In 1965-6 I took Economics 1, as it was then called, at Harvard. The course probably represented the best education that the GI generation had to offer. It was taught mainly in sections and I was lucky to have a very good section man, who tried and failed to recruit me into economics after I aced the first hour exam. The rare lectures were spread around the department and featured some giants in the field, such as John Kenneth Galbraith and Otto Eckstein. The fall term dealt with micro-economics, the spring with macro-economics. The latter was much more interesting, because that generation was so focused on using fiscal policy to ensure the maximum possible employment. They had learned in the 1930s from John Maynard Keynes that the government had a key role to play in fighting the depression, and the policies they favored had helped prevent anything similar.
In one section, I remember, we spent perhaps 20 minutes discussing a maverick economist from that generation--a certain Milton Friedman, an apostle of the free market. Dr. Major made clear that he did not take Friedman's ideas very seriously, but, he said, "I think it's good for you to be exposed to this." We smiled. Little did we know. I doubt any other economist that we studied that term has had more influence on the actual shape of the world in which we have spent our adult lives than Milton Friedman.
I am not going to go over the various specific advances that free market ideology has made since the Reagan years or review their economic effects. Markets have become much freer and we now now what the effects of that are. Free markets make it easier for rich people and institutions to become much richer. In a globalized economy, they make labor cheaper. This in turn shifts more political power to the wealthy who can use it to make markets even freer. One result of free financial markets was the great crash of 2008, but now, with the Republicans back in power, even the mild reforms in the wake of that crisis are being repealed. In the last few days, however, I have seen two striking stories about the impact of free markets which show their effects on key areas of our lives.
One is housing in our major cities. In the middle of the century, rent control held down rents in many areas (including Cambridge, Massachusetts, where I lived under it for six years), saving opportunities for students and the working class. Now it hardly exists anywhere, and it is almost impossible for such people to live within the city. The student apartments that my friends and I lived in in the 1970s have been condoized, and sell for more than half a million dollars a bedroom, in many cases. Now comes the latest development: the influence on the market of AirBnB. Apartment prices are being bid even higher by speculators who want to turn units into short-term rental properties, and a lonely city councilman who wants to do something about it is encountering heavy political pressure. The same drama is playing out elsewhere.
The second story is much more interesting and much more frightening. It concerns the impact of markets on health care, and specifically, on drug-makers choices of diseases which they wish to attack.
A note to clients--apparently, pharmaceutical companies--from a Goldman Sachs analyst has been leaked. A new form of gene therapy has been remarkably successful in curing hepatitis C, a sometimes deadly disease, and in ridding patients of the infection so that they can no longer infect others. While antibiotics originally cured a great many bacterial infections, this is a chronic viral infection--like HIV--and its potential disappearance should be grounds for rejoicing. Yet the Goldman Sachs analyst sees it as something to worry about. The drug maker made a great deal of money in a short time, but the the new therapy is now going to disappear. Curing diseases is not a particularly good model in the long run. Finding long-term palliative care for a chronic condition is much better--and that is the kind of care big pharma wants to develop.
This was not news to me. Big pharma has been very slow to develop new antibiotics, which cure people, even when they are desperately needed to deal with resistant bacterial strains. They like pain relievers and other drugs which people can take for the rest of their lives. I asked a friend of mine who has run numbers for drug companies whether they prefer working on treatments for long-term illnesses at least a decade ago, and he smiled and replied, "Sure! They have stockholders." Any corporation wants to get the public to spend the maximum amount of money on its products. In no other advanced country is the health care industry as economically powerful as in the US--and we spend about twice as much on health care as other advanced countries. This is anything but accidental. Drug research should be government-funded and directed towards vaccines and cures for the worst diseases. The biggest breakthroughs in medicine in the 19th and 20th centuries came from individual scientists working on their own like Pasteur, Ehrlich and Fleming--not from pharmaceutical companies.
Another dysfunctional market probably helped produce the Goldman Sachs letter--the labor market for our smartest young people. Since the deregulation of our financial markets, our largest financial institutions have been paying the highest salaries. They have successfully been recruiting the smartest college graduates and PH.d students in almost every field--even fields like civil engineering. They like people who are smart and competitive, and they educate them to see the world in a certain way. Because that world view has such a terrifying internal consistency, it is easy for people to assimilate into it.
Four years ago, I did four long blogs here about Thomas Piketty's book, Capitalism in the 21st Century. (Here is the first--the others followed.) It began with a simple insight, one I think that was also at the foundation of the first Capital, by Karl Marx: capital tends to accumulate faster than the rate of economic growth. That's another way of saying that the rich get richer and the poor get poorer. And because their whole goal is to get richer, those who make drugs don't want to cure diseases, they want to treat chronic ones. This is one spectacular instance of how capitalism can work against the public good. Western Europeans still understand some of these issues, but there, too, capitalism and inequality are gaining ground. We may be headed for a world of capitalist dynasties.