The FUNDAMENTAL Problem, ECONOMY-WIDE

This is a post that I predict will get few reads and fewer shares.

It’s also mathematically provable and, if we don’t cut it out, it will destroy our nation and economy even if we fix all the other problems.

Simply put, it’s this:

As soon as you find a way to collude such that financialization becomes an essential piece of any part of the economy that part of the economy stops serving the end consumer of said good or service and instead serves the financiers.

Consider good or service “X”.  The producer has to compute a price to sell at.  His computation is comprised of the expense to produce the good or service plus a profit.

Given no constraints the seller would like an infinite profit.

Two things constrain his profit: 1) The ability for the consumer to refuse to buy at all and 2) competition.

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Unfortunately there are products and services that people cannot successfully refuse to purchase.  Some of those (like water) you must acquire all the time in order to remain alive; if you cannot do so via either a clean natural source or clean the source you have there is no other option but to purchase it from someone who can.  Others, such as medical care, are items you can sometimes refuse to buy but at other times you cannot refuse such as when you’re unconscious due to either a medical emergency or accident.  Medical care has a further circumstance that arises in that in many chronic condition circumstances while you can refuse the price of doing is literal death; in those cases you are effectively forced to purchase.

Now let’s enter the world of drug prices — which by definition only exist because there is a belief (which may or may not be true) that consuming them in a given case will benefit you.  This is what drug executives currently say:

“We think we should always be value-based,” Celgene Inc. Chairman Robert Hugin said in an interview with Bloomberg Television. “If the drug doesn’t provide value to the system and to the patient, we shouldn’t have price increases, or the price will change.”

Note what’s missing there: Any discussion of the actual cost of producing the drug.

In other words: We will sell it for whatever we think the value is to you.

That never, ever works in a competitive market and nobody says that in a competitive market.  Why?  Because it’s an instant prescription for bankrupcy.

Yet in the drug business the model is “how much is an extra year of life worth for a cancer sufferer”?  They “figure this out” and that’s the price.  Ditto for the claim that the pricing for Sovaldi, which cures Hepatitis C.  The question isn’t “how much did this cost, plus a reasonable profit“, it’s how much money would the victim blow if they don’t take the drug up to and including their death from liver failure or liver cancer, and we’re then free to set the price at any amount up to that number minus a dollar.

Now contemplate that “how much is a year of life worth?” has several possible definitions.  For many people it’s “an infinite amount of money.”  However, there are few people with infinite — or effectively so — funds and the higher the price the fewer people there are that have that amount of money.

In other words minus financialization and cost-shifting even the sort of crap statement that Celgene’s Chairman made can’t work for him because he’s constrained by how much money consumers actually have.

This all changes, however, if the consumer can force someone else to pay; now the limit is whatever funds the forced party has.  If that forced party is “society” via a transfer mechanism then there is no limit.

Every company executive would love to price this way but nobody can in a competitive market because (1) there is no ability to force someone else to pay and (2) a second supplier, if you set your price high enough to make it worth their while, will choose to undersell you and they will get all the business while your sales will be zero and finally (3) if there is no other supplier and no other alternative virtually no individual consumers have effectively-infinite amounts of money.

So how do you get the above “infinite pricing capacity” model in the real world?

You break the law and/or you get the government to force others to pay.

You restrain competition.

You conspire with others, particularly financiers — that is, lenders and insurance companies so you can extract all but one dollar of the value gained from using your product or service for yourself.

And, ultimately, you get government to force “society” to pay if the consumer cannot.

Want to know why college is so expensive?

This is the reason.

It did not get more expensive to teach Calculus, Fine Arts, Engineering or Computer Programming over the last 10, 20, 30, 50 years.  In fact in many cases, such as computer programming, it got much cheaper!  You no longer need a multi-million dollar mainframe, or the facility and staff to run it, to teach programming — a perfectly serviceable computer to teach people to program on can be had for a literal $35 and it plugs into any modern television set for a display!

What happened was that colleges conspired with government and lenders to (1) make “free money” available and then (2) conspired with businesses and governments to “require” degrees.  When this model was threatened by people borrowing funds and then going bankrupt (discharging the loans and thus threatening to destroy the willingness of people to fund them) they then went even further and lobbied government to make discharging that debt in bankruptcy nearly impossible and guaranteed the debt federally, making society as a whole pay.

Note that in a capitalist system lending someone money that is unsound — that is, which does not result in repayment with the accrued interest from their economic surplus has a natural check and balance built into it because the person who you loaned the money to can go bankrupt and discharge the loan.  This cuts off the flow of funds for unworthy borrowers or unworthy projects quite quickly and had that change not been made to bankruptcy law the spiraling cost of college would have been capped off two decades ago.

But what’s worse is that to prevent someone from deciding to undercut these schools and drive them out of business the colleges also conspired with “accreditation” bodies so you had to go to a school that followed this model in order to be able to have a credential anyone would accept, making it impossible for competition to force them to cut that crap out.

This in turn has allowed the schools to figure out the alleged “value” of their degree and take all but a dollar of it for the average student and effectively force nearly everyone to finance that cost.  Note that for those better than the average student there has to be remaining value in said degree (but much less than there was before this crap started) but for those under the average, and by simple arithmetic half of all students will be, they can (and do!) actually get negative net value without the system collapsing!

In other words a huge percentage of students get sold something that has no net value to them.  Those people get swindled, pure and simple.

But what’s worse is that all of that cost escalation was effectively stolen because in a competitive marketplace no college would be able to maintain such a pricing model — they’d be undercut by 75% and thus the colleges that tried to price like this would have zero students.  It is only because they all get together and got government to shove it up your ass that that model exists.

This scam allowed the colleges to add three times as many administrators who teach nothing as they did professors, to build huge sports stadiums that are subsidized by the rest of the school, to put up edifices to themselves and enrich everyone from textbook publishers on up except the student and their family, leaving huge numbers of young adults destitute and many parents with a destroyed retirement when their child turns out to fall below the “average” line in their educational outcome and thus winds up with a negative net value for what he or she purchased.

Of course no parent will ever admit that their child is “below the average line” in public. This makes the swindle easy and yet by definition and simple statistical fact half the kids are “below the average line”!

I remind you that up to half of all students can find themselves in this situation and not have the system collapse — and many, many students and their families do in fact get rooked in exactly this way. In many cases entire majors have huge percentages of graduates that receive negative net value.

In medicine it’s even worse.  Not only does this pricing model occur with drugs, enabling such outrageous practices as charging $80,000 for a course of treatment that you can get for $80 in Egypt, a mark-up of one thousand times (that’s 100,000%!) it happens all the way back to the training of physicians in the first place.

Want to be a Dentist or Doctor?  The cost is several hundred thousand dollars.

Why?

Was it several hundred thousand dollars in the 1950s or 60s?

No, it was not.  It was a few tens of thousands of dollars.

Why is more than ten times as expensive now?

Because the AMA, colleges and medical boards, along with hospitals, put in place a system that severely restricts supply and have turned on the “free money spigot” via loans for anyone who desires so if you want to be a doctor in America the only way to do it is to take on $500,000 in debt which they are happy to loan you but you cannot discharge it in bankruptcy if you happen to fall below the net value line in result.

In short they have taken most of the value that is generated by producing a physician and stolen it for themselves.

This then produces an entire generation of physicians that claim they’re entitled to make $200,000 a year because they have to pay that debt off.

In other words these physicians argue they’re entitled to make a given salary because their school and affiliated firms stole a huge percentage of the value in their education from them, with their consent, and thus they claim to be entitled to steal from you.

Again, this model cannot exist in a competitive marketplace because someone will decide to open a new medical school that doesn’t cost $400,000 and doesn’t constrain supply — and the others will all go out of business in an afternoon.

That hasn’t happened because the government colluded with private industry, from hospitals to insurers to medical associations to licensing boards to bankers to shove a gun up everyone’s nose and prohibit that competitive offering from existing — and any doctors it graduated from being able to actually practice medicine anywhere in the country.

Why was Obamacare passed?

Because the medical and health insurance industry was on the verge of collapsing on their own.  The amount of leverage (debt) they had taken on was too high and couldn’t be paid off.  The “new therapies” that were being developed could not be priced at $80,000 for a course of treatment because almost nobody has that much money and thus there was no way to sell said treatment for that amount.

Who remembers Provenge?  A treatment for prostate cancer that was hideously expensive yet did not cure the disease.  Yes, it extended life — by, on average, 4.1 months.  It was also hideously expensive, costing about $93,000 for the full treatment — or roughly $20,000/month of additional life expectancy!  The entire industry was and is full of these “therapies” but Dendreon, despite having a working “therapy” (in that it extended life) also had a pricing model and debt load that simply could not work without government force.

Obamacare was not about helping you — ever.

It was about bailing out excessive leverage in the medical system and outrageous acts of extortion exactly as TARP and the other “programs” were about doing the same thing in the banks.  It did so at a cost of ten trillion dollars in new federal debt or more than $30,000 for each man, woman and child in the country, a bill you were handed and which you are now expected to pay.  What’s worse is that exactly zero of the escalating “expectations” in that sector have gone away or decreased in any fashion (you can hear this every single day on CNBS) which means that Trump and Congress are now going to try to double your indebtedness again over the next two Presidential terms and again that money will be going to the educational and medical lobbyists while it is both stolen from you and destroys everyone who is under the “average” mark in their fields.  Not only that these same expectations are all over the federal Medicare and Medicaid systems which is why, in just five years time, they threaten to destroy both federal and state budgets and yet exactly ZERO is being proposed to put a stop to it.

Trump’s claim that he’s going to “Make America Great Again” is a lie because until and unless both the educational and medical monopolists and scams are permanently ended in full the cost escalations that those two parts of the economy force on everyone else makes any hope of being able to fund the government, say much less hit the growth targets he has, mathematically impossible.

These are facts folks and yet half the country sucked off Obama while the other half now sucks off Trump.  Nobody will deal with the fundamental fact that the DOW being at 20,000 means exactly nothing except that the executives of those firms have managed to steal ten trillion dollars over the last eight years and expect to steal 10 more trillion over the next eight, which is why the market has been and continues to go up.

You may think you’re “doing ok” because your 401k is rising but it cannot, and will not, outrun the screwing you will take at these people’s hands.  You are being sold a false narrative, a false God and a false promise.  You will have the entirety of that “gain” stolen from you plus more — that is a certainty and again is predicted on arithmetic, not politics.

These issues can only be addressed by (1) enforcing the law and (2) stopping the use of risk free leverage and force imposed on you that is obtained through bankruptcy exemptions, mandates, collusion, violations of 15 USC and other similar tactics.  All of these are supposed to be illegal under existing law — laws that were passed after the last time this was done in America in the late 1800s — the people doing it then were called “Robber Barons” and their games ultimately led to the Sherman, Clayton and Robinson-Patman acts being passed into law.

The entities who have committed these sins and built levered “empires” on the back of same must by definition go bankrupt and disappear, and if they do then the market will crash back to rational levels when such leverage is removed and those firms are zeros.

If this is not done the stock market may continue to go up but it will not matter to you because your costs in these essential areas, which these firms and executives conspire with government to make essential, force you to buy and force you to pay for even if you do not use them will outstrip any gains you can earn in said “market.”

Exponential growth on an infinite time horizon is impossible in all cases and the longer you keep pretending you can do it the worse the impact is that you must suffer when you finally stop.  Your option is to either stop voluntarily and accept the impact or you will be forced to stop involuntarily and the impact will be far worse.

That’s arithmetic, not politics and the reason I’m done beating the drum on this point is that I’ve spent the last decade on explaining it quite-clearly relying only on arithmetic and yet you simply will not get off your knees before either a Democrat or Republican, depending on which half of the political divide you wish to fall — and irrespective of who is in power you will not refuse to consent daily to what is mathematically proved: The certain destruction of your future, your children’s future and this nation’s economy.