From E.T. Extraterrestrial (Source)

The Galactic Habitable Zone (Source)

All of the potentially habitable planets were found within this small scope of space (Credit: Jon Lomberg)

By Matt Stoller, who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Originally published at Observations on Credit and Surveillance

The rich have been doing it to the poor since the beginning of time. The only difference between the Pyramids and the Empire State Building is the Egyptians didn’t allow unions. – Martin Sheen in the movie Wall Street

A lot of people are misreading this Princeton study on the political influence of the wealthy and business groups versus ordinary citizens. The study does not say that the US is an oligarchy, wherein the wealthy control politics with an iron fist. If it were, then things like Social Security, Medicare, food stamps, veterans programs, housing finance programs, etc wouldn’t exist.

What the study actually says is that American voters are disorganized and their individualized preferences don’t matter unless voters group themselves into mass membership organizations. Then, if people belong to mass membership organizations, their preferences do matter, but less so than business groups and the wealthy.

Furthermore, the study says that the only mass groups that truly represent citizen preferences are labor unions and advocacy groups like the AARP. Another implication from the study is that citizens can get what they want if they want the same things that business groups or the wealthy want, or if they want to preserve the status quo. Change is hard for everyone, even the rich. Citizens helped stop cuts to Social Security that the elites wanted, and may derail trade agreements.

The lesson here is to organize. Citizens can matter, but only if they make themselves matter. Change won’t be distributed like consumer products, wherein high polling numbers just seamlessly translate into policy change.

There are a number of other implications. One is that the decline of labor unions doesn’t just reduce economic bargaining power, it reduces the political representation of ordinary citizens. If mass membership organizations are the only way for ordinary Americans to represent themselves, and labor unions are the only mass membership organizations that express the preferences of ordinary Americans, then labor unions are popular democracy. This makes sense. The groups pushing for broadly popular policies – equal pay, foreclosure relief, preserving Social Security and Medicare, etc – are unions. Unions want more stuff for normal people.

Anyway, that’s what the study says. America is not an oligarchy. But it is becoming one as unions die.

I’m not sure I agree with the methodology of the study. There are a lot of acknowledged gaps, like the influence of ordinary people on the elites, and vice versa, and unacknowledged ones, like the importance of the security state or ideological competitiveness. The study doesn’t distinguish between policies that are important, like TARP or the bailouts, and those that are not, like the cap on credit union lending. It doesn’t distinguish between policies in the news, and those not in the news. It doesn’t deal with media consolidation, or examine the link between economic elites and ordinary citizens. I mean the New Deal financial system worked really well because it established such a political alignment, while deregulation snapped this political unity. And it doesn’t address change over time – clearly there was more influence from ordinary citizens in the 1930s and 1940s. Why? The American political system isn’t static. Different leaders have different styles and believe different things.

Really, though, the biggest issue with the study is that it is both obvious and derivative work – political scientist Tom Ferguson has been writing about this problem since the early 1980s. And anyone with eyes, ears, or any observational skill knows that the rich matter. Money is power, as Adam Smith noticed a few hundred years ago. This study is part of the whole Piketty movement, wherein what Chris Hedges calls the liberal class begins to notice that the distribution of resources matters to them. One could argue it’s good that people notice the obvious, but I’m not so sure. If it takes Princeton political scientists six years after the biggest financial crisis in history to notice that money is a thing, that’s not really progress. Real progress would be a wholesale rejection of political science and economics as blind and corrupt. But then, I suspect that would require people to organize.

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives

The New York Times and Dave Leonhardt’s Upshot section made a big splash a few days ago by reporting on a study showing that the Canadian middle class had caught the US middle class in median income and likely surpassed it since. The study is based on an effort to measure median income per capita after taxes, and its results are presented as something truly significant.

However, I think the study is biased in that in median income per capita after taxes, it selected the wrong measure. What is needed is a measure of income or affluence that takes account of the value of cross-national variations in Government benefits delivered to the middle classes. Since the United States has lower taxes than most comparable nations, but delivers much less in safety net and entitlement benefits, it’s pretty clear that the measure used in the study reported on by The Times overestimates the real median income of the US middle class in comparison with the middle classes of other comparable nations and provides a misleading impression of the relative affluence of the American middle class.

 

In fact, it is likely that if real median income or median wealth per capita were measured in a more valid way that the study would have found that the US has lost its lead over other nations in Net Median Income Per Capita (median income per capita after taxes minus the cost per capita of benefits the State does NOT provide relative to the nation with the most generous safety net benefits), or per adult long before 2010. This is suggested by an earlier post of mine which I’ll now reproduce in full and then briefly discuss to conclude this one.

We’re No. 24! We’re No. 24! (As of July 2012)

We keep hearing bad news about where the US stands on various social and economic indicators. The US’s ranking in math capability is 27th in the world. Our health care system is ranked 37th. Our 2011 life expectancy is 51st in the world. Our estimated 2012 infant mortality rate is 49th in the world. So we’re pretty far down in a number of international statistical comparisons of performance. Some here point to better performance on economic indicators. For example, GDP per capita is often cited as an area where the US performs much better. But even here the latest CIA world handbook estimate shows the US ranked 19th on this measure at $48,400.

It gets even worse if you take a look at the recent Credit Suisse Global Wealth Databook 2011. Dylan Matthews, writing on Ezra Klein’s Wonkblog, did that on July 18th in a blog entitled “Are Canadians Richer Than Americans?” Matthews says yes, based on the Credit Suisse data on 2011 Median Wealth per Adult, and he goes on to also point out that:

”So not only does Canada beat the United States on median net worth. Just about every developed country save Sweden and Denmark does. The UK, Japan, Italy (!) and Australia more than double the U.S. Median.”

This important conclusion of Matthews gets a bit lost in the post’s central focus on a US/Canada comparison and his attempt to answer his lede question. A few days later, wigwam posted at MyFDL blogging on the Matthews piece, and presenting a table wigwam developed from the graphic used in the Matthews piece.

Wigwam’s numbers are approximate because he developed his table, from Matthews’s graphic, but his emphasis on the context of where the US stands relative to other nations is much greater than in Matthews’s post, and he also ties it into other issues such as foreign aid to Israel, the 99% vs. the 1%, and rising poverty in the United States. Wigwam’s money lines are:

“This is a chart that I’m going to show when Mitt Romney fans talk about “what makes American exceptional.” It vividly documents how badly America’s 99% are being screwed by its 1%. We’re a wealthy nation only when you count the trillions controlled by the 1% but not so wealthy when you look at the net worth of the median household.”

So, that’s what got me looking at the Credit Suisse Report. When I did, I found that Matthews had truncated the Credit Suisse data, and that in doing so he had missed some important aspects of US economic performance compared to other nations when viewed from the perspective of a “middle” US economic position. Wigwam, as well, in basing his post on Matthews’s, also reflects the same problems.

Specifically, Matthews and wigwam both included only 19 nations in their analyses, and ranked the US 17th out of 19th. In addition, in approximating the numbers in his table he departed a good bit from the actual median wealth per adult numbers in a number of cases. Here’s a chart that includes the first 36 ranks in the Credit Suisse data.

I’ve included more than Rank, Nation, and 2011 Median Wealth per Adult in the chart. There’s also, Credit Suisse’s data on 2011 Mean Wealth per Adult and values I’ve computed giving the ratio of the mean to the median. I’ve included the last measure because I think the ratio is revealing as a measure of inequality in each of the nations. The Credit Suisse Databook does give the GINI index which is a better measure of inequality than the ratio I’ve used here, from a strict social science point of view; but I don’t think it’s as intuitive as the ratio of the mean to the median.

Looking at the results, you can see that the United States isn’t 17th on Median Wealth per Adult, it’s 24th. Now Luxembourg, Belgium, Iceland, Singapore, Austria, Qatar, and Kuwait, are all also ahead of the US in median Wealth. The “median person” is more than three times as wealthy in Luxembourg, more than two-and-a-half times as wealthy in Belgium, and more than twice as wealthy in Iceland and Singapore than in the US. Among nations that were included in the original WaPo and MyFDL comparisons, the “median Australian” is nearly 4.5 times as wealthy as the “median American; the “median Italian” is three times as wealthy. Japan and the UK have medians in the neighborhood of 2.5 times the US median, while Switzerland and Ireland have medians in the range of double the US number.

In short, the comparison with 36 nations included, shows that the US stands even worse, relatively speaking, than in the 19 nation comparison. The numbers show that many nations with recent and current severe banking/financial problems still have median wealth numbers that greatly exceed ours.

These include: Italy, Belgium, Iceland, Ireland, and Spain. The first four show more than double the median wealth of US adults and the last has a 40% greater median wealth figure. The US Fed is being called upon to use US nominal financial resources “created out of thin air” to bail out the financial systems of these nations, and will probably continue to provide such backing to “save the financial system.” The irony of our doing that when we refuse to use vigorous fiscal policy to help our own middle and working class people to remain employed, get new jobs, and work for a living wage, is another of those outrages to our democracy we experience every day.

The mean-to-median ratio numbers are also interesting to say the least. Nations with a ratio under 2.00 include Australia, Luxembourg, Italy, Japan, Ireland, Spain, Malta, Slovenia, Brunei, and the Bahamas. A majority of nations have ratios between 2.00 and 3.00. Nations over 3.00 include: Switzerland (5.35), France (3.25), Norway (4.07), Israel (3.25), Germany (3.49), the US (4.71), Sweden (6.56), China (4.88), and Denmark (9.30). So, the US is among the most unequal nations in the world on this measure. Among the nations that exceed it in inequality, the numbers for Sweden and Denmark may be statistical artifacts. The World Bank Gini number for Denmark is 24.9 and for Sweden is right behind at 25 with Norway coming in at 26, while the Gini is 41 for both the US and China, and 34 for Switzerland. This suggests that there may be something about the way welfare state transfer payments are accounted for that doesn’t get into the Credit Suisse Median Wealth per Adult statistics. Wigwam suggests:

“One of the anomalies in this data is that personal retirement plans (e.g., IRAs) usually count toward “net worth,” while general retirement plans (e.g., a public employee’s defined-benefit plan and/or Social Security) don’t. I’m told that Sweden and Denmark have excellent plans that take care of the elderly. Not only don’t those plans count toward their citizens’ “net worth,” but the excellent quality of those plans encourage their citizens not to save. If you had super-excellent government coverage to care for you in your elder years, would you set aside as much as the typical American? My point is that the median American is really at the bottom of this graph.”

Finally, I think the Credit Suisse Report gives the best picture yet of the failure of the US political/economic system to progress as rapidly as the systems in other modern nations. The jingoistic beating of our chests, insisting that the US is “the richest nation in the world”, with an unequaled political/economic system, just doesn’t square with reality. It may make a great many Americans feel good. But it’s not true and it doesn’t help us to face and adapt to our circumstances. In the end “all life is problem solving;” and you can’t keep on living well if you won’t recognize and then solve your problems.

Our system hasn’t produced the advantages for most Americans that other systems have produced for the citizens of their nations. How long will we continue to deny this in the face of mountains of cross-national data, and instead insist that our way is best? It may be best for 1% of us, but for the overwhelming majority, it is close to the worst among advanced modern industrial nations. Other nations produce better health for their citizens, healthier children and seniors, better education for their citizens, better work lives, less stress, more happiness, low cost universities. You name it; they’ve got it!

What we’ve got, instead, is an ideology about the free market that works for very few of us and makes the rest us less free, less wealthy, less secure, and less happy, as time goes on. Our economic system isn’t delivering for us. Our political system isn’t delivering for us either, it’s corrupt through and through, and our leaders won’t prosecute the rampant control fraud in the financial sector. And, finally, all we get from our representatives is excuses and rationalizations about why we can’t adapt to the changes, we, ourselves, had a great part in bringing to the world.

So, what can we do about it? I’m afraid this post isn’t about that. But, I think what we have to do is to create a new web-based Information Technology platform we can use to create a meta-layer of political activity that will take control of the major parties and either make our representatives accountable to the 99%, or replace them with new people who will be responsive to them. I’ve written about this a number of times previously. See here, here, and here, for example; and yes, it can’t be done in time for the 2012 election. Sorry about that, but what we have to do can’t be done in three months, and we should have started doing it three years ago if we wanted to be ready now.

That ends the previous post. Here’s the conclusion.

The Significance of Variations in Median Wealth Per Adult for Net Median Income Per Capita

Median Wealth Per Adult isn’t a direct measure of Net Median Income Per Capita. In fact, if we had a better measure of Net Median Income Per Capita, than Median Income Per Capita after taxes, we’d probably want to use it to test to see whether stagnant Net Median Incomes Per Capita after taxes lead to rapid declines in Median Wealth Per Capita. That is, to see whether trends in the flow of income impact stocks of wealth.

Lacking such a measure, however, and assuming that where the US stands on the stock of Median Affluence is more important in the first instance than where it stands on the flow of Median Income, it’s hard to avoid the conclusion that Median Wealth Per Adult is a better indicator of relative affluence of the middle class than Median Income Per Capita after taxes. Since that’s the case, it’s hard to justify all the attention this study is getting from the MSM and a good part of the blogosphere.

It’s now old news that the United States has been surpassed by other nations in Median Wealth Per Adult, and as my post shows, its Median Wealth Per Capita was less than 25% of Australia’s while the distribution of wealth in the US is far more unequal than the distribution in that and many other (including other English-speaking) nations as measured by the ratio of the Mean Wealth Per Adult to Median Wealth Per Adults.

So, one question which immediately comes to mind is if that’s old news, then would we not expect that such a result could only have happened if the United States had long since lost its lead in what I’ve been calling Net Median Income after Taxes, since that kind of result in Median Wealth Per Capita could have come about only primarily through an accumulation of Higher Net Median Incomes Per Capita over a period of years? If so, then the real news from the Times Report is that Median Income Per Capita is just a poor measure of affluence and has propped up the notion that the US middle class is especially affluent long past the time when this ceased to be the case.

In other words, the Times Report says more about the shortcomings of The Times when it comes to economic analysis, than it says about the real changing position of the US Middle Class when it comes to affluence. Oh, and to underline the point, the above table suggests that Canada hasn’t just passed the US relative affluence of its middle class, but that this happened some time ago, since in 2011 Canada’s Median Wealth Per Adult exceeded the US’s by nearly $36,000 per adult, or by roughly 69%, a change in relative affluence that had to be developing over a relatively long period of time, long before The Times decided to proclaim this as “news.”

Security researchers have uncovered an active malware campaign in the wild that steals the Apple ID credentials from jailbroken iPhones and iPads.

News of the malware dubbed "unflod," based on the name of a library that's installed on infected devices, first surfaced late last week on a pair of reddit threads here and here. In the posts, readers reported their jailbroken iOS devices recently started experiencing repeated crashes, often after installing jailbroken-specific customizations known as tweaks that were not a part of the official Cydia market, which acts as an alternative to Apple's App Store.

Since then, security researcher Stefan Esser has performed what's called a static analysis on the binary code that the reddit users isolated on compromised devices. In a blog post reporting the results, he said unflod hooks into the SSLWrite function of an infected device's security framework. It then scans it for strings accompanying the Apple ID and password that's transmitted to Apple servers. When the credentials are found, they're transmitted to attacker-controlled servers.

From Craig Heimark, a recovering derivatives trader, and Yves Smith

The media firestorm over high frequency trading has flagged some legitimate concerns but misses the real issues. While Michael Lewis’ book Flash Boys is sensationalistic and simplistic, it may goad regulators into action, particular since many knowledgeable observers have been making similar arguments for years.

At its foundation, high frequency trading is time-based arbitrage (which is different that statistical arbitrage which involves the real assumption of risk) and that is simply front running. It has become popular to demonize the high frequency trading crowd, but they aren’t the proper targets. The fact that high frequency trading exists at all is the result of poor regulation.

Now some would argue that regulators shouldn’t interfere with high frequency trading – as they also argue that all insider trading rules should be eliminated, since that help ensure that market prices reflect the latest news. While there may be an economic argument for the elimination of insider trading rules, it comes at the expense of a level playing field. Michael Lewis’ claim that “The markets are rigged” has gotten press play precisely because trust in the integrity of the public markets is critical for them to function properly. That implies that equal access to order execution is more important than the academic arguments of greater efficiency.

Perversely, much of the regulation of the last twenty years has been nominally in the interest of “market efficiency” but has come at the expense of market integrity. Far too many of the arguments and studies saying the promotion of competition among exchanges (and dark pools) has led to greater efficiency look at the efficiency as measured by the bid ask spread (plus fees) only of trading in the top stocks (because if they are trade weighted so that is where all the volume is). But this greater efficiency comes at the expense of no reciprocal liquidity obligation (witness the flash crash) as well as reduced liquidity in less frequently traded stocks.

The societal benefit of trading is to reduce cost to raise capital for actual companies. Does anyone really think that narrowing the spread on Google by a penny or two makes any difference to its weighted average cost of capital? In contrast, incidents like the flash crash and the feeling the market is rigged keep many small investors away from the market. The penalty for reduced liquidity in small stocks may actually be material to small company capital formation.

And these small investors are right to be concerned. The old exchange system was a hub and spoke model, which was a stable system architecture. The internet was an outgrowth of a DARPA project to make a communication system so decentralized that it could not be taken out by a nuclear strike. Hub and spoke models are stable, but subject to an outage, say by a nuclear bomb or electrical failure. What chaos theorists have found is that highly decentralized networks are stable, as are single node networks (like exchanges), but that slightly decentralized networks are fragile. And that is what we have now thanks to the SEC’s misguided efforts to “modernize” the stock market via Regulation NMS.

So regulators have left investors with the worse possible market structure. We no longer have liquidity obligations to make orderly markets as we had with the old model. Our current system is more complex due to some decentralization, but it is not so decentralized that it is robust (in technology-speak, a synchronized mesh network). The complexity of keeping the slightly decentralized model synchronized is what makes the system unpredictable and more fragile. This is not just an academic network construct. It is why we saw some exchange crashes recently (like Nasdaq) that were due to code changes in the linkages and feeds between exchanges.

Similarly, the value high speed traders provide is reestablishing the integrity of a single price in a centralized market after Reg NMS fragmented the market. But in reality, the buy side and all brokers are already sophisticated enough to use electronic routing to reestablish that centralized market, but not at sub-second speed. So the only service HFT time-based arbitrage provides is a sub second service. We’ve yet to see anyone make a credible case for the social utility whatsoever of sub-one-second execution. So since sub-second order execution fails to provide any social utility, it follow that any profits they extract are a dead weight loss on stock transactors. Those strategies, with the complex order types and the payment for order flow, should be eliminated.

While exchanges are a natural monopoly like any network, there are, better ways to prevent monopoly abuse than the route US regulators have taken. The SEC should impose minimum resting time for order (which is the equivalent of the IEX 38-mile fiber optic spool that slows down incoming orders). This would not put the high frequency traders out of business; they’d still have statistical arbitrage and other high-value services, but it would eliminate the riskless time-based arbitrage of front running at sub-second intervals.

Yves here. Even though the pitched battle to cut, erm, reform Social Security and Medicare has died down, don’t kid yourself into thinking it’s over. Neoliberals keep stoking generational warfare to drive a wedge between the young and old so as to keep them from noticing who is behind the campaign to have old people die faster.

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives

Some of the favored children of the economic elite who have a public presence, work hard in their writing and speaking to divert attention from inequality and oligarchy issues by raising the issue of competition between seniors and millennials for “scarce” Federal funds. That’s understandable. If millennials develop full consciousness of who, exactly, has been flushing their prospects for a decent life down the toilet, their anger and activism might bring down the system of wealth and economic and social privilege that benefits both their families and the favored themselves in the new America of oligarchy and plutocracy.

Here and here, I evaluated Abby Huntsman’s arguments for entitlement “reform,” and, of course, Pete Peterson’s son, Michael fights a continuing generational war against seniors in pushing the austerian line of the Peterson Foundation. Now comes Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. I’ll reply to all of the main points in Rampell’s argument, by quoting liberally and then replying to the points she makes in each quote. She says:

”Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it.”

She continues by citing an Urban Institute study and pointing out that earlier age cohorts received much more in benefits from Social Security than they paid in, and also says:

”But let’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security, according to Eugene Steuerle, an Urban Institute fellow who co-authors the annual report. (Earlier generations made out like bandits; for example, members of an average one-earner couple who turned 65 in 1990 receive twice as much in Social Security benefits as they paid in taxes.)

Medicare, on the other hand, is pretty much a steal no matter when you turned 65.”

After citing some details documenting “what a steal” Medicare is, Rampell concludes the first part of her argument with this:

”It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.”

This argument of Rampell’s is disingenuous, because it takes the claim that seniors have already paid for their entitlements as saying that they’ve paid dollar-for-dollar, more or less, for what they’re getting in benefits. But seniors who know how SS and medicare works certainly don’t mean this when they say they’ve already paid for it. What they surely mean instead, is that Congress has legislated the SS and Medicare safety nets, and the benefits that currently exist, for the purpose of seeing to it that seniors have a minimum of economic insecurity during the period of their lives when a large proportion of them no longer have the capability to earn a decent living due to illness, other infirmities, or an extreme reluctance of private sector employers to hire them even when they are very skilled.

To draw on the benefits of these programs seniors were required to pay FICA contributions during their working lives. These payments, according to the law, give them the right, in other words, entitle them, to receive the benefits of SS and Medicare that were mandated by Congress.

No one ever said to today’s seniors that there was some rule in the SS and Medicare programs requiring that their payments needed to, or ought to, correspond to the amount of their total benefits, since that was never the deal legislated by Congress. No, the deal was: “You pay your FICA contributions, and you get your benefits at retirement.” Simple as that!

So, people who followed the SS and Medicare rules and made their payments over the years rightly view themselves as having paid for their entitlement benefits, regardless of whether their cumulative FICA payments fall short of or exceed the cumulative sum of those benefits. Why shouldn’t they, and why is Rampell implying that the deal implicit in our major entitlement programs is anything different?

Additionally, I’m afraid that Rampell is also wrong when she says that today’s seniors “paid for” their parents’ entitlements. They certainly paid FICA and Medicare-related contributions, of course; but it is not true that these revenues paid for anything, in spite of Federal reports that appear to link the two, or the accounting that shows that the Social Security Administration has built up a $2.8 Trillion credit against future expenditures, and that Medicare has a much smaller volume of credit to be used for such expenditures.

The reality of Federal monetary operations is that Congress mandates the spending for all Federal programs and then spending occurs through the Treasury keystroking reserves into recipients’ accounts. Where do those reserves come from? They come from the Federal Reserve, of course, which has the delegated authority from Congress to credit reserves into Treasury accounts.

When, where, and why does it do this? The main trigger events are 1) tax and FICA contribution revenues, 2) sales of Treasury securities, 3) credits from coin sales and deposits at the Fed (coin seigniorge), 4) sales of Federal property, and 5) return of Fed profits to the Treasury. Tax and FICA payments cause the Fed to credit Treasury Tax and Loan (TT & L) accounts with reserves. Treasury coin sales and deposits at the Fed cause it to credit the Mint’s Public Enterprise Fund (PEF) account with reserves, and Fed profits and asset sales cause it to credit other Treasury accounts with reserves. So that’s how reserves get into what might be called Treasury income accounts.

From there, the Fed and the Treasury co-ordinate to ensure that there are sufficient reserve credits in Treasury spending accounts to allow Treasury to keystroke reserves into private sector accounts in fulfillment of all Treasury spending obligations. This occurs through the Treasury informing the Fed about its scheduled payments and peak reserve balance needs for a particular time period, and then the Fed and Treasury ensuring that the reserves will be there, if necessary through the issuance and sale of debt instruments, or even if Treasury would choose to do so through its creation (through the Mint), and deposit at the Fed, of platinum coins with face values specified by the Secretary (of course, this last option hasn’t yet been used).

So, two important points emerge from this account that Catherine Rampell and all who think that entitlement benefits are “paid for” by taxes and/or FICA contributions need to learn. First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its keystroking activities.

And second, there is no way, in the Federal Government spending context, to link any specific category of tax revenues or FICA contributions to benefit spending. There is no way to accurately say that this tax pays for that spending. Or that this spending is “paid for” by that tax. Or that millennials, and other age cohorts, are paying for seniors’ entitlement benefits, or for the difference between what seniors’ payments were before they began to receive benefits and what they are now getting paid afterwards.

The whole neoliberal construction of Government finance which assumes that the Government is a currency user with limited financial resources is false. The Government is a high-powered money creator of reserves, currency, and coins. It is the only high-powered money creator. It is the high-powered money monopolist.

So, Catherine Rampell, as well as all the conservative and/or austerian, and most of the progressive pundits and politicians of all stripes, are wrong to spend time debating who does or should “pay for” entitlement benefits with their taxes. Federal taxes don’t pay for anything. So, payments made to the Government “for” entitlement benefits should be, required, if at all, only for other purposes than “paying for” such benefits.

They have only the following functions. Some unknown level of taxation gives a national fiat currency its value, by ensuring that people will need that currency to pay their taxes. Taxes also can drain excessive reserves and net financial assets from the financial system, reducing aggregate demand when this is desirable. They can also be used to reduce levels of behavior society believes is undesirable, or to incentivize behavior it considers desirable, and to reduce the accumulation of wealth across generations, or to drive resources to charities, and for other purposes as well.

But, what they cannot do in a fiat currency system is to function as the actual effective means of “paying for” sovereign spending. The instrument that, in fact, enables such spending day-to-day is the sovereign and sole authority of the Government to create high-powered money. In the United States. This means it is the whole process of interaction among Congress, the Fed, and the Treasury that creates such high-powered money which determines the amount of spending we have and not the specific taxes we collect from any specific generational cohorts.

And this brings us to Rampall’s next point:

”So who’s making up the difference between what seniors paid yesterday and what they receive today? “Spoiled millennial [expletives]” like me, as well as Gen-Xers and both groups’ children. And absent a major influx of working-age immigrants, the burden per worker stands to grow enormously in the coming years. That’s because the bloated baby-boomer cohort is aging into retirement, Americans are living longer and health-care costs per person are rising.”

The facts of fiat money operations described earlier, make clear that nobody is making up that difference between seniors’ current benefits and seniors’ payments prior to their receiving entitlement benefits with their tax payments. What is happening instead, is that the Government is paying all benefits using established monetary operations, and its authority to create high-powered fiat money.

So, Rampell has nothing to worry about. Her money isn’t going to baby boomers or other seniors like me. Its destruction by the Government through taxation is fulfilling public purposes other than providing baby boomers and other seniors with their benefits.

But while on this subject, what’s the point of the reference to “the bloated baby boomer-cohort”? Are the boomers to blame for the size of their cohorts? Should they have increased their suicide and murder rates to bring the size of their cohort more in line with others? Do they bear a moral responsibility for continuing to live?

Full disclosure: I’m a senior, though not a boomer, but I don’t see what the point or the justification is for referring to them as “bloated” because their parents decided to celebrate the end of the Great Depression and World War II by having lots of children. In fact, I don’t think referring to the boomer cohort as “bloated” makes any more sense than referring to the millennial generation as “spoiled.” It’s the kind of thing that in days of more simplistic philosophy people used to call “cognitively meaningless,” and that we have always called ad hominem argument.

As for health care costs rising enormously, and “the extra burden” that will place on other generations, there are many ways of handling that other than reducing benefits to seniors. For example, we could begin by recognizing that increasing health care costs are not a burden for a Government that can create high-powered money to buy anything for sale within its own borders, and that the REAL financial problem of rising health care costs isn’t a government solvency problem, but a financial hardship problem for most Americans. It’s they who need both lower costs and good health care outcomes, not the Government.

So, rather than implying that Medicare benefits need to be cut, why doesn’t Rampell propose that HR 676, enhanced Medicare for All, be immediately passed by Congress? We know from experience in other nations that HR 676 or similar legislation would reduce the rate of increase of health care spending much below today’s levels.

In addition, if we can get down to the same percent of GDP Canada spends for health care with such legislation, then we will spend roughly $1 Trillion per year less than we spend now on health care. Since health care involves no deficit spending right now, that means $1 Trillion per year left in the pockets and bank accounts of sectors of the economy other than health care insurers and providers.

That’s an awful lot of new jobs created, along with better health care outcomes, if the experience of other nations with single-payer systems is any guide. So, why isn’t Rampell advocating that kind of solution, instead of saying things like “Look over here at that greedy old codger” and “Don’t tax you, don’t tax me; tax that senior standing under the tree”?

Maybe we can find an answer to that question by looking at the last paragraph in her column.

“But as a society, we must decide exactly how much we’re willing to subsidize the growing ranks of the elderly. Republicans argue that we should control entitlement spending because (I’m paraphrasing here) deficits are evil. They should be joined by Democrats, but for a different reason: Money for other worthy, traditionally liberal causes — education, infrastructure, children, the deeply poor — is being gobbled up by increasingly expensive and unfunded promises to the old.”

So, here we have everything in a nutshell. Rampell, consistent with her false belief that entitlements are “paid for” by inherently limited Government fund raising through taxing or borrowing, also appears to believes the falsehood that Federal money is limited by the Government’s ability to tax and borrow, and that the needs for a quality education for the young, infrastructure for a healthy economy, a good life and equal opportunity for children, the deeply poor, and, implicitly, opportunities for good jobs and a good life for her own millennial age cohort, are in competition for Federal money with the needs of seniors.

However, Federal money sufficient to fulfill all these needs can easily be made available if Congress is willing to appropriate it. For example, the faux entitlement solvency crisis that Rampell worries about can easily be fixed by passing legislation providing for annual automatic funding of expected costs for all SS and Medicare trust funds.

Congress does that now for Supplementary Medical Insurance (Medicare Part B), and Prescription Drug Benefits (Medicare Part D), and the same practice, using similar legislative language, can be extended to the SS Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. Solving the crisis can be done this way in an afternoon if Congress really wants to do it. End of faux problem; almost end of story, apart from possible debt limit problems.

Once legislation like this is passed, no gaps between SS revenue and benefits can be projected by institutions such as CBO, or other Petersonian deficit warriors. Because under current law, once those appropriations are set on automatic renewal annually, the Treasury will then have the obligation to spend those appropriations by using one or more of the various tools listed earlier to generate credits in the Treasury General Account (TGA).

Again, the Treasury has no fiscal solvency problem, under current law, provided it has an appropriation mandating it to spend, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its revenues. The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, while adding the net financial asset of Federal debt to that sector, and getting the Fed to place an equal amount of reserves in its accounts. But, this way of getting the necessary reserves can be interrupted by debt ceiling crises.

However, there are other ways it can be done that get around any refusal to raise the debt limit, if it wants to fulfill its obligations and pay all the benefits guaranteed by the change in the law to provide automatic appropriations that would solve this faux problem. The best way any gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to do it. I’ve explained how this would work in my kindle e-book, as well as http://neweconomicperspectives.org/category/joe-firestone-2 in many blog posts.

The basic idea is that its platinum coin seigniorage authority can be used by the Treasury to require the Fed to use its reserve creation authority to place reserves in Treasury accounts, without Treasury engaging in any additional taxing or borrowing. If Treasury doesn’t want to do this, then it can use a type of debt instrument which isn’t counted toward the debt limit such, as consols (See here).

Just as Congress, along with the Federal Reserve and the Treasury, can work together to solve faux self-created entitlement crises, it can also legislate the deficit spending needed to fulfill all the needs Rampell is worried about. It is a question of will and intention, not a question of financial capability. Rampell should not write disingenuously as if a future entitlement funding crisis is an inevitable fact of nature, rather than an aspect of “shock doctrine” and a political choice.

Entitlement benefits aren’t in competition with other needs for scarce Federal funds, and what seniors have paid in FICA taxes aren’t important for the level of benefits we decide to allocate to them. The whole debate over what’s been paid in and what seniors get out is all sound and fury signifying nothing but neoliberal madness and moral bankruptcy.

The proper frame to use when evaluating the question of how much the Government ought to subsidize one generational cohort as opposed to another isn’t the competitive neoliberal framing used by Rampell at all. The framing Rampell should be using is this:

”We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own.”

Contrary to what Rampell advocates, the Democrats shouldn’t join with the Republicans to cut entitlements or any other spending, just for the sake of deficit reduction. Instead, they should embrace the framing of FDR’s last years and his Second (economic) Bill of Rights. That is the heart and soul of the Democratic Party: its reason to continue to exist.

It must turn away from corporatism and neoliberalism and turn again to this vision, or face its own death. Because if it won’t undertake and complete the great work FDR set out for it in 1944, creating renewed political, and new economic and social democracy, and ending the new American oligarchy, then the American people need it no more. And it may as well consign itself to history, and give a new “party of the people” a chance to do what it will not.

A grouping of adult male polar bears along the coast of western Hudson Bay in summer (photo credit: Robert F. Rockwell)

Linda Gormezano and her dog, Quinoa. (photo credit: AMNH)

A polar bear scat collected on land in summer in western Hudson Bay containing caribou fur, goose egg shells, a hatching membrane and marine algae (photo credit: Linda J. Gormezano)

A polar bear eating a freshly killed caribou along the coast. (photo credit: Robert F. Rockwell)

Nestor 2 camp, located in Wapusk National Park (photo credit: Robert F. Rockwell)

Ice flows along the coast as the ice breaks up in summer in western Hudson Bay (photo credit: Linda J. Gormezano)

Quinoa doing a passive alert at a pile of polar bear scat. (photo credit: Robert F. Rockwell)

Playing tug of war with Quinoa as a reward for finding polar bear scat. (photo credit: Robert F. Rockwell)

Quinoa and Linda searching for polar bear scat along the shore of an inland lake. (photo credit: Robert F. Rockwell)

Is that you, Polly? The amazing experiment that proves parrots give their children names Daily Mail

Rancher in land dispute is a bully, not a hero Las Vegas Sun

3 reasons the economy has some spring in its step Fortune

Flash In the Pan: On ‘Flash Boys,’ Michael Lewis’s Baffling New Book Maureen Tkacik, New York Observer (furzy mouse). Look! Over there! High frequency trading! 

Wall Street’s wily front group: Inside story of a rental scheme’s secret facelift David Dayen, Salon

Matt Taibbi: ‘Hands Down’ Bush Was Tougher On Corporate America Than Obama (VIDEO) Talking Points Memo. Democratic house organ feints left for the mid-terms.

Trillion-Dollar Firms Dominating Bonds Prompting Probes Bloomberg

“We are in great danger”: Ex-banker details how mega-banks destroyed America Salon

Intuit Does Subterfuge To Combat Free-Filing Tax Returns TechDirt

NY financial services regulator deepens probe into Credit Suisse FT

Cuomo to be ‘honorary chair’ of pro-charter retreat Capital New York

Defending Kickbacks Baseline Scenario

C.E.O. Pay Goes Up, Up and Away! Times

The lost promise of progressive taxes Reuters

Are ATMs the Right Channel for Serving the Underbanked? American Banker

Cannabis Goes Corporate The American Conservative

Winter Wheat Hit Hard by Widespread Cold Snap AgWeb

Why is Involuntary Part-Time Work Elevated? FEDS Notes

Losing Benefits Isn’t Prodding Unemployed Back to Work FiveThirtyEight. Chattel slavery has its advantages.

Private ownership of public infrastructure… A doom of inequality Angry Bear. “Don’t be caught without cash.”

Study: American policy exclusively reflects desires of the rich; citizens’ groups largely irrelevant Boing Boing

ObamaCare

Insurers see brighter Obamacare skies Politico

Abortion Coverage Details Hard To Find On Marketplace Plans KHN

Morning Plum: On Obamacare, the conversation is changing WaPo. “Conversation” is a favorite word for the Democratic nomenklatura because it implies equality while concealing power relations.

Health IT: The Coming Regulation The Health Care Blog

In Medical Decisions, Dread Is Worse Than Fear The Atlantic

Big Brother Is Watching You Watch

Accusation of FBI spying stalls 9/11 hearing Miami Herald

New York police end Muslim surveillance program Newsday

School Officials Bully Student into Deleting Recording of Bullying, Threaten him with Felony Wiretapping Photography is Not a Crime

FBI Uncovers Al-Qaeda Plot To Just Sit Back And Enjoy Collapse Of United States The Onion

Ukraine

Ukrainian forces move to dislodge separatists in the east FT

WH backs Ukraine crackdown The Hill

‘We Will Shoot Back’: All Eyes on Russia as Ukraine Begins Offensive in East Der Spiegel

Escalation of conflict in Ukraine puts country on brink of civil war – Putin Voice of Russia

Ukraine leader says Russia wants to set southeast ‘on fire’ Agence France-Presse

How to Save Ukraine Foreign Affairs

Radioactive Waste Is North Dakota’s New Shale Problem Online WSJ

Asian air pollution strengthens Pacific storms BBC

Manipulate Me: The Booming Business in Behavioral Finance Bloomberg

Struggling Dems waiting for Hillary in 2014 Politico

The Warren Brief The New Yorker. A biography. Unlike Obama, Warren’s written just one.

Can You Lie in Politics? Supreme Court Will Decide Roll Call

Why We’re in a New Gilded Age Paul Krugman, NYRB. Piketty.

‘Capital in the Twenty-First Century’, by Thomas Piketty Martin Wolf, FT.

Comprehensive Disobedience: Occupying the Sharing Economy in Spain Shareable (diptherio)

Antidote du jour:

See yesterday’s Links and Antidote du Jour here.

Project Ara's prototype Application Processor module, which house the CPU, memory, SD card slot, and other core hardware.

Yves here. We are delighted to feature this post from Roy Poses, who with his colleagues at Health Care Renewal, have been providing consistently high quality analysis of the often dubious practices and economics of the health care system.

By Roy Poses, MD, Clinical Associate Professor of Medicine at Brown University, and the President of FIRM – the Foundation for Integrity and Responsibility in Medicine. Cross posted from the Health Care Renewal website

The New York Times published another article in its series on the high cost of US health care.  This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light on the business management practices that now determine how our health care system functions, or not, and implies who benefits the most from them.

Planned Obsolescence Disguised as Innovation

The article first discussed the brave new world of type 1 diabetes treatment.  The introductory theme was:

Today, the routine care costs of many chronic illnesses eclipse that of acute care because new treatments that keep patients well have become a multibillion-dollar business opportunity for device and drug makers and medical providers.

Much of modern diabetes treatment seems to depend on medical devices and disposable medical supplies:

That captive audience of Type 1 diabetics has spawned lines of high-priced gadgets and disposable accouterments, borrowing business models from technology companies like Apple: Each pump and monitor requires the separate purchase of an array of items that are often brand and model specific.

A steady stream of new models and updates often offer dubious improvement: colored pumps; talking, bilingual meters; sensors reporting minute-by-minute sugar readouts. [Diabetes patient] Ms. Hayley’s new pump will cost $7,350 (she will pay $2,500 under the terms of her insurance). But she will also need to pay her part for supplies, including $100 monitor probes that must be replaced every week, disposable tubing that she must change every three days and 10 or so test strips every day.

Of course, the device and supply manufacturers claim that the high prices reflect the value of the wondrous new innovations:

Companies that produce the treatments say the higher costs reflect medical advances and the need to recoup money spent on research.

Yet now the Times reporter was able to find physicians who claim the “innovations” are really just the latest version of planned obsolescence:

Diabetes experts say a good part of what companies label as innovation amounts to planned obsolescence. Just as Apple customers can no longer buy an iPhone 3 even if they were content with it, diabetics are nudged to keep up with the latest model.

For example,

Those companies spend millions of dollars recruiting patients at health fairs, through physicians’ offices and with aggressive advertising — often urging them to get devices and treatments that are not necessary, doctors say. ‘They may be better in some abstract sense, but the clinical relevance is minor,’ said Dr. Joel Zonszein, director of the Clinical Diabetes Center at Montefiore Medical Center.

‘People don’t need a meter that talks to them,’ he added. ‘There’s an incredible waste of money.’

Pharmaceutical companies have also discovered this model.

insulin … has been produced with genetic engineering and protected by patents, so that a medicine that cost a few dollars when Ms. Hayley was a child now often sells for more than $200 a vial, meaning some patients must pay more than $4,000 a year.

In particular,

Synthetic human insulin is safer for patients, who sometimes developed reactions
to animal insulin. But it is made by only three companies: Eli Lilly, Sanofi and Novo Nordisk. Manufactured in microbes, each one’s product has minor dissimilarities that reflect the type of cell in which it was made. Since the companies owned the cell lines, it is nearly impossible for other companies to make exact copies or even similar versions that would be cheaper, even once the patents expire. And the pharmaceutical companies defend the patents ferociously.

What’s more, the three companies continued to refine their product, adding chemical groups that made the insulin absorb somewhat more quickly or evenly, for example. They are called insulin analogues, and their benefits are promoted tirelessly to doctors and patients.

Of course, the pharmaceutical companies also claim that it’s all about innnovation,

Dr. Todd Hobbs, chief medical officer of Novo Nordisk, defended the rising prices of insulin, linking them to medical benefits. ‘The cost to develop these new insulin products has been enormous, and the cost of the insulin to the consumer in developed countries has risen to enable these and future advancements to occur,’ he wrote in an email.

 Not everyone is convinced,

‘The insulins are tweaked for minor benefits that may help a small number of patients with difficult-to-control diabetes, and result in major price increases for all,’ [Kings College, London, UK Professor] Dr. Pickup said. Because of analogues, he added, Britain’s National Health Service has had to spend 130 percent more on insulin in the past five years.

In the United States, said Dr. Zonszein at Montefiore, the price of Humalog, Lilly’s analogue insulin, was typically two to four times that of its older human insulin line, called Humulin. ‘There is not a lot of difference between Humulin and analogues,’ he said, but he noted that Humulin was getting ‘hard to find.’ Sanofi Aventis has stopped selling its older product in the United States, and Mr. Kliff, the financial analyst, said other companies were likely to follow suit, effectively forcing patients to use the costlier versions.

The arguments about valuable innovation also do not explain why the prognosis of diabetes in the US does not seem to reflect all the money we spend on the disease,

Complication rates from diabetes in the United States are generally higher than in other developed countries. That is true even though the United States spends more per patient and per capita treating diabetes than elsewhere, said Ping Zhang, an economist at the Centers for Disease Control and Prevention.

The high costs are taking their toll on public coffers, since 62 percent of that treatment money comes from government insurers. The cumulative outlays for treating Type 1 and Type 2 diabetes reached nearly $200 billion in 2012, or about 7 percent of America’s health care bill.

So to summarize, there is considerable evidence that companies that make drugs and devices to manage type 1 diabetes constantly provide “innovations,” yet most are minor changes that encourage obsolescence of previous products, but do not provide important increases in benefits or reductions in harm for patients. 

Oligopoly Disguised as a Free Market

Many in the US sing the praises of our supposed free-market health care system.  As noted above however, the insulin market is an oligopoly, dominated by three companies.  The diabetes device market is also dominated by a few companies, and in particular, the insulin pump market is dominated by a single company,

Medtronic is the dominant insulin pump manufacturer, serving 65 percent of American patients and the majority of those worldwide. Though smaller companies sell cheaper pumps, it is hard to make inroads: Once familiar with the Medtronic system and its extensive support network for troubleshooting problems, patients are reluctant to switch. Doctors are leery of prescribing equipment from a new company that may be out of business in a year; their office computer may not sync with the new software anyway.

Of course, Medtronic public relations will justify it all again based on innovation,

Medtronic declined to talk about specific prices, but said a core tenet was to make only ‘a fair profit.’ Amanda Sheldon, a spokeswoman, added: ‘We are committed to reinvesting in research and development of new technologies to improve the lives of people with diabetes, and our current pricing structure ensures that we can bring new products to market.’

The article also discussed the prices of treating chronic diseases other than diabetes.  For example, see how a nominally non-profit hospital priced treatments for chronic diseases,

Dr. Kivi was on high doses of steroids for debilitating joint pain that left him unable to walk at times.

But when his last three-hour infusion at NYU Langone Medical Center’s outpatient clinic generated a bill of $133,000 — and his insurer paid $99,593 — Dr. Kivi was so outraged that he decided to risk switching to another drug that he could inject by himself at home. 

However,  this pricing appears to have been facilitated by the hospital’s increasing market domination generated by its purchase of physician practices,

He had moved his care to NYU Langone to follow his longtime doctor, who had moved her practice from a nearby hospital where the same infusion had been billed at $19,000. The average price that hospitals paid for Dr. Kivi’s dose of Remicade late last year was about $1,200, according to Medicare data.

So in summary, a few companies now dominate the production of drugs and devices for the management of diabetes, and a few large hospitals may increasingly dominate the treatment of particular chronic diseases.  Such oligopolists are able to increase prices without improving treatment to or outcomes of patients.

Enrichment of the Oligarchs

This example shows how the current US health care system is dominated by huge organizations, mostly for-profit corporations but including some nominally non-profit corporations that act similarly.  They loudly proclaim innovation, but much of that innovation seems to provide few benefits to patients, and actually appears to be planned obsolescence.  The result is high and ever-rising prices. So if patients do not benefit from this, who does?

It does not appear to be the health care professionals,

Meanwhile, as the price of supplies rises, endocrinologists remain among the lowest-paid specialists in American medicine, meaning severe physician shortages in many areas and long waits to see a doctor.

We  have seen other examples of how leaders of the big health care organizations have become as rich as royalty.  Therefore, let us consider the pay of the leaders of the organizations mentioned above.  I will focus on the two US based corporations, Eli Lilly and Medtronic, and the New York hospital, NYU Langone Medical Center.

Eli Lilly

According to the company’s 2014 proxy statement, the 2013 total compensation of its five highest paid hired executives was

- John C Lechleiter PhD, CEO                                      $11,217,000

- Derica W Rice, CFO                                                   $5,176,822

- Jan M Lundberg, PhD, EVP, Science and Technology   $4,774,535

- Michael J Harrington, General Counsel                          $3,174,222

- Erico A Conterno, President Lilly Diabetes                    $3,009,041

Note that all of these executives save Mr Harrington have also amassed more than 100,000 shares of company stock, and Dr Lechleiter has amassed more than 1,000,000.

It should be no surprise, given our recent discussion (e.g., here) of the currently symbiotic relationship among top health care corporations and academic medicine, that several of the members of the Lilly board of directors that has exercised stewardship over the company, and is thus responsible for these gargantuan compensation packages and the business practices discussed above are top academic leaders.  These include,

- Alfred G Gilman, MD, PhD, Regental Professor Emeritus, recent (until 2009) executive vice presdient, provost, and dean of medicine, University of Texas Southwestern 

- William G Kaelin Jr, MD, Professor of Medicine, Associate Director of Basic Science, Dana-Farber Cancer Center, Harvard University

- Marschall S Runge MD, Executive Dean and Chair of the Department of Medicine, University of North Carolina Medical School

- Katherine Baicker PhD, Professor of Health Economics, Harvard University School of Public Health  (I must note that Prof Baicker is also – amazingly – on the Medicare Payment Advisory Committee, MEDPAC).

- Ellen R Marram, Trustee, New York-Presbyterian Hospital

- Ralph Alvarez, President’s Council, University of Miami

- R David Hooper, Trustee, Children’s Hospital of Colorado

- Franklyn G Pendergast MD PhD, Professor, Mayo Medical School

All but the newest directors were paid at least $250,000 a year by the company (and thus by the executives the directors are supposed to supervise), and all but the newest directors had accumulated tens of thousands of shares of stock or the equivalent as pay for their services.

Medtronic

Similarly, according to the company’s 2013 proxy (the latest now available), CEO Omar Ishrak made $8,975,866 in 2013, and the next four highest paid executives all made over $2,500,000 each.   Mr Ishrak owned or could acquire the equivalent of more than 500,000 shares of stock, and the other top paid executives owned of could acquire from over 100,000 to over 1,000,000 shares of stock.

Again, the executives were nominally supervised by a board of directors that included an academic and non-profit leader, Dr Victor J Dzau, MD former chancellor for health affairs at Duke University, and president-elect of the Institute of Medicine (note that we discussed Dr Dzau’s conflicts of interest most recently here).  It also included a former government leader, Michael O Leavitt, former US Secretary of Health and Human Services; and a hospital leader, Preetha Reddy, Managing Director of Apollo Hospitals Enterprise Limited (India). 

NYU Langone Medical Center

The Medical Center’s 2011 US form 990 is old, but the latest available, and is remarkably obscure, omitting, for example, mentioning the titles of any of the people listed as highest paid officers and employees.  The current CEO, was listed as receiving total compensation of just over $2.000,000.  Four individuals then received over $1,000,000.  The 990 form also mentioned that the Medical Center provided some individuals with first class travel, tax gross-up payments, housing allowances, and reimbursement for personal services.  Neither the 990, nor the center’s web-site makes all the possible conflicts of interest of its trustees obvious.   

So in summary, the large organizations, for-profit and non-profit, that are able to greatly increase their prices through planned obsolescence disguised as innovation, and oligopoly disguised as free markets, are able to make their top executives very rich, and also enrich those who are supposed to exercise stewardship over them. 

Summary

An extensive journalistic investigation revealed how certain aspects of chronic care in the US health care system are dominated by a few large organizations.  These organizations are able to charge very high prices, mainly through market domination, and with the aid of marketing and public relations that tout planned obsolescence as valuable innovation.  The leaders of these organizations have become wealthy, often fabulously so.  This state of affairs has not been challenged by those who are supposed to provide stewardship, including many prominent academics.

The US health care system is the most expensive, on a per capita basis, in the world, and far more expensive than that in any other developed country.  Yet there is no evidence that its results are superior to those of other countries.  What evidence there is suggests in fact that our results are mediocre at best.

The current example suggests how the US system differs from those of other countries.  It has an ostensible free market focus.  Yet the system appears more to be an oligopoly, with most of its market components dominated by a few large organizations, run as an oligarchy, by a small, overlapping in-group of managers, executives and their cronies, with elements of corporatism, that is with the cooperation of, rather than regulation by government entities and leaders

A real free market health care system would include a level playing field.  This could only be achieved by the government acting as a fair umpire, not a crony.  Anti-competitive practices would have to end.  Oligopolies would have to be broken.  Deceptive marketing and public relations would have to be exposed.  Leaders would have to be made accountable, especially for putting patients’ and the public’s health ahead of their own enrichment.  All this would be horribly difficult, as the oligarchs have amassed much money and control, and would oppose, possibly violently, any effort to challenge them.  If we do not challenge them in the US, however, not only will our health care continue to become ever more expensive, less accessible, and less beneficial to patients, but we will all cease to be citizens of one of the first real democracies, and end up serfs instead.