Dean Baker: The Deficit Problem is a Health Care ProblemNovember 19, 2010
You’ve heard the demands from DC insiders. “Cut this! Cut that! Cut the war! Cut health care!” The truth is, there is no cut big enough to solve America’s problems, which means only growth will save us.
“It’s easy to sit around and talk about what needs to be chopped up. It takes courage to talk about what you’re going to build,” says Dylan.
“If you look at where the revenue for this country comes from, which is taxing the economic activity of the country, and then you look at the economic policies of this country, which are designed for a very few number of individuals. Tell me a system that you have seen where you are extracting the life out of that system in which it functions better,” says Dylan.
“Basically, you have a power structure that’s trying to preserve its power. And what’s going on in the last three decades is that you’ve seen enormous upward redistribution of income. That’s had enormous consequences certainly for people who have been the losers in that story, and the overall economy. We’re sitting here right now with 25 million people unemployed, underemployed, or giving up looking for work altogether. We could think of lots of ways to go forward, but basically they’re largely blocked by the fact that these people control power. They’re not anxious to give it up.”
Dean points to Washington’s “tribal ritual” of pointing at deficits as being our most pressing issue right now. ”In the short term, there is no deficit problem. The short term is we have high unemployment, because we had a collapse in demand with the housing bubble collapse. The government is filling the gap, and we should be glad for it,” says Dean.
Dean traces the deficit problem to one main issue. ”We are looking at a deficit problem, but that’s all due to health care. We currently pay about twice as much per person as the average for other wealthy countries — Germany, Canada, England — and that’s projected to rise to three and four times as much per person.”
Listen in for an extended talk on the connection between health care expenses and the deficit, and Dean’s strategy for digging ourselves out of the hole our economy is in. Here’s a clue: it’s not by cutting our way out, but growing our way out.
DYLAN: Welcome to episode 10 of Radio Free Dylan. Joining us today Dean Baker, co-director of the Center for Economic and Policy Research, a regular writer for The Guardian in the UK. His popular blog, Beat the Press, features commentary on economic reporting. Most recent book, False Profits: Recovering from the Bubble Economy. Dean and I come from a fairly similar perspective, which is that the only way out of this problem is to actually admit what the problems are first and then actually build solutions for them.
Dean, what do you view as the barrier to efficient systems, efficient and adaptable systems in this country?
DEAN: Well, there’s a lot, but I mean you know, basically, you have a power structure that’s trying to preserve its power, and what’s going on in the last three decades is we’ve seen enormous upward redistribution of income and that’s had enormous consequences certainly for, you know, the people who have been the losers in that story and certainly right now the overall economy. We’re sitting here with 25 million people unemployed, underemployed, or given up work altogether. And I mean we can think of lots of ways to go forward, but basically, they’re largely blocked by the fact that these people control power and they’re not anxious to give it up.
DYLAN: One of the big structural preservations by these people is the healthcare system, and you see that not only as a dysfunctional healthcare system but as a huge boulder in the pathway to the functionality of our economy, job creation, and ultimately escape from the deficit. Why is that?
DEAN: Well, we’ve heard all, you know, this here in D.C. I mean it’s just about this tribal ritual people running around deficits, deficits. “It’s horrible.” “Look at what it will be in 2020.” “Look at what it will be in 2030.” “What are we doing to our kids?” And there’s two points I was making.
Well, on the short term, there is no deficit problem. The short term is we have high unemployment because we had a collapse in demand with the housing bubble collapse and the government's filling the gap, and we should be glad for it. And frankly, if the deficit were a trillion more I would be happy ‘cause that would create demand to employ people. That’s for now.
But the longer-term story, once we get it out and presumably at some point we’re going to be back in normal levels of employment, we won’t have so many people unemployed, we are looking at the deficit problem but that’s all due to healthcare. We currently pay about twice as much per person as the average for other wealthy countries -- Germany, Canada, England, whoever you throw into the mix, and that’s projected to rise to three and four times as much per person. That’s what we’re paying for healthcare.
Now, the government picks up more than half the tab of that through Medicare, Medicaid, and other public sector healthcare programs. But it’s not that those programs are inefficient. They’re actually somewhat more efficient than their private sector counterparts. It’s simply healthcare is unaffordable.
So if we’re going to be honest about the deficit problem, we would be saying it’s a healthcare problem. We have to fix the healthcare system and even if we’re the real tough guys they want us to be, bite the bullet and everything, okay, we’ll zero on Medicare, zero on Medicaid, that’s wonderful. We don’t have a deficit problem but then no one could pay for their healthcare. So we have this deception here that somehow the government is out of control or crazy spenders. None of that is true. We just have a problem with our healthcare system and that’s what we should be talking about.
DYLAN: And at its root, what do you see as the reason why healthcare costs so much and we get so little on a relative basis? Why is that process, whether it’s fee for service, the training of our physicians through the M.D. and the educational construct the way that it is, or the way that we fund and pay for through the insurance mechanisms, what is the core reason for paying so much and getting so little when it comes to healthcare in your opinion?
DEAN: Well, there’s several different reasons, but basically, I think people should think about the healthcare system in the way we think about the defense department that it’s a trough and you have everyone running in there to get their share, and either enormously powerful interest groups and in the case of the military we know we have defense contractors who are lobbying Congress and handing if not outright bribes but campaign contributions and wining and dining with them and getting their support for their business.
It’s the same sort of story with healthcare. So you have actors like the insurance industry. We spend as much as by some estimates 30% of what we pay on healthcare cost on the administrative fees -- that’s not all going to the insurance industry. A lot of that is doctor’s offices, hospitals. They have to hire all these people to shuffle the paper and deal with all those different forms; an enormous amount of waste even if it’s 20% which is probably closer to the mark. [5:00]
But even if it’s 20% you’re talking about 600 billion a year almost just for shuffling paper. It’s crazy, crazy waste. Our doctors, particularly specialists, get paid way more than doctors in other countries, and I am thinking of Germany and France, countries we think is comparable. Their autoworkers don’t get paid more than our autoworkers, but their doctors get paid a lot more and that’s because our doctors control -- you’re talking about going to medical schools. How many people get in there? If autoworkers can control how many people got to work as autoworkers, they’d be paid lots more money.
DYLAN: And at the end of the day, healthcare, unlike autos, is the care and sustenance of a human being, which for some people anyway, they differentiate human beings from cars and machines and buildings. Now, I know not everybody considers there to be any difference when it comes to economic modeling, but for some people, they think of a human being as a slightly different asset if you will than a building or an automobile. Does it strike you as peculiar that the ability to be responsible for your own healthcare or to be cared for is not a decision-making process that’s driven by the healthcare providers and the patients, but as driven by the medical establishment and the insurance infrastructure and the employer systems, and frequently done at the expense of the doctors and the patients?
DEAN: Yeah, it’s a totally backwards system. We have the incentives all wrong. The people are making the decisions. In many cases, they’re not the ones who should be making the decisions or considerations.
I’ll just give you another one. You have the story of -- let’s say we have someone who’s got a serious cancer, likely fatal. There’s a new drug out. Let’s say that person is older, say 80 years old, otherwise in good health, but obviously, people at 80 don’t live forever. So you’re looking at a drug that might cost $100,000 a year. Well, you said there’s a tough call. Should the insurance company pay for it? Well, the drug doesn’t actually cost $100,000 a year. The drug probably costs about $300 a year. The drug costs $100,000 a year because we gave the company a patent monopoly. If we just let it be sold in a competitive market like everything else, it would cost $300 a year. So again, we just created these perverse incentive structures that give us an almost insoluble problem ‘cause you know basically, you have everyone coming in there trying to grab their chunk of the -- getting the pigs at the trough and no one is thinking about the overall well-being of the patient.
DYLAN: Yeah. It’s a snake eating itself once again. If you were to look at what we can do in the meantime, whether it’s we in the media, we in this country, we as citizens, period, can do in the meantime as opposed to sit around waiting for some magic politician to arrive and reform our healthcare system, as we look at the decline, at the joblessness, as we look at the rigging that has really distorted the housing market and continues to really wreak havoc in so many different ways, where do you see incremental opportunities for individuals or groups to at the very least start to lean against the machine or take care of themselves in a way that is the beginning of a different path?
DEAN: Well, in healthcare there's lots of things obviously. To some extent, people can -- they could affect their health in trying to live a healthy lifestyle and everything, but one of the things that I think would be great and people are doing this to some extent, getting drugs from Canada. I mean Canada doesn’t give Pfizer monopoly and say charge whatever you feel like. It’s two sided there. They go, “Okay, we’ll give you monopoly but then we’re going to say you can’t charge more than X.” And very often, you could get drugs for half the price, even a third of the prices from Canada. That’s a great thing that people do that. You can do it from other countries. I mean obviously Canada is the closest. But you know again, also I’d urge good care ‘cause you don’t want to get it from somewhere where it’s not a safe, effective drug.
But I think looking to try to get lower cost healthcare that goes around the system. One of the things some people are doing, and I’m not thrilled about this but I don’t know a better alternative, medical tourism. There’s a lot of first class facilities. I’m saying first class are designed to serve a wealthy western audience and not their native populations in countries like Thailand and India, and people often save huge amounts of money by getting expensive procedures done there. I’m saying I’m not a big fan of that ‘cause I think it’s horrible. You have to go halfway around the world to get this in healthcare, but that’s what many people have to do.
So anyhow, my hope is that we could change the system. Part of this story is bringing pressure on the system by having people go seek out alternatives.
DYLAN: And by talking about the actual or the real problems in public. I know I’ve got to let you go, but before I do, could you just offer a quick comment here on the difference between cutting the deficit commission -- oh, what would you cut? What would you cut? Oh, the earmarks, whatever it is -- and growing your way out of the hole, particularly the size of the hole that we’re in, and how far off the reservation we are thinking that cutting yourself out of a ditch this big is even the right way to start a conversation when it appears meaningful growth is the potential exit strategy? [10:02]
DEAN: Yeah. I mean there are headlines on papers today about Ireland. They’re trying the route of cutting and they just themselves in a deeper hole. I mean if we had a strong economy -- this is something you can’t say enough times. If we had had a strong economy, we’d have little or no deficit today. So the people are running around like chickens with their head cut off. "Oh, my God, we have this $1.4 trillion deficit." It is almost all due to the fact that we have a weak economy. Longer-term is to say healthcare is the story, but the reason why we have a big deficit today is 100% because we have a weak economy. If we get the economy back on its feet, the deficit's a manageable problem -- assuming we get healthcare fixed. If we don’t get the economy back on its feet, yeah, the deficit will be a real big problem but that’s because the economy is broken.
DYLAN: Dean Baker, a true pleasure. Thanks so much for giving us a slice of your day. Dean, the co-director for the Center for Economic and Policy Research with the most recent book, False Profits: Recovering from the Bubble Economy.
DEAN: Thanks for having me.
DYLAN: We’ll be right back with just how far off the reservation we are. We talk deficit and our problem is growth. [11:06]
All right, so we’re just talking to Dean Baker about the false reforms that we continue to be pushed by our politicians. Well, why are they false? Well, if you look at where the revenue of this country comes from, which is taxing the economic activity of the country, and then you look at the economic policies of this country which are designed for a very few number of individuals -- the institutional chiefs of various industries -- to suck money out of our economy, tell me a system that you have seen in which you are extracting, you are sucking the life out of that system in which it functions better.
Can you think of one?
And then think about a system that you’re adding resources to, that you’re giving more investment to, and how quickly that type of an environment can expand -- not just in a way that creates money -- but expand in a way that solves the healthcare problem, expand in a way that innovates and advances the energy problem, expands in a way that addresses the massive inequality and absurdity in the educational systems.
We walk around pretending like we have all these individual isolated problems like the educational system or the healthcare system or whatever it is, or the deficit, when the truth of the matter is they are all the exact same problem. The work that this country so desperately needs, the unemployed in this country who are so desperate to find that work, have plenty to do in the form of innovating, renovating energy, healthcare, education down the line. But because the institutions that would be threatened by that innovative work are so firmly in control of our government, that when the innovator knocks on the door or even wants to try to get started, this system is set up structurally to ensure their failure -- ideally such that they never even begin.
As long as we have a government that is bought and paid for by the status quo interest of the legacy financial system, healthcare system, agricultural system, military-industrial complex, communication systems that are immensely threatened at a time when the rate of change is extraordinarily high, and as long as we have a government that instead of encouraging the structural transition that this country so desperately needs in order to not only dig its way out of the hole but solve its problems and create jobs, and instead the government works against that while the media sits around pretending in some way that the shift from the Democrats to Republicans is of any way, shape or form a benefit.
The talk radio conversation is dominated by Bush tax cuts and deficit talk. No talk about growing our economy.
No talk about spurring innovation and releasing our entire economy from the clutches of legacy institutions that have been rendered irrelevant. It’s easy to sit around and talk about what needs to be chopped up. It takes courage to talk about what you’re going to build. I’d like to think of us as a courageous crowd.
Thank you for downloading today’s or this day’s episode of Radio Free Dylan -- Episode 10. We’ve done 10 of these now. And I'll talk to you soon.