery so badly that he effectively gave Mish an ultimatum: My way (biopsies/surgery) or the highway.

Mish walked on Dr. G., concluding that Dr. G. was interested in the fat fees he would receive for performing biopsies and eventual surgery.

Mish was right—but then again, Dr. G. was being exceptionally rational, according to our current Neoliberal paradigm: It paid him (and rather well at that) to perform surgery, regardless of whether there were other options for his patients. And it was a drain on his resources to have a patient such as Mish on his client list: Mish was wary of losing his prostate, which well might mean losing his ability to perform sexually, as well as possible urinary incontinence. Hence Mish’s reluctance to dive right into surgery without exploring all the other options. Such a patient, for Dr. G., was a waste of time, and time is his main resource.

So his ultimatum to Mish was ruthlessly “efficient” in the paradigm of Neoliberal economics: If Mish stayed with Dr. G., then Dr. G. would make money through the surgery. If Mish walked, Dr. G. would be unburdened from having to spend time on a non-performing patient; “non-performing” in the sense of not being a billable client.

Of course, this flies in the face of what a doctor ought to be: A healer. A professional whose interest is to cure his patients of their disease, howsoever that cure may come about, be it surgery, drug cocktails, or whatever other treatment is available and scientifically reasonable.

Yet Dr. G., far from being a weird outlier of a greedy surgeon hungry for fees, was being the ultimate Neoliberal Man: Rationally prioritizing profits over care. He is in fact a common exemplar of the medical-insurance business. He’s the norm, not the exception.

Now for something completely different:

Newsweek magazine ran a piece a few days ago, where it reported a study carried out by Paul C. Light and others, which concluded that the Federal government overspends $300 billion a year on private contractors. The money-quote:
In theory, these contractors are supposed to save taxpayer money, as efficient, bottom-line-oriented corporate behemoths. In reality, they end up costing twice as much as civil servants[.]
According to the Neoliberal paradigm, the private sector is supposed to be ruthlessly efficient—yet this “ruthless efficiency” was bilking the government—ultimately bilking us, the taxpayers—of $300 billion a year: Roughly $1,000 a year for every man, woman, and child in America.

Could you have used an extra $1,000 last year? Me, I wouldn’t have minded getting an extra grand. But I didn’t get this extra money. It went instead to an “efficient” private contractor that bilked the government.

The Neoliberal paradigm might sell the illusion that it’s all about “ruthless efficiency”—but it’s not. Neoliberal economics is in fact all about the pursuit of Return On Investment (ROI): Profits as a ratio of income to capital. That’s it. That’s all Neoliberal economics really is, at its core: Maximizing ROI, and creating the social conditions where that maximization might occur with the least amount of societal or governmental interference.

There are essentially three ways to improve ROI:
  • Sell more units than previously.
  • Sell each unit at a higher price (or lower cost) than previously.
  • Reduce your capital while maintaining your sales.
Neoliberal economics—and its cheerleaders—claim as a matter of faith that it is “ruthlessly efficient”. But it’s not. Its efficiency comes as a very welcome byproduct of its pursuit of profits—but Neoliberalism is not inherently more efficient.

There’s nothing wrong with pursuing profits. Quite the contrary, our very modern existence is a byproduct of this relentless pursuit of ROI. Think of the computer you are using to read this very essay—infinitesimally cheap and light-years better than the computer made a mere twenty years ago, or even ten years ago. The second way of improving ROI—lowering the cost of each unit sold—is in fact the great efficiency engine of Neoliberalism from which we have all benefitted. Efficiency and progress is a byproduct of Neoliberalism’s pursuit of ROI—and a very welcome one at that.

But to apply the Neoliberalist Paradigm to all facets of our lives and our society is creating the mess we have today.

Look at how our government is being bilked—because the Neoliberalist Paradigm is not “efficient”: It’s just looking to maximize ROI, that’s all. Contractors, when selling to the government, will maximize their ROI not by being “efficient”, but by selling more to the government. And if they can’t sell more to the government, then they will sell more expensively: $250 hammers, trillion-dollar planes—whatever it takes to maximize ROI. Thus why private contractors are being rational per the Neoliberalist Paradigm—and thus why private contractors are a complete disaster when working for the government, ultimately forcing us taxpayers to foot the bill for these “efficiencies”.

Likewise with other industries, and other sectors of our society: The Neoliberal Paradigm is being implemented where it has no business being implemented. And far from improving our lives, it is making our society more inefficient.

Consider health care, and the example of Mish Shedlock: ROI is being relentlessly pursued by all the participants in the disastrous American health care system. Insurers, Big Pharma, doctors, the big health care providers: If you analyze each and every one of the participants in the health care nightmare, as I analyzed Dr. G. above, you will find that each and every one of them is rationally chasing ROI—and the result is a complete mess. For obvious political reasons—if only to prove that they are trying to help people—the government is (inefficiently, ineffectively) sticking its nose in this tussle, creating even more inefficiencies, ultimately hurting the people even more.

I wrote about the results of the health care inefficiencies brought about by the Neoliberal Economic Paradigm here. It pissed off a lot of people, but no one refuted the data. The data can’t be refuted because it’s true. The data shows how the health care nightmare actively hurts the American people.

Apart from government and health care, the Neoliberal Economic Paradigm is being aplied to all sectors of our society—and its effects have been the same: High ROI which benefits the few, while destroying industries which benefit us all.

After all, it was the Neoliberal Economic Paradigm which destroyed American industry, in the guise of “globalization”.

It sounded so wonderful—“globalization” this and “globalization” that—but what it ultimately was was closing American factories and exporting manufacturing jobs for the sake of improving ROI, and leaving the American economy a hollow shell.

The whole point of “globalization” was the improvement of ROI by way of reducing capital, and/or reducing production costs. How was capital reduced and production costs lowered? By closing factories in America, and exporting whole industries to Third World and developing countries so as to exploit the cheap labor there.

Today, there is no healthy civilian manufacturing in America. The only heavy industries that are thriving are the defense industries—which by law have to be in America. All other manufacturing jobs? Gone—globalization took ‘em all. The third driver of ROI maximization took ‘em away. The only jobs left for the American working classes are low-paying, low-skill service-related occupations—especially health care.

This shit’s still going on, by the way: It’s no accident that the last five years have experienced anemic—not to say non-existent—growth. Profits? Oh they’re up—just ask the banksters or the health care industry. They’re ROI has been outstanding, as they cut and cut and cut costs—jobs. Outstanding last five years.

But real, honest-to-goodness, meat-and-potatoes growth?

Crickets.

There won’t be any real growth in America—not if we continue indiscriminately applying the Neoliberal Economic Paradigm. We have to realize that Neoliberalism is a tool—just like a lever, a gun, or a power drill: A great tool, but highly specialized, useful for only certain tasks, and very dangerous if misapplied to all tasks.

A great and noble tool—
but would you use it
to caulk tile?
Just in case it needs mentioning, economically, I’m a die-hard, hard-core conservative. Anti-bailouts, anti-progressive tax, anti-government subsidies, anti-targeted tax breaks, anti-free trade agreements—and as to the banks, fuck ‘em if they go broke: Arrest every last motherfucking one of the banksters’ sorry asses if they lose so much as a penny of depositors’ money. (As to social conservative issues, I’m cheerfully to the right of Attila the Hun: Anti-abortion, anti-gay rights, anti-affimative action. The only big social issue with which I differ from my conservative brethren is the death penalty, of which I have written about here; and I’m not opposed to the death penalty on principle, but rather in practice.)

Yet I recognize that the profit motive cannot be the only motive for a thriving, healthy society. In fact, the profit motive should be a subordinate goal, both for individuals and for society as a whole.

For individuals, satisfaction and happiness in life ought to be achieved through personal relationships, leisure, and work—not merely money. Money ought to be the byproduct of work, not the end in itself.

For a society, industries should be harnessed for the common good, not let loose like wild horses, fingers crossed and hoping for the best. Wild horses cannot pull a stagecoach—they might have the energy, but they certainly do not have the organization. This isn’t to say we should have managed industries—but we most definitely should have a coherent industrial policy, whose aim is to provide us with goals that we as a society can all agree upon.

As a conservative—as someone looking to live in a stable society with a reduced government, where extreme poverty is anathema, and yet where anyone can achieve their maximum potential irrespective of their birth or station—we should be reëvaluating our common good. Reëvaluating those things which Americans all agree are important, and worth protecting: Freedom of speech, freedom of worship, freedom from fear, freedom from want.

Unrestricted Neoliberalism is hollowing out the United States. We have a chance to turn it around—but we as a nation have to wake up to what Neoliberalism is, and is not: It’s a great tool—but it is not and cannot be an end in itself, and it cannot be applied to every situation.

If we do not put the reins on Neoliberalism—and put those reins on soon—then we as a society are doomed. And it will be reflected first in our economy—as we are seeing now.

If you like what I’ve written, then please subscribe to my mailing list.

I’ll only contact you with things that are worth your while.

Thank you.

—GL

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10 comments:

  1. My only quibble with this post is the notion that contractors are worse for the government and taxpayers than civil servants. That may be true during the short term, but I recall back when Virginia laid off so many of its civil servants only to, oops, hire them back as contractors. Critics derided the layoffs and rehires. But the state, I believe, had the last laugh. When they hired the contractors, even those people who used to work for the state government, they no longer had to pay into their pensions or foot the cost of the health insurance. They may have been paying the same wage or more to the contractors, but they were coming out ahead.

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  2. I don't know if I completely agree. The only thing I can expect out of a company (large corporation, or small one like my own) is to try and make as much money as possible. No different than anyone out there who would love a higher paying job.

    I blame the government, who we are supposed to trust as stewards of our money, when they do things like pay $250 for a hammer, or however many hundreds of millions the Obamacare website cost. They make backroom deals with contractors, but again, I expect every man, woman and child to do what is best for him or her. With the government, however, I expect them to do what is best for the taxpayer. They never do, but that is what should be expected of them.

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  3. I have a slight complaint with the private contractors being worse than civil servants. As you state elsewhere in your post the private contract must maximum ROI... no beef with that. But it is the civil servant managing and overseeing the contract to ensure the government (or the taxpayer more specifically) is maximizing their own ROI.

    The problem is the private contractor is doing what is expected of them while those acting on behalf of the government most certainly are not.

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  4. Dr G was running a risk, that Mish would trash his reputation and cost him far more than any fees he would get from unnecessary surgery. All he had to do was publish his full name.

    Alternatively he could have reported him for professional misconduct and sought to get his license pulled. If I thought that a doctor was trying to get a fat payday that would unnecessarily cost me sexual function I would pursue both recourses. Such behavior is only rational if people don't complain, don't name and shame those who are doing it.

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  5. @TM Lutas: You are correct. The free market on balance punishes reckless money seekers like Dr G. The profit and loss discipline is magic.

    @Gonza: You are wrong to disparage money or profits. First of all, money is simply a medium of exchange. Are you against voluntary trade? If we used cattle as money, would you say cattle are evil? That's silly. And you should embrace profit and loss as excellent tools to allocate resources efficiently with minimum waste. Imagine if governments worldwide were subject to the discipline of profit and loss. That would be a beautiful and prosperous world improving the life of every human.

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  6. Thank you for a very clearly written essay on what is tearing this country apart. You have summed it up well.

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  7. Gonzalo, You article is quite good but misses the real factors as to why healthcare is so expensive.

    1. Varying reports state that between 70-85% of conventional drugs are derived from research into natural products THAT ARE KNOWN to address the vast multitude of illnesses that affect individuals. As knowledge in this information is suppressed by the FDA itself, and doctors (be they conventional or naturopathic) are harassed, their clinics closed, jailed and bankrupted if they attempt to use this information to help patients. Rather than paying over $100k for heart surgery in the US, you can change your diet and exercise and achieve the same results at a fraction of the cost.

    2. The utter lack of competition across all different forms of medicine. There are multiple ways to address illness. Homeopathy is denigrated today while at the beginning of the 20th century it was easily the most successful in treating polio, influenza and many other illnesses that affected western countries. There are reports one can find in the British Parliament that attests to its efficacy compared to allopathic medicine. You also have inventors such as Royal Raymond Rife, Antoine Poire and George Lakhovskywho developed machines in the early 20th century that used EMF waves to successfully treat individuals. Or Dinshah P. Ghadiali who used Spectro-Chrome Color Therapy to cure hundreds of patients in New York State and whose patients came and testified in his defence when he was being harassed by the AMA. The same with naturopaths like Dr. Richard Schultz or homeopaths as well. All of them harassed and suppressed. For heart surgeons it's great. They can continue to charge $100k for heart surgery because an alternative such as lifestyle changes (diet and exercise - see Dr. Al Sears) which are far cheaper are suppressed How cheap would healthcare be if you could go to a clinic, the doctor made changes to your diet and/or gave you several treatments with one of these machines to restore you to health?

    3. The fact that big pharma has almost complete control over the content of medical programs as well as the majority of content which is distributed through the major media outlets means that most individuals (including yourself) don't know about how rich and varied is the medical landscape. Nor are most individuals aware of the efficacy of these treatments.

    4. The people of the US are blissfully unaware that it is they who are providing insurance through the FDA to big pharma rather than obliging big pharma to insure its own products. First, if they had to purchase insurance rather than being given protection by the FDA, it's rather obvious that the insurance company would do a far better job in ensuring that the research done into the drugs would be done in a more robust manner and in most cases the cost of trials would probably be far lower. Second the products that actually make it to market would be far safer and more effective than what we have now. This applies across ALL FORMS OF MEDICINE.

    As long as the government and big pharma are working together for their mutual self interests (I believe the term for this was originally FASCISM NOT CRONY or NEOLIBERAL capitalism), then there is little hope that the cost of healthcare will improve. That's the reality!

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  8. Eres insufrible, no hace falta que sepamos tus ridiculas ideas conservadoras y tus propias fobias con las minorias del pais, dirias lo mismo de ser anti-mujer? y anti-negro? porque me temo que en los 50 y 60 estarias del lado de los perros y de los cañones de agua, haztelo mirar porque pierdes mucho con esta mania de tener que decir tus ideas globales en tus analisis particulares. Es ridiculo pensar que la idea de maximizar el ROI es diferente a las de tus amigos conservadores, son SUS ideas! "own them!" ... los neoliberales son la misma gente que tu admiras y con la que te alineas. Desde la sociedad civil no vemos diferencias entre conservadores como tu o neoliberales os pareceis tanto que escucharos discutir es ridiculo, y por eso se pelean tanto los republicanos .

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    Replies
    1. Lo siento, pero estoy perdido en cuanto a lo que es su queja. Lo único que noto es que usted ha condenado la idea de obtener un beneficio (que se requiere es una actividad que va a ser sostenible), pero ofrece más opciones. ¿Está condenando a la idea de la gente que es capaz de intercambiar libremente bienes y servicios para su beneficio mutuo de auto? ¿O usted cree que es necesario contar con el gobierno interviene en todos los intercambios humanos?

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    2. El gobierno ya está en todos los intercambios de la sociedad ya que controla las leyes que rigen las relaciones entre las partes productivas y las partes consumistas.

      Eso no es el problema, o quiere usted que le vendan carne podrida, o acelgas con enfermedades, o melones infectados ... a claro que si quiere esas cosas por eso ocurren tanto en USA odnde la seguridad alimentaria es muy deficiente, mucho más que en cualquier otro país moderno!

      Los argumentos maximalistas de los neocons como usted simplemente suenan como los comunistas idiotas que teniamos antes en Europa , nunca se llega a la pureza suficiente para que sea lo que ustedes quieren pero en medio se cargan a toda la sociedad. El progreso y el avance está en la socialdemocracia (lea a Tony Judt, o a NNT, dos personas muy diversas y no maximalistas)
      El problema con su articulo es su declaracion de estar en contra de las minorias en su pais de adopcion porque ha sido precisamente en la apertura de las sociedades a sus minorias lo que ha creado la mayor diversidad y creacion de riqueza porque trabajando toda la sociedad junta se generan servicios y productos que nos enriquecen a todos desde el cotton gin, el jazz y el rock, a las peliculas de Almodovar y Amenabar. Es cuando se deja a las minorias participar que se crece y se progresa, cuando se integran a todas las clases sociales, culturales se genera una cohesion que hace avanzar a todos y no manteniendo en la periferia a las minorias como usted desea.

      si todo lo hicieran hombre blancos como usted que mundo mas aburrido y predecible seria este ! Por suerte gente con sus ideas maximalistas no pintan mucho en la vida real, todo son opiniones grandilocuentes pero al final no se aburre de estar equivocado tantas veces? y pedir dinero por tener un blog? que cosa mas patetica la verdad, escriba en un medio de pago si es que le aguantan!! jajajaja!

      Delete

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GL