Posts Tagged ‘capitalism’


We see it on a daily basis. Contemporary capitalism is out of control.

The latest example is Valeant Pharmaceuticals International, which buys up existing drugs and raises prices aggressively, and does nothing to develop new drugs.

Valeant defended itself, saying in a statement that it “prices its treatments based on a range of factors, including clinical benefits and the value they bring to patients, physicians, payers and society.” It says patients are largely shielded from price increases by insurance and financial assistance programs the company offers, so that virtually no one is denied a drug they need. . .

If “products are sort of mispriced and there’s an opportunity, we will act appropriately in terms of doing what I assume our shareholders would like us to do,” he told analysts in a conference call in April.

What’s happening? Clearly Valeant’s strategy is undermining the usual rationale of the American pharmaceutical industry, that it “needs” its exorbitant profits to fund research and development.

It spends an amount equivalent to only 3 percent of its sales on research and development, which it views as risky and inefficient compared to buying existing drugs.

It also pays very low taxes, “because it is officially based in Canada, although Mr. Pearson operates from New Jersey.”

And it makes its profits not just by raising prices, but by laying off workers in the companies it purchases and by accumulating a mountain of debt to finance those purchases.

Everyone, of course, knows the counterargument: that Valeant is just one bad apple in the barrel. But it’s operating according to the rules of a system that every other major corporation follows in the United States: individual decisions that maximize the private gain of a few at the expense of everyone else, both consumers and workers.

The problem is, J. Michael Pearson is giving a bad name to the pharmaceutical industry and to capitalism as a whole. Surely, other heads of corporations should want to rein him in, because he’s generating bad publicity for their system (and, in addition, he’s forcing them to give up some of their profits to pay for inflated drug prices for their employees).

On the other hand, they don’t want to touch him, out of fear that their own profitable operations—on both Main Street and Wall Street—will be subject to public scrutiny and regulation.

So, the tiny group at the top, who make decisions that affect the rest of us, are caught in a bind.

Meanwhile, capitalism continues out of control.


As if to confirm what I wrote last night, here’s James Surowiecki on what the tiny group at the top could do, out of self-interest, to rein in rent-seeking profiteers like Valeant:

In place of closed distribution, the F.D.A. can require companies to make samples of their drugs available to competitors. The F.T.C., as Anderson argues, should be more aggressive in limiting mergers among generic-drug makers. And the U.S. and other developed countries should also adopt an arrangement known as regulatory reciprocity: if a drug maker has approval to sell a drug abroad, it should be able to sell that drug here, and vice versa. Safety concerns may rule out importing drugs from just anywhere, but there is no good reason for a company selling a drug in, say, Germany to have to spend time and money to get the right to sell it here. Foreign competition has played a central role in holding down retail prices in industries ranging from automobiles to consumer electronics. It’s time drug prices were subject to the same rules. Shkreli has said, since the backlash, that Turing will roll back the Daraprim price increase. But the fate of toxoplasmosis sufferers shouldn’t depend on the egomaniacal whims of a “pharma bro.”

Of course, these kinds of measures would make drug companies anxious, but they should be doing all they can to encourage competition, if only out of self-interest. If market forces and smarter regulations can’t limit price gouging, then drug makers could be subject to more drastic measures, like price controls or compulsory licensing—a system that compels companies to license drugs to other manufacturers. The Turing scandal has shown just how vulnerable drug pricing is to exploitative, rent-seeking behavior. It’s fair enough to excoriate Martin Shkreli for greed and indifference. The real problem, however, is not the man but the system that has let him thrive.

car crashes

I’ve considered lots of different dimensions of inequality on this blog, including the fact that inequality kills.

But, I’ll admit, I have never considered the unequal impact of car crashes on the nation’s roads.

As Emily Badger and Christopher Ingraham explain,

Traffic fatalities in the United States have been plummeting for years, a major victory for regulation (strict drunken driving laws have helped) and auto innovation (we have safer cars). But that progress obscures a surprising type of inequality: The most disadvantaged are more likely — and have grown even more likely over time — to die in car crashes than people who are well-off.

The question is, why?

The underlying issue here is not that a college degree makes you a better driver. Rather, the least-educated tend to live with a lot of other conditions that can make getting around more dangerous. They own cars that are older and have lower crash-test ratings. Those with less education are also likely to earn less and to have the money for fancy safety features such as side airbags, automatic warnings and rear cameras.

The number of trauma centers. . .has also declined in poor and rural communities, which could affect the health care people have access to after a collision. And poor places suffer from other conditions that can make the roads themselves less safe. In many cities, poor communities lack crosswalks over major roads. The residents who live there may have less political power to fight for design improvements like stop signs, sidewalks and speed bumps. As a result, pedestrian fatalities in particular are higher in poor communities.

Yep. Capitalist inequality kills in more ways than even I had been able to imagine.


Mike the Mad Biologist [ht: sm] casts doubt on the idea of scarcity. And for good reason:

While they seem to have receded somewhat, a couple of years ago, there were quite a few arguments about the fundamentals of economics (especially macroeconomics) and how to teach them. As an outsider, one thing that struck me as odd was the emphasis on scarcity (e.g., economics is called the science of scarcity). It’s odd because, at least in wealthy societies, there are very few scarce items. We’re definitely not slacking in our ability to produce calories, which arguably for most of human, if not hominin, history was the vital concern.

Mainstream economists, as I teach my students, start with the idea of scarcity—the combination of limited means and unlimited desires. And then, after a great deal of math and a wealth of assumptions, they prove that a system of private property and free markets provides a perfect balance between those limited means and unlimited desires.

But, as I also teach them, the mainstream presumption is that scarcity is universal—both transcultural and transhistorical. In other words, they start with the idea that all human beings, in all times and places, have had to confront and solve the problem of scarcity.

An alternative is to see scarcity as an institutional, historical and social, phenomenon. In particular places, at particular times, the existing set of economic and social institutions makes certain goods and services scarce. Thus, for example, oil is scarce because of the particular configuration of the energy industry, the personal car and truck culture, the government-sponsored expansion of the highway system, and so on. That’s what makes oil scarce. Similar stories can be told about the scarcity of water, arable land, good public transportation, high-quality mass education, and so on. Their scarcity is the product of particular sets of institutions in particular societies.

Why is that important? Because, as against the assumption of mainstream economists that scarcity is always with us (and therefore can’t be changed), the idea that scarcity is an institutional phenomenon means that changing economic and social institutions can change or eliminate scarcities.

The same applies, of course, to abundances. Right now, we’re living in a society that has created a surplus of labor (and, as a result, stagnant wages), which is part and parcel of capitalism’s law of population. If we get rid of capitalist institutions, then we can create a new law of population, one in which the labor workers perform and the value they create are not turned against them.


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Marx, it seems, just won’t go away.

According to Charles Moore in the Wall Street Journal,

When things go backward in nations accustomed to middle-class stability, people start to ask questions. What is the use of capitalism if its rewards go to the few and its risks are dumped on the many? The rights of property do not seem so enticing if the value of what you own collapses or if that property is trapped by debt. What is so great about globalization if it means that the products and services you offer are undercut by foreign competition and that millions of new people can come to your country, take your jobs and enjoy your welfare benefits?

Great international banks and other corporations—and their top executives—can devise a life that escapes normal tax jurisdictions. Their successes are globalized and accrue chiefly to them; their failures crawl back home to die, at the expense of the rest of us.

So instead of feeling that it is a privilege to be an ordinary citizen of a free country, many of us start to feel a bit like suckers. Hope—the inseparable companion of progress—fades and is replaced by disappointment, even bitterness. It has always been understood that opportunity carries some price of insecurity, but what happens if insecurity rises and opportunity contracts?

Moore warns that, if Western countries can’t disprove Marx’s “dire forecasts” about a growing gap between the haves and have-nots, capitalism is going to be in trouble. In fact, he concedes,

Marx did have an insight about the disproportionate power of the ownership of capital. The owner of capital decides where money goes, whereas the people who sell only their labor lack that power. This makes it hard for society to be shaped in their interests. In recent years, that disproportion has reached destructive levels, so if we don’t want to be a Marxist society, we need to put it right.


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Pope Francis on capitalism

Posted: 23 September 2015 in Uncategorized
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Apparently, Pope Francis has reversed his position on capitalism.

WASHINGTON—Admitting the startling discovery had compelled him to reexamine his long-held beliefs, His Holiness Pope Francis announced Tuesday that he had reversed his critical stance toward capitalism after seeing the immense variety of Oreos available in the United States. “Oh, my goodness, look at all these! Golden Oreos, Cookie Dough Oreos, Mega Stuf Oreos, Birthday Cake Oreos—perhaps the system of free enterprise is not as terrible as I once feared,” said the visibly awed bishop of Rome while visiting a Washington, D.C. supermarket, adding that the sheer diversity of flavors, various colors and quantities of creme filling, and presence or absence of an outer fudge layer had led to a profound philosophical shift in his feelings toward the global economy and opened his eyes to the remarkable capabilities of the free market. “Only a truly exceptional and powerful economic system would be capable of producing so many limited-edition and holiday-themed flavors of a single cookie brand, such as these extraordinary Key Lime Pie Oreos and Candy Corn Oreos. This is not a force of global impoverishment at all, but one of endless enrichment.” At press time, the pontiff had reportedly withdrawn his acceptance of capitalism, calling any system that would unleash a Roadhouse Chili Monster Slim Jim on the public “an unholy abomination.”