Number 488 September 13, 2011

This Week: Capitalism and Values

"Quote" of the Week: "A Difficult Conundrum"
State Spending in Minnesota is Up... And Down
Those Radical Christians!
Capitalism's Conundrum


This week I finish off my little look at how the media reports on economic matters. As it turns out, reporters could report that state spending in Minnesota in the decade from 1995 to 2005 went up... AND down. And both reports would be accurate! See how this could be in this week's first article.

In the second article I revisit one of the opinion polls that I ran across when doing research for my recent mini-series on Polls as Propaganda (Nygaard Notes #484-485). Some pollsters actually asked people if they agreed with the values of capitalism! That's extremely rare in the world of opinion polling.

Finally, a major health care crisis is just beginning to be reported in the corporate press in this country, and my final piece this week takes a look at it. More than 300 life-saving prescription drugs are in short supply, causing untold human suffering and death. Haven't heard about that? Have a look at this week's third article: "Capitalism's Conundrum."

That's all for now. As always, I welcome any and all comments, so please send me any responses you have to the Notes this week. Or any week, for that matter.



"Quote" of the Week: "A Difficult Conundrum"

Just a few days ago an article appeared in the online medical news service Medscape Medical News with the headline, "Drug Shortages Predicted to Reach Record Levels." There's an article in this issue of the Notes about this outrageous scandal, but I cannot get out of my mind the succinct statement by the MedScape journalist that makes up this week's "Quote" of the Week.

Michael Link, MD, president of the American Society of Clinical Oncology, explained to Medscape that a big part of the problem is that these important drugs is that the patents on them have expired, which means that the pharmaceutical corporations would be selling generic versions of the drugs, " with little profit to show for it." Says Dr. Link, "That gives companies little incentive to keep making these drugs." And this comment spawned the following explanation by the Medscape reporter:

"Low profit margins put manufacturers in a difficult conundrum. They can either lose money producing a lifesaving chemotherapeutic agent, or switch their limited production capacity to a more lucrative drug."

What a conundrum.


State Spending in Minnesota is Up... And Down

Pretty much every year the Government of the State of Minnesota sets a new record for spending. Doesn't this "prove" that government is "endlessly growing"? No, actually it doesn't prove any such thing. And that's because of some simple arithmetic. If the population of a state grows, and if there is any level of inflation, and if government services stay the same, then every year that state will set a new "record" in terms of government spending. Here's the arithmetic: If we're buying the same things for more people, and using dollars that are worth less than they used to be, then we'll have to spend more dollars, you see.

That's only one basic fact that often surprises people when we delve into the world of economic statistics. This article consists of a very small case study comparing two years in the economic life of my state of Minnesota. One point of this exercise is to see if the numbers show any "runaway spending" on the part of the government here. As it turns out, it does... and it doesn't. Which is the second point in publishing this article: To show how economic statistics can be used in very creative ways, some of them quite misleading.

Remember the Five Factors

In the last issue of the Notes I mentioned five factors to consider when comparing two different periods as I am about to do with state spending in Minnesota. I'm comparing 1995 and 2005, and I took into account those five factors, as follows:

Factor #1: Which measure of State spending am I talking about? I'm talking about the "General Fund" in Minnesota, for reasons that I explained in the last issue. Factor #2: Am I comparing similar years? I think so; I'm comparing two years when the overall economy was growing and per capita incomes were relatively high. For the past 3-4 years we have been in the biggest recession since the 1930s, so any comparison of 2008 onward to any previous year is going to be deceptive (unless you want to compare to 1932 or something; that won't do). I chose 2005 because it's far enough back that it's pre-recession, and the figures are pretty solid. Factor #3: Inflation. I did all my calculations using constant, or "real" 2005 dollars. That is, I used the actual numbers for 2005 and adjusted the 1995 numbers to allow for inflation, using the "Inflation Calculator" from the federal Bureau of Labor Statistics. Factor #4: The Size of the Pie. I used Gross State Product figures—again, adjusted for inflation—from the Bureau of Economic Analysis at the U.S. Department of Commerce. Factor #5: Population. Figures from the State Demographer's office in Minnesota.

OK, when we compare state spending—always adjusted for inflation—over a recent ten-year, non-recessionary period, what do we see? We see a lot of different things. Here are a few of them.

1. First of all, the State of Minnesota spent $11.025 billion in 1995 and $14.529 billion in 2005. That's a 32 percent increase, so it certainly looks like spending is up quite a bit. However...

2. The state's economy grew by 38 percent over the same period, from 173.16 billion to $238.4 billion. So state spending went DOWN by more than four percent when measured as a share of the state's economy.

3. Spending per person went up from $2,383 to $2,791, for an increase in spending per person of 17 percent. See? Spending IS going up, after all! However...

4. Economic output per capita went up by 22 percent so, since spending per capita went up by only 17 percent, the per-capita spending by the state was actually a smaller share of the per-capita wealth in 2005 than it had been in 1995. So, by this (admittedly complicated) measure, state spending went DOWN as a percentage of the increase in wealth generated by the state's economy.

I'm not an economist, by any means, but I'm pretty good with a spreadsheet, which is really all you need to have in order to do this kind of light-weight analysis of a simple claim like the claim of "runaway spending" in Minnesota. As you can see, whatever "runaway spending" may mean—and it's likely not intended to "mean" anything, beyond building support for spending cuts—it's not a good term to use in describing what has been happening in Minnesota in recent years.

Since most readers of the newspaper have neither the time nor the skills to do the research on things like this, it falls to the journalist to point it out when public figures make claims that don't hold water. If they don't, and a journalist chooses to simply function as a stenographer and pass along whatever the people in power choose to say, then that journalist becomes complicit in a process that amounts to propaganda. And I must stress, as I always do, that it is not important whether or not any given public figure actually believes what he/she is saying. The effect of the unconscious propagation of preferred ideas is the same as the effect of conscious propagation of the same ideas. And both can be interrupted by good journalism.


Those Radical Christians!

In my recent writing about Polls As Propaganda I spent a ridiculous amount of time looking at opinion polls of all kinds. Even with all of the problems that I have with polls, nevertheless there are some interesting results floating around out there. The one I want to mention here is an April 2011 "Religion News Survey," conducted by the Public Religion Research Institute, which asked some immensely interesting questions and got some immensely interesting results. Very hopeful results, in my opinion.

For instance, the pollsters said to their random sample of USAmericans, "Please tell me whether
the FIRST statement or the SECOND statement comes closer to your own views: 1. Capitalism and the free market system are consistent with Christian values OR 2. Capitalism and the free market system are at odds with Christian values." 44 percent said capitalism was at odds with Christian values. Only 36 percent saw them as consistent.

There's a little class divide here, apparently, since "Nearly half (46%) of Americans with household incomes of $100,000 a year or more believe that capitalism is consistent with Christian values, compared to only 23% of those with household incomes of $30,000 a year or less," according to the PRRI press release. Hmm...

They also offered respondents a chance to a say which of the following statements "comes closer to your own views": "It's not really that big a problem if wealth in this country is increasingly concentrated in the hands of a few," OR "One of the biggest problems in this country is that more and more of the wealth is held by just a few people." 24 percent said it was no big deal, while a whopping 62 percent said that this is, indeed, one of our biggest problems. It's comforting to me to discover that I am part of such a large majority here!

Two-thirds (66 percent) of respondents agreed with the statement, "It's fair that wealthier Americans pay more taxes than the middle class or those less well off."

PRRI reports that "Overall most (61%) Americans disagree that most businesses would act ethically on their own without regulation from the government," a result that PRRI categorizes as "Support for Government Intervention." I guess.

I salute PRRI for asking people about such important and interesting things. In my recent series on opinion polls I noted that I had "found no questions about the nature of capitalism" in the major polls, but this poll (which I found later) was and is an exception, and the only one as far as I know. One problem: The poll only asked about Christian values, and it would have been good to ask about the relationship with other spiritual traditions and capitalism, but maybe they will in a future poll. I hope so, but in the meantime, if you want to read more about this poll, find it HERE.


Capitalism's Conundrum

While we're on the subject of capitalism being at odds with Christian values—or any values other than profit—let's consider a tragedy about which I wrote back in February of this year. That tragedy is the severe shortage of lifesaving drugs that is occurring in the United States.

The basic issue is this (as reported by Medscape Medical News): "The United States is facing an unprecedented shortage of drugs, including those used to treat cancer. Although the drug shortage has been ongoing for several years . . . it is becoming progressively more acute, and more importantly, shows no sign of abating...

"In 2004, there was a shortage of 58 drugs... A record-breaking 211 medications became scarce in 2010, which was triple the number recorded 4 years earlier. The University of Utah has predicted that more than 360 agents will reach shortage levels by the end of this year, the highest count in history."

We're not talking aspirin or Viagra here. These are serious, lifesaving drugs, "vital medications used in everything from surgery to chemotherapy," as USA Today recently reported. So, why would the pharmaceutical industry in the largest economy in the world have a chronic shortage of life-saving drugs? In a word: Profit.

The majority of the current shortages, say experts, are in the area of older sterile generic injectables, which are tricky to produce. According to an August 20th New York Times story, "More than half the recent shortages have resulted because government or company inspectors found problems like microbial contamination that can be lethal on injection." The Times then quotes a drug industry spokeswoman who "says the shortages grow out of a sweeping consolidation of the generic drug industry into a few behemoths that compete only on price and have foreign plants that are rarely inspected." As the CEO of one of those behemoths, Bristol-Myers Squibb, told the Wall Street Journal back in 2008, "There are lots of people in India, China and Eastern Europe who can make products of the same quality as ours but at significantly less cost." Well, as we are learning, they're not of the same quality. But at least they're cheaper—shareholders win!

The loss of lives due to such production-related cost-cutting is an obvious, if indirect, effect of the profits-before-people mentality that permeates the corporate culture. But when faced with a clear, unambiguous, direct choice between saving lives and making profits, the corporations again fail to pass the ethics test. Ezekiel J. Emanuel, MD, an oncologist and former White House adviser under Obama, explains that "In the first two or three years after a cancer drug goes generic, its price can drop by as much as 90 percent as manufacturers compete for market share." Then what? Well, Emanuel explains, "The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug."

Or, as cancer doctor Michael Link put it, in this week's "Quote" of the Week: "Low profit margins put manufacturers in a difficult conundrum. They can either lose money producing a lifesaving chemotherapeutic agent, or switch their limited production capacity to a more lucrative drug."

Save lives? Or increase profits? In the corporate world, this is seen as "a hard choice" or even a "conundrum." No wonder so many people told the religion pollsters that "capitalism and the free market system are at odds with Christian values."