According to Steven Brill, whose 26,000 word article in Time is getting all kinds of attention, one big factor is price negotiation. An uninsured patient can’t negotiate at all, so they get charged $1.50 for a single Tylenol in a hospital. Insurance companies negotiate on their customers’ behalf, so they get charged less. And Medicare, which is the biggest player of all, negotiates hard — volume discounts and all, just like any big customer anywhere in the world — and thus pays the least for the same products and procedures.
Interestingly, Brill steps away from one obvious solution — have Medicare cover everyone — because he says it will leave doctors underpaid. Felix Salmon takes him to task for this, pointing out that Brill never states what “underpaid” is. Since my greedy doctor post remains my most read and commented of all time, I feel a certain obligation to chime in here. I have never seen any analysis that tries to show what doctors might get paid in an all-Medicare system. Maybe it would be pretty low; if GPs maxed out at $50,000 per year, they probably wouldn’t spend all that money and time at medical school. But maybe doctors would still get paid what they do now, and it would be hospital administrators (whose multi-million dollar salaries are the true villains in Brill’s piece) getting a pay cut. Or maybe it will be CEOs of drug companies getting paid less; who would complain about fewer $78 million severance packages being paid to CEOs?
You can read more commentary regarding Brill’s article here and here.
First of all, how come nobody told me that Richard Posner and Gary Becker had their own blog? I have never referenced Becker in this blog, but he is a big hitter economist of the Chicago school. But I have … Continue reading →
Matt Taibbi has a new piece in Rolling Stone about Mitt Romney’s time at Bain Capital, and how Bain used large amounts of debt to execute its buyouts. The overall theme is one of financial engineering vs. making things, of pillaging companies to generate wealth vs. building companies to create jobs.
Like most things Taibbi writes, this article is:
- Very funny
- Savagely mean
- Only about 75% accurate, and you need to know a lot about Wall Street to know which quarter is wrong
However, in light of my prior post on private equity, there are two paragraphs that I wanted to quote because they are both amusing and apt.
Talking about the private equity model of loading up a company with debt and then paying fees and dividends to the buyout firm, Taibbi says:
This business model wasn’t really “helping,” of course – and it wasn’t new. Fans of mob movies will recognize what’s known as the “bust-out,” in which a gangster takes over a restaurant or sporting goods store and then monetizes his investment by running up giant debts on the company’s credit line. (Think Paulie buying all those cases of Cutty Sark in Goodfellas.) When the note comes due, the mobster simply torches the restaurant and collects the insurance money. Reduced to their most basic level, the leveraged buyouts engineered by Romney followed exactly the same business model. “It’s the bust-out,” one Wall Street trader says with a laugh. “That’s all it is.”
And then, comparing Romney’s speeches decrying America’s level of debt with his Bain Capital strategy of loading up companies with debt, Taibbi writes:
To recap: Romney, who has compared the devilish federal debt to a “nightmare” home mortgage that is “adjustable, no-money down and assigned to our children,” took over Ampad with essentially no money down, saddled the firm with a nightmare debt and assigned the crushing interest payments not to Bain but to the children of Ampad’s workers, who would be left holding the note long after Romney fled the scene. The mortgage analogy is so obvious, in fact, that even Romney himself has made it. He once described Bain’s debt-fueled strategy as “using the equivalent of a mortgage to leverage up our investment.”
I like that one because it makes the connection between private equity and mortgages, as I did in my post.
Again, I’m not fully supporting Taibbi’s reporting or his conclusions, but he makes some good points.
See yesterday’s post, and repeat. Names change, facts remain the same.
He’s a Nobel Prize winner, so he must be smart.
Read his article here.
Yves Smith on the macro effects of oversized Wall Street pay.
I normally don’t love Paul Krugman, despite his Nobel Prize, since he is too strident and preachy and predictable, but this take on what really separates Right from Left in America is pretty interesting.
John Mearsheimer on American foreign policy and realpolitik.
John Cassidy on whether Wall Street adds value to society. Hint: it doesn’t. This is from the New Yorker, so it won’t be available online forever.
Law professor David Beatty compares American constitutional jurisprudence to how they do it in other countries. I’m no expert, but I found it fascinating.
Posted in Business, Politics, Pop culture, Trends
Tagged ayn rand, bonuses, Business, economics, goldman sachs, GOP, greed, Politics, republicans, Trends, wall street
Here is a new article with data showing a direct correlation between how GOP leaning a state is and how much federal money it sucks down. This follows up on my posts on this very topic.
The bipartisan deficit panel has come out with its first set of recommendations, and everyone is hopping mad. Lefties say the cuts in spending are unacceptable, and conservatives are adamant that tax revenues never go up again. Good! I have no opinion about the specific recommendations made by the panel chairmen, but I know that if both sides are pissed off then the panel must be doing something right.
Listen people…this deficit is serious business. It will bite us in the ass if we don’t fix it, and fixing it is going to require some pain on everyone’s part. We’ve been living for too long with this fantasy that government could increase spending while cutting taxes. Now the party is over, and the hung over cleanup has to begin. Headaches? Nausea? Yes, exactly.
So liberals, accept the fact that spending will be cut, and not just military spending. I hate it too, but Social Security has to be on the table. Increasing the retirement age by two years over the next 65 years? That’s really not so bad. Tying other benefits to inflation? Also not unreasonable. We need a safety net, of course, but we need to be smart about it.
And conservatives, you too are in for some pain. Face facts: spending cuts alone won’t balance the budget. We need to increase taxes. You like to claim that any tax increase will kill the economy, but the facts don’t bear that out. This chart shows that in Germany tax revenues are 40% of GDP, far more than America’s 28%. And yet Germany’s economy is doing fine, kicking our ass in exports, despite having to absorb East Germany. This chart shows that marginal tax rates for individuals are lower than ever. In fact, during America’s economic heyday, in the 50s and 60s, top marginal rates were in the 70%-90% range, far higher than today’s 35%, and yet there was still plenty of investment, of people working hard, of entrepreneurs starting businesses. All the arguments the right uses against raising taxes are belied by that glorious period of American business. Speaking of that great Happy Days era, the chart below shows that the share of taxes paid by the wealthiest citizens back then was significantly higher than it is now. Again, showing that higher taxes do not necessarily stifle economic growth.
There will be plenty of unpleasantness to go around; Democrats and Republicans will each get their share. Our legislators need to get off their high horses, stay away from the cameras and microphones and acknowledge that their pet causes are secondary to the national cause. But as either Mark Shields or David Brooks (I still can’t tell their voices apart on radio) said on the PBS NewsHour, our politicians won’t make this happen until the public forces them to. Our culture needs to accept the need for hard choices, and then push our politicians to make them.
Posted in Business, Politics
Tagged bailout, Business, congress, economics, GOP, greed, Politics, republicans, taxes, tea party
I was reading an article the other day about executive pay in America. This article said that in 1980 the ratio of what the CEO made to what the average worker made was 44:1. By 2007, that ratio had risen to 344:1. In other words, CEO pay went up 7.8 times as much as average worker pay.
That got me to thinking: has the average American company gotten 7.8 times as complex since 1980? That seems unlikely. So I searched for data that would answer my question, and I couldn’t find any. Therefore my assumption that companies have not gotten 8 times more complicated will have to stand.
But even if that assumption is wrong – even if companies HAVE gotten 7.8 times more complicated – that doesn’t mean that the ratio of CEO pay should have gone up that much. The ratio compares CEO pay to average worker salary. And if companies are getting more complex, then lots of worker salaries should be going up. Maybe not folks on the factory floor, but the guys who run the factory. Basically, everyone at director level and above should have their salaries going up to reflect any increasing complexity. Thus CEO pay is going up even faster than any increase in corporate complexity.
So what is the explanation? You’ll have to read the article, which discusses the invidious system of compensation consultants and interlocking boards. But the bottom line comes down to greed. CEOs get as much as they can, without concern for the impact of their compensation on the company or the workers below them in the hierarchy.
As many pundits pointed out after the financial meltdown [see examples here, here and here], American companies used to have a public service obligation; they were expected to provide some value to society, not be purely profit-making vehicles. The authors of the article (who are both, I should note, professors at Harvard Business School, the American epicenter of corporate greed) call for a return to that earlier attitude, with societal obligations providing a normative check on unrestrained greed. Their money quote (sweet irony!) is here:
“Every corporation is embedded in a social matrix, and is accountable for multiple factors within that social setting: obligations to the society that provides it tax advantages or public goods, such as public schooling, publicly financed research, or basic infrastructure such as roads and airports. In a democratic society like the United States, the general public expects responsible and ethical practices and the exercise of self-restraint among business leaders in exchange for vesting an extraordinary amount of power that affects society’s well-being in private, corporate hands.”
Check out this article about the panel that decides how Medicare reimburses every procedure, doctor visit or call in the medical world. The panel is completely run by the AMA, and dominated by specialists. So, big surprise, specialist visits and procedures are continually going up in value, while simple visits to your GP stay static. And the government does nothing to stop this; instead, the AMA — an organization of doctors — gets to decide how much doctors should get paid. Paid by taxpayers.
This is why simple tests cost $3,000, or why my GP tried to charge me $250 to spend 90 seconds freezing off a wart (I refused to pay). I have commented before on how greedy doctors are no better than subprime mortgage traders on Wall Street, and this article adds evidence to my viewpoint. A system where people get to decide on their own compensation is a bad system, and a world where jerk off dermatologists (yes, I’m talking about you, Dr. K) think they deserve $500k per year is a world with misplaced priorities.
So, AMA, organization of money-grubbing doctors that has fought health care reform for the past 60 years, I say to you: stop being greedy and screwing over your patients.