A Florida tragedy and the economics of a better world

By Ryan Mathis, @rmathis995 on Twitter.
Copy-edited by Jeff Epstein, @CitizensMediaTV

“The medical bills were piling up, and neighbors told News4Jax that John Thombleson had said their insurance was expiring, leaving them no way to pay for the mounting expenses.” So, the natural solution, then, was to kill himself after killing his high school sweetheart and wife of nearly fifty years, Gwendolyn.

We can fight each other over whether we should have Medicare for All or a public option of some sort. We can fight together against GOP politicians who want to slash the the existing web of healthcare services in America. And that’s fine, as far as it goes. But it’s been fifty-four years since President Lyndon B. Johnson signed Medicare into law and millions still lack the healthcare they need for financial reasons. It sure feels like progress is too slow. We can do better than this. But in order to do better we have to think better – beyond the traditional prism of Democrat-versus-Republican politics. We have to ask more probing questions, such as: How did we get here? Why? And who benefits from keeping us here?

These are complex questions. One simple answer is that, during World War II, the economy was at full employment. Not the pseudo-full employment of today, which roughly translates into 4-6% unemployment (not to mention hidden and underemployment). Truly full employment, where nearly every able-bodied adult who wanted a job, had a job. Because of the high demand from the government for resources , the National War Labor Board (NWLB) instituted wage- and price-controls.

Non-government employers who may have wanted to pay higher salaries in order to outcompete the government were legally unable to do so. Wages were kept down so the government could prosecute the War effort. However, the government offered a way around these wage-controls: the NWLB allowed private employers to indirectly increase workers’ real take-home pay through non-wage benefits, including health coverage and on-site childcare. Thus began the sprawling system we see today of our “private welfare state“, wherein social security is married with uninterrupted labor market participation.

In large part, that is how and why we are where we are today. The US government inadvertently facilitated the creation of the dysfunctional system of private, employer-sponsored health insurance that we see now, as a side effect of fighting the Nazis and Imperial Japan. The Thomblesons’ tragic ending is due at least in part to that fateful decision by the NWLB in the early 1940s to encourage employer-sponsored insurance. That’s how we got here. Now, who is keeping us here? First, we need to cover some tangential yet vitally-important context.

The Great Depression, world governments’ attempts to end it, and World War II taught us many lessons. Some of those lessons have been remembered, but one that’s been forgotten is one of the most important, helping to explain where we are today regarding health reform. In 1933, shortly after taking office for the first time, President Franklin D. Roosevelt, ended the domestic conversion of paper currency into gold. That is, he took us off the gold standard, and the United States Dollar became a “fiat” currency. (We went back on it internationally as part of the Bretton Woods Accords in 1945, then back off it again, along with many other countries, during the Nixon Administration in 1971. But domestically, paper currency has not been convertible into gold since 1933.)

The transition to a fiat currency resulted in an immediate, one-time devaluation of the US dollar versus foreign currency. It also dramatically expanded the capacity of the US government to spend money; no longer did the government need gold reserves to back existing dollars. In effect, the US government transitioned into monopoly ownership over the US currency. It could set prices and wages in dollar-terms how it liked and invest, unlike before, virtually limitless sums of money in the economy to relieve the depressed conditions. It could also, eventually, wage Total War, as it would do in the next decade.

In 1946, Beardsley Ruml, the Chairman of the New York Federal Reserve wrote about the economic revelations from the period. In his paper, “Taxes for Revenue are Obsolete,” he enlightened us: “Final freedom from the money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity.” In plain English, the US government can never run out of money.

Ruml went on to emphasize that federal taxes, although important, do not, as is the common understanding, function to provide the government with money that it can then spend at a later date. The government, as monopoly currency issuer, simply creates whatever amount is necessary to purchase what it wants to purchase. Taxes in no way “raise revenue.” In fact, as Stephanie Kelton would later (1999) show, taxes and bond sales come after spending. The important takeaway here is this: the US government can always “afford” whatever it wants to buy, whether that is bombs or teachers, guns or nurses. There is always money.

With the knowledge of the how, the why, and that there is always money, we’re ready to answer the final question: who benefits from keeping us here? Who stands to gain from a system that tolerates the suicide pact of a couple who were married for half a century? We can point to easy, obvious culprits, the same people who oppose all health reform: insurance giants, Big Pharma, and reactionary politicians. There’s another interested party, though, one that the classic Bernie Sanders-esque yelling about insurance companies sometimes misses: the finance industry. Banks, credit card companies, payday lenders, hedge funds, and the like.

Every modern economic transaction – gifting aside – involves the exchange of money. That money doesn’t just exist; it comes from somewhere. It can come from one of two places: 1) the government can bring it into existence by buying something (called currency) or 2) a financial institution can bring it into existence by extending a loan (called credit). When the government creates currency and buys something, the recipient of that money can do with it as they please, no strings attached. He owes it to no one. But when a bank makes a loan, the recipient of that money does indeed have to pay it back. This is the difference between public and private debt.

Think now in terms of our healthcare system. If we had free healthcare, which we now know the government can “afford,” not only would insurance companies be out of business, but the profits that financial institutions are currently extracting from us due to the high cost of healthcare would also dry up. No longer would people charge co-payments on their credit cards. No longer would people take out thousand-dollar loans from payday lenders in order to make rent because their health insurance is so expensive. No longer would people get home equity loans from banks just to pay medical bills. As Dr. James K. Galbraith has put it, “it’s easy to see why bankers love private credit but hate public deficits.”

Finally, the federal government providing all its citizens healthcare would also unchain people from their jobs. In other words, the threat of losing health insurance would no longer be a bludgeon used by bosses to prevent their employees from demanding better conditions. This process of de-linking social security with labor market participation is referred to as the “de-commodification of labor.” Esping-Andersen’s seminal 1990 book The Three Worlds of Welfare Capitalism (first two chapters available for free here) is a must-read for anyone interested in exploring how labor is commodified and, subsequently, de-commodified.

Commoditization manifests in the dysfunctional American healthcare system, forcing Americans to daily endure unthinkably tragic situations. It is especially tragic knowing that we got here largely by accident. Powerful interests that stand to lose big from the expansion of the public welfare state (and therefore the de-commodification of American workers) have thoroughly convinced Americans, through their propaganda (like this and this and this), that their government cannot afford to pay for free universal health insurance. But we know they are at best wrong and at worst cynically dishonest. We know it because the Chairman of the NY Fed told us so in 1946. We know it because there is somehow always enough money for bombs and bailouts. And we know it because every other advanced nation on earth ensures that their citizens never have to make the same awful choices that the Thomblesons did and, usually to a lesser extent, all Americans do.

The enactment of Medicare for All or a public option – or, for that matter, virtually any other large-scale, progressive expansion of the welfare state – is a distant fantasy if we are unable or unwilling to tackle the corporate propaganda about “fiscal health.” Such a thing existed in 1932. From 1933 onward, it has been an inapplicable myth. Exposing this myth is the only way forward. Until the people truly understand how the economy actually works, real change will continue to prove elusive.

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