The Rise of Economism in the US: The Business Side

I recently posted about Daniel Stedman Jones’s book, Masters of the Universe, a history of the rise of economism (which he terms neoliberalism) in the US and the UK since the 1940s. Stedman Jones has a bit of a burr under his saddle about Marxism, and he appears to interpret any historical account that stresses how the wealthy supported economism-type policies out of their own self-interest as a Marxist account. So he stresses the growth of economism as a set of ideas, promulgated by think tanks. He has to admit that these think tanks relied upon the financial support of sympathetic capitalists, but as far as he is concerned, that’s more of a footnote.

In connection with other research, I had my attention directed to the book by historian Kim Phillips-Fein, Invisible Hands: The Businessmen’s Crusade Against the New Deal (New York: Norton, 2009). It seems to me that this volume makes a nice bookend with Stedman Jones. Phillips-Fein is most interested in why the US business community (she does not address the UK) found it in its interests to support conservative counterattacks against the New Deal from the 1930s up to the eventual triumph of conservatism (and economism) with the election of Reagan in 1980. Where Stedman Jones focuses on the ideas and the think tanks, Phillips-Fein focuses on the organizing and proselytizing among the businessmen to raise the money to support these ideological and political movements. I would suggest that between them they provide a more thorough history of the US part of this story than either volume would by itself. (Phillips-Fein talks about Hayek, von Mises, Friedman, and the Mont Pelerin Society, but does not mention the terms ‘neoliberalism’ or ‘economism’—just another clue as to how the terminology issue continues to vex.)

In reading Phillips-Fein’s narrative, two themes especially struck me. First, if one looks at the later years of the conservative movement, one can find among the grievances of the business leaders specific instances of overreaching among labor unions and government regulators, for which the businessmen might be forgiven for thinking that the free enterprise system was under serious attack. However, in the very early years, before either unions or government had amassed that much power, we still see a core of conservative capitalists viewing the New Deal as an unmitigated disaster. As Phillips-Fein analyzes their thinking and quotes from some of their letters and speeches, what emerges appears to be a very basic sense of entitlement to rule. These white male business leaders seemed to think that they were, in fact, those chosen to run America, and they expected to be deferred to. The very idea that anyone else should demand an equal right to be heard, much less to guide public policy, was treated by them as a fundamental affront to their status. While various other segments of the population came along and joined the conservative bandwagon as it picked up steam in the 1960s and 1970s, these capitalists were at the center of it from the start.

Second, Phillips-Fein obviously exercised a lot of control over the quotes that she selected, but a rather surprising number of the quotes from these conservative capitalists, again reaching well back into the 1930s, are frankly racist. In keeping with the idea that they are the natural leaders and deserve deference on all sides was the further idea that minority groups had better stay in their place. As the conservative movement started to make headway, and as more politically-minded business leaders realized the need to form strategic alliances, the main groups this core of business leaders reached out to along the way were those that in various ways were opposed to integration and civil rights. Here Phillips-Fein’s poster child is the late Sen. Jesse Helms of North Carolina. To a person like me, raised in the North as a self-ascribed liberal, Helms was nothing but a racist demagogue, pure and simple. Phillips-Fein shows that in fact Helms was much more clever and original than that. He was actually a master at reframing Southern segregation into the language of freedom and free enterprise. For example, he agreed that to the extent that a lunch counter was a public service, blacks had just as much right as whites to sit down and be served. The only problem, he was quick to point out, was that a lunch counter was not properly viewed as a public service at all; a person owned the lunch counter and it was his private property. To demand that he serve black customers in the South was to demand that the Federal government could come in and dictate to private property owners what they could do with their property. Helms was shrewd about avoiding attacks against blacks and always changing the subject to freedom and opposition to Federal government power over local communities and private individuals.

In short, the political success of the conservative movement that ultimately enshrined economism as the common-sense political discourse of the US would never have succeeded had the movement not been willing to ally itself at every step with racism and segregation, while at the same time denying that it was racist and segregationist.

In one other passage, Phillips-Fein contributes to our list of logical inconsistencies within economism by going back to the core ideas of Friedrich Hayek and Ludwig von Mises. She notes the irony of their views of the free market and their need to protect it from any outside interference and efforts at regulation. On the one hand they were in awe of the power of the marketplace, “the spontaneity of the economy, a complex system that came into existence without forethought or planning.” Yet at the same time they saw the market as “a terribly fragile entity” which could be destroyed by even a little bit of government interference or regulation. As she notes, they never confronted or admitted, let alone explained, just how the marketplace could be so robust and all-powerful on the one hand and so delicate and vulnerable on the other.

Masters of the Universe: An Alternative History of the Rise of Economism?

A colleague kindly referred me to this book review—

http://www.salon.com/2013/03/09/the_world_according_to_milton_friedman_partner/

--of Masters of the Universe by the British barrister and historian Daniel Stedman Jones. (Both the review by Michael Clune of the Los Angeles Review of Books, and Stedman Jones’s book, refer to what I call ‘economism” as neoliberalism, so I will use “N” for short to refer to that terminology.)

Stedman Jones’s book can be read simply as another historical treatment of the rise of N during the era 1940-1980, in both the US and the UK, and as such it seems a reasonable and thoughtful volume. However, according to both the author and the reviewer, the agenda is more ambitious. Stedman Jones wishes to argue as to the inadequacies and indeed errors of other works, notably David Harvey’s A Short History of Neoliberalism, which some of my historian and social science colleagues treat as a standard reference on the subject, and Naomi Klein’s Shock Doctrine, upon which I relied considerably in writing THE GOLDEN CALF. So it naturally interested me to see how well Stedman Jones could defend his case as to the errors of those other authors.

Before that, what does Stedman Jones have to say? Very briefly, he argues that the route from N as a fringe philosophy held by a small number of thinkers in the late 1940s, to its triumph under Thatcher and Reagan in the 1980s, was not at all the slam-dunk that right-leaning thinkers now believe, nor was it the result of an organized conspiracy among capitalists as he thinks that Harvey argues. It was a long, slow slog that could easily have turned out differently. Stedman Jones places a lot of weight on what happened in the 1970s with economic doldrums and “stagflation,” which discredited in many politicians’ minds the long-standing Keynesian orthodoxy. First it’s important to note that just as Freud’s reputation was trashed at the hands of many Freudians, among the worst enemy of Keynes’s reputation were the Keynesians. While Keynes himself was quite cautious as to the ability of economics to predict and control events precisely, his followers grew fat and sassy and promised much more than their theories could deliver. Hence they were easy to discredit when supposedly Keynesian remedies failed to restore economic prosperity during those years.

Enter monetarism—Milton Friedman’s own theory of what to do in difficult economic times. The review stresses that monetarism and today’s N are quite different species of animal; N rejects government interference with the economy while monetarism is a method of government interference in the economy. Accordingly, the left-center governments in power in the UK and US in the late 1970s thought they could adopt monetarist policies without buying whole hog into anything like N. But because of both the economic doldrums and other events such as the Iran hostage crisis, these folks were then voted out of office and replaced by more extreme ideologues who bought the whole N deal—even though by today’s standards Reagan’s brand of N was considerably more moderate than the going ideology, and usually has to be spruced up with some revisionist history so that today’s N devotees can properly worship Reagan.

OK, so that’s the history, and knowing more about its ins and outs is certainly valuable. What about the criticisms of Harvey and Klein?

Harvey’s besetting sin, according to both Stedman Jones and Clune, is apparently being a Marxist, or at any rate what they consider to be a Marxist, which presumably translates into soft-headed. Looking into the details as to exactly how this invalidates Harvey’s historical writings, Clune offers the observation that Harvey apparently believes in a Marxist theory of labor that has long been discredited. I cannot recall, in my reading of his history, that whether he believed that theory or not made much difference for most of the book.

More to the point, Stedman Jones apparently wishes to attribute to Harvey’s Marxism, and not to a correct reading of history, the role that capitalists played in the rise of N. Stedman Jones’s account, as one would expect, is big on the role of N think tanks. And being a decent historian, Stedman Jones relates just who footed the bills for all those think tanks. And it was not the poor. So it’s not clear to me how Stedman Jones can on the one hand admit the crucial role of many capitalists, presumably following their own self-interest, to fund these N think tanks, and then turn around and say that capitalists had nothing to do with N’s eventual triumph.

What about Klein’s theory of the shock doctrine, which she attributes to Milton Friedman and his followers in the Chicago School of Economics? Well, Klein’s idea, as I understood it, was that the so-called “Chicago Boys” saw their opening whenever a nation suffered a crisis. They then showed up with their monetarist policies as a way to get the fiscal crisis under control. At first the offering seemed modest—a nation could adopt these monetarist policies without having to abandon whatever other political policies they wished to espouse. But then as soon as the technocrats took over, they used their opening to institute a wide range of “reforms” that completely instituted an N program, and that effectively repealed all the existing policies, especially any that favored organized labor. I don’t see much difference between such a program and what Stedman Jones says actually occurred under Thatcher and Reagan. Certainly one could quibble about details but the outline seems valid.

In short, Stedman Jones’s attempt to separate his own book from previous work seems more of a marketing ploy than a sober assessment of what he actually has on offer—and what he has on offer seems to be useful in its own right, and not in need of any such trumpeting.

Daniel Stedman Jones, Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics. Princeton University Press, 2012.

It’s All about Freedom—Only Not That Way

I generally ignore op-ed columns by Jonah Goldberg, who claims to be a conservative columnist but who appears actually to be an anti-liberal columnist—whatever liberals believe, he’s agin it. I happened to catch sight of a passage in his column in the January 8, 2014 Houston Chronicle, however, that seems to offer an instructive commentary on economism vs. progressive/liberal thinking.

Here’s what Goldberg has to say:

One of the wonderful things about America is that both the left and right are champions of freedom. The difference lies in what we mean by freedom. The left emphasizes freedom as a material good, and the right sees freedom as primarily a right rooted in individual sovereignty.

Goldberg then goes on to attack such horrible liberal folks as the Soviets and Franklin Roosevelt for assuming that freedom meant showering you with all sorts of material goodies.

Well, let’s have a look. With regard to the first part of Goldberg’s statement, I entirely agree—to the extent that I had intended to call the book that I thought about writing, as a sequel to The Golden Calf, Visions of Freedom. (I may yet get around to writing it but that’s another matter.) I completely agree that at the root of the difference between economism and progressive thought lies in alternative views of human freedom.

Predictably, however, Goldberg then immediately goes off track. Let’s take his ideas in reverse order. He suggests that for the right (i.e., economism), freedom is “a right rooted in individual sovereignty.” As I have shown both in this blog and in The Golden Calf, this is a partial truth. Economism recognizes exactly one form of “sovereignty” and “right,” which is to be a buyer and seller in the so-called “free” market, which does not in actuality exist anywhere. When push comes to shove, no other “right” is important, and all other so-called rights must give way to the all-powerful market and its high priests.  So to argue that it’s the left that has confused freedom with mere material things is at best a highly selective view of what’s really going on.

Next we come to the claim that for the left, “freedom” means one thing only, freedom from material want, the solution of which is a nanny state giving each of us stuff, and so robbing us of our (real) freedom and responsibility. Let’s look at this in two stages. First, the much-maligned FDR, in his “four freedoms” speech that included “freedom from want,” made the point that still seems valid—that a person who is in some theoretical sense free, and yet is starving, or naked, or homeless, or lacks basic medical care, is in no real sense free. This person is a slave to material deprivation. Without some basic set of the material conditions necessary for a minimal human life—not everything imaginable, not wealth, but a very basic minimum—a person cannot be “free” in any meaningful sense of the term.

That’s hardly a complete philosophical theory of what freedom might mean in a world that has broken loose from the ideology of economism. The next stage, therefore, is to ask which thinkers have taken us the farthest in recent years toward fleshing out what Roosevelt apparently had in mind, in a way that represents a defensible and justifiable framework for a decent and just society. That theory, in my view, is the capabilities approach developed by philosopher-economist Amartya Sen and philosopher Martha Nussbaum. Perhaps the most accessible account is in Nussbaum’s Creating Capabilities: The Human Development Approach (2011).

On the Nussbaum-Sen account, what makes humans truly free is having certain capabilities that are consistent with a life of human dignity. Some of these capabilities, such as rights of political participation, require mostly that people leave us alone and not interfere with our free exercise of our capacities. Other capabilities require that we have at least minimal levels of material goods provided for us—such as the capabilities that require nutrition, shelter, health care, and education. On a capabilities approach, human dignity is a multi-faceted idea, and it’s arbitrary to say that the only rights worthy of the name are “negative” rights (much beloved by conservatives) merely to be left alone, or “positive” rights (presumably, much beloved by leftists) to get stuff given to you. Depending on the specific human capacity, both positive and negative rights are important.

The fleshing out of such a theory requires first that we explain what human dignity requires, and we see that material wealth, or all sorts of material goods, are hardly included; we only need a basic minimum. The next requirement is that we ask what a just, fair, and decent society is obligated to do toward providing each citizen with these basic rights and needs; and again there could be a lot of argument about what’s required, from and for whom, and why. I don’t have space here to try to develop such an account (hence the need for the book). But the bottom line, contra Goldberg, is that such an account can be given; it’s intellectually rich; and it cannot be adequately captured in caricaturish attacks on Soviet Communism or the usual bogeymen of the right. (And yes, by the way, the right to buy and sell in the market—real markets, not fake ones—to try to advance one’s own economic position, is included by Sen at least as a critical human capability, but only one of many.)

I’m quite confident that if the American public could be presented with two basic accounts of freedom—the capabilities approach suitably worked up and fleshed out, and the economism version presented honestly—the capabilities approach would win.  If I’m wrong, so be it. The whole purpose of my work on economism is to earn the alternative views a fair hearing.

Who Messed Up the Obamacare Website? Maybe Private Industry

The flawed rollout of the Federal insurance exchange website has been a huge embarrassment to the President and seems perfectly designed to reinforce the basic economism narrative that the government can never do anything right and that all matters ought to be left to the so-called free market. It’s therefore instructive to review what has happened to one of the state websites, in Maryland, that also has failed to perform as promised (while other state sites, I gather, have been working well). Instead of being a simple parable about how government always messes things up, the true story is more complicated and lays a huge portion of the blame at the doorstep of the private sector.

The story can be found on the Health Care Renewal blog:

http://hcrenewal.blogspot.com/2013/12/sickness-in-information-technology.html
--which in turn cites the original coverage in the Baltimore Sun by Meredith Cohn and Andrea Walker:
http://www.baltimoresun.com/health/bs-hs-exchange-woes-20131207,0,6559272.story

To get the full picture I need to explain that Dr. Scot Silverstein, who blogs for Health Care Renewal about information technology, is very experienced in IT systems for physicians and hospitals, so has had a lot of opportunity to observe the IT industry at close quarters.

The whole story is quite convoluted and it also appears that we don’t know a lot of the story. The Sun reporters sought government e-mails about what went wrong with the Maryland site, but the state officials refused to release a number of the e-mails. Why? Because the withheld e-mails “involved the decision-making process of high-ranking executive officials.” Now, I would have imagined that that’s exactly why the reporters wanted to see those e-mails, and why the public arguably has a right to know what’s in them. But back to the actual website.

Maryland figured it would need a lot of help to get this website operational, and signed up a firm called Noridian to a $71M contract to construct the website. In doing so state officials bypassed the usual procurement procedures, presumably so they could get to work more quickly.

Noridian, having convinced the state that they knew exactly how to design and launch this website, then decided that they didn’t know how to do it after all, and turned around and subcontracted with another firm, EngagePoint. Apparently Noridian at least initially withheld this bit of news from government officials.

Noridian and EngagePoint between them kept reassuring the state that all was well and everything would work just perfectly and on time, leading several officials to make reassuring promises to the public which later came back to haunt them. The website went live and promptly crashed, and some time later the various parties were still trying to pick up the pieces.

As to why the site was such a flop, Noridian replied with a long list of excuses, as to how the site was such a complicated thing to develop and how many different, disparate functions all had to be coordinated in the same place—much more complex than Amazon selling you a book, for example. Dr. Silverstein’s response to this is telling. When you hire an IT firm that’s competent, he says, you expect them to tell you just how hard the job is going to be, how long it will take, and anything you need to know to make it work properly up front. His suspicion, based on his own sad experience, is that in order to snare the contract, Noridian deliberately put out a grossly overoptimistic schedule and work plan. Then, when everything blew up in their face, they suddenly discovered how hard things were after all.

Dr. Silverstein drew on his medical experience to note that, had a surgeon operated on a patient and encountered really nasty but easily foreseeable complications, and then tried to use the difficulty of the surgery as an excuse for not having anticipated and planned for the complications, we’d have a name for that—malpractice.

All this was bad enough, but it promptly got worse. Noridian and EngagePoint started pointing fingers at each other over the blame for the debacle. Eventually Noridian cancelled its contract with EngagePoint, but tried to keep the EngagePoint staff at their jobs and expected them to fix what was broken. EngagePoint sued and Noridian countersued. While the lawyers slugged it out, nothing got fixed.

I am reminded of stories from the very early days of fire departments in the U.S., when fire companies were private, for-profit firms. They would show up if your house was on fire and offer to put it out for a fee. If two rival companies both got to your burning house at the same time, they’d get into a fistfight out in the street as to who had priority to fight the fire, all while your house was burning down.

Not to suggest that the Maryland state government is blameless in this tale of woe and intrigue. But we eventually decided that if fire protection was going to be done in the public interest, we needed to get the private profit motive out of the picture. Maybe a similar lesson ought to be learned about how best to make an Obamacare website that works.

Welcome to the Club, Mr. President—Obama on Economic Mobility

President Obama gave a speech to the Center for American Progress in Washington this past Wednesday on the theme of economic mobility:
http://www.whitehouse.gov/the-press-office/2013/12/04/remarks-president-economic-mobility

Paul Krugman described this speech in his column as important, despite the relatively ho-hum if not actively negative reaction of the press:

http://www.nytimes.com/2013/12/06/opinion/krugman-obama-gets-real.html?partner=rssnyt&emc=rss&_r=0

Looked at from a political point of view, the speech seems to affirm Krugman’s analysis that it’s a sort of coming out of the closet for the President. Obama makes quite clear that he’s speaking as a fellow progressive and that he intends to conduct himself as such for the remainder of his term. Apparently, all pretense (if it ever was pretense) of being a centrist and being above all dedicated to bipartisan solutions, no matter how much he might have to give up to cut a deal with the Republicans (who usually refused to cut a deal anyway), is done with as a failed effort. Just as it is hard to imagine that the Congress could get any more partisan and nasty just because the Democrats changed the Senate rules to limit filibusters, it is hard to imagine that the Republicans could scorn Obama any more because he made this speech.

Our point of view here, however, is related to economism. I have quoted from previous Obama speeches, both in The Golden Calf and in this blog. As a rule, in the past, I was quite happy if I could identify one or two passages in an entire speech that seemed fully expressive of an anti-economism posture. In this speech, on the other hand, I was hard put to find a passage that did not seem to me to call out economism for the flawed ideology and policy that it is.

The main focus, as the title indicates, is the way that income inequality in the U.S. has led to a loss of economic mobility. It is simply no longer true that a poor person, or the poor person’s children, can hope that through hard work, or education, or whatever, they will become reasonably well off.  Obama labels this as a serious challenge to who we are as a nation.

Along the way, the President trots out many of the statistics that people worried about income inequality commonly cite—like the CEO who was content to make20 to 30 times that the average worker made in the 1960s now makes 273 times as much, and that the top few percent of the population are running off with an increasingly disproportionate percentage of wealth and new economic growth. He deals with many of the standard ploys that economism’s defenders use to defend the status quo (like the claim that raising the minimum wage would hurt poor workers) and points out why all of them are misguided or inaccurate. He insists that government policy must play a major role in redressing the problems.

The road back from economism (maybe that’s a good title for the book that refutes the standard reading of Hayek’s The Road to Serfdom) will be long and difficult, but it has to start with the flaws of economism becoming the subject of robust political debate. As I explained in The Golden Calf, for far too long, economism has thrived on the widespread belief that the key portions of its ideology are nothing but common sense and that no rational politician could possibly disagree with them. Just to call them out and to insist that the debate must start is a major step forward.

The Power of Ideology: A Conservative “Alternative” to Obamacare

Republicans hate Obamacare and mostly go around threatening to repeal or defund it. Every so often, somebody attracts their attention with the complaint that they have never said just what their preferred alternative would be. So they worry a little bit and play around and then trot out a half-hearted proposal, which would strike most sensible people as a woeful joke of an effort actually to reform what needs reforming in U.S. health care. They look at their proposal for a while, then say, “Naaah,” and go back to denouncing Obamacare.

Princeton health economist Uwe Reinhardt caught the conservatives in the midst of one of these periodic pauses, and analyzed for the “Economix” blog of the New York Times one of the “alternative” plans:

http://economix.blogs.nytimes.com/2013/11/22/a-conservative-alternative-to-obamacare/?_r=0

Based on Reinhardt’s previous writings, I rather doubt he’d give such a plan the time of day, but he’s commendably even-handed, and willing to give the conservatives credit for at least offering something to talk about.

The specific plan is alluded to in general terms in a recent piece in the Wall Street Journal, but according to Reinhardt is most fully fleshed out in a report commissioned by the American Enterprise Institute, optimistically entitled “Best of Both Worlds”:
http://www.aei.org/issues/best-of-both-worlds/

Reinhardt insists that there is enough major stuff in the details to make it mandatory to read the entire report, but then proceeds to offer a brief summary/overview. Being lazy, I will address only his summary.

Reinhardt begins by saying that the AEI authors want to get away from the redistribution of income that accompanies the Affordable Care Act, aka Obamacare, taking money from the healthy to pay for the sick, regardless of their income level.  I find this puzzling. Fire insurance redistributes income from those whose houses don’t catch fire to those whose houses do catch fire, and becomes affordable precisely to the degree that most of our houses don’t catch fire most of the time. (This is what current critics of the individual market in Obamacare call “being forced to buy coverage you’ll never use.”) Now, I would have thought that this is a basic feature of any actuarially sound insurance plan, and it seems odd that this would be the first thing people want to eliminate, especially if they want the private insurance market to be their savior.

But wait, there’s more. The authors don’t want to get rid of redistribution, and indeed apparently agree with the feature of Obamacare that most sticks in conservative craws—the redistribution of wealth from the rich to the poor.  They are okay with that redistribution, they just want it to be outside of the insurance market. So the plan calls for a combination of individual plans closely tailored to each individual’s supposed risk of having various diseases in the future, with a series of federal premium supports to help anyone who cannot afford the resulting coverage to obtain insurance.

I’m sure there’s more, but let me cut to the chase. As I read the summary version, what we have here is a strange mix of things that actually are already part of Obamacare but have been rearranged, and other things that don’t make very much sense but are made necessary to keep the jury-rigged plan held together with duct tape.  I would assert that what seems to be at the root of all this is not a desire, on the part of a set of smart economists, to build a sensible health plan from the ground up, and to put in the right mix of market measures and government regulations needed to accomplish that basic goal. Rather what seems to be going on is an overriding need to create a plan that can be called “free market” or “private enterprise,” regardless of whether it makes any sense or even whether it is all that different from Obamacare in ways that matter.

I assert that economism is characterized by just this sort of love affair with ideology over practical results.

What Part of “Market Failure” Don’t You Understand? Health Costs As Seen through the Blinders of Economism

In the process of trying to keep up with my continuing medical education, courtesy Primary Care Medical Abstracts as provided by Drs. Rick Bukata and Jerry Hoffman, I had my attention called to this article which seemed instructive in illustrating how economism has succeeded in distorting the everyday perceptions of Americans in most every field.

A group based at the University of Iowa (subscription needed to access article) decided to try to find out what it cost to have a common elective surgical procedure, hip replacement with an artificial joint. They called two sets of hospitals, large community hospitals in all 50 states, and top-ranked orthopedic hospitals according to the infamous scorecards in US News and World Report magazine.  They asked for the hospital costs of the procedure and the cost for the physician’s services.

The first thing they found was that it was like pulling teeth to get any cost figures at all. A handful of hospitals in each category right away provided them with bundled costs for the entire package. To get some of the remaining hospitals to cough up any cost figures required numerous repeated phone calls. The questions were never answered for almost half of the hospitals.

The next thing that they found was that (no surprise if you’ve been following media stories on hospital charges this past year) the charges quoted them were all over the map. They were told that the operation could be as cheap as $11,000 or as expensive as $125,000.

So what do we have here? This seems as stark as you can get in terms of evidence for a broken system. If you had ever heard of economist Kenneth Arrow’s classic theory, that health care represents an example of market failure, you’d nod and say “yup.”

So what do these medical authors conclude? They admit that to some extent they are looking at the data through rose-colored glasses. But they twist themselves into knots to try to make this out to be good news for those patients who are willing to be smart shoppers. Just look how much you can save, they say, if you end up having your new hip at one of the cheaper hospitals vs. one of the ritzy ones.

So what do they have to ignore to come up with this Pollyanna prediction? They have to assume that the average patient is going to be as diligent and as smart in extracting price data from unwilling hospitals as they were. They have to assume that the prices actually quoted have some relation to reality. They have to assume that having learned the range of prices, the average patient is then going to have the means and interest to relocate to a strange city or state to take advantage of the best price. Finally they have to assume that the patient won’t just say, “Oh, heck, I have some health insurance, let them pay for it and I’ll deal with whatever is left over later on.”

In short, being faced with a ton of evidence that the marketplace is currently doing a lousy job of addressing out-of-sight health care costs, those who willingly put on the blinders of economism assume there is one and only one right answer to any problem whatsoever—invoke the powers of the marketplace.

Rosenthal JA, Lu X, Cram P. “Availability of Consumer Prices from US Hospitals for a Common Surgical Procedure.” JAMA Internal Medicine 173:427-432, March 25, 2013.