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Fundamental economic principles tell us that goods should be sold at their marginal cost of production—the cost of producing one more unit of the good. If a company needs to pay twenty dollars for the material and labor used to produce one more shirt, then shirts should sell for twenty dollars plus a small profit–earning markup. The price–equals–marginal–cost principle maximizes economic efficiency and limits opportunities for fraud and corruption. Building on this principle, economists also strongly advocate globalization: the elimination of trade barriers allows consumers to buy goods and services from where they are cheapest, thus maximizing global efficiency and output.
Unfortunately, when it comes to health care, these principles are routinely violated. Prescription drugs that could be manufactured and sold profitably for a few dollars per prescription may instead sell for thousands. Performing one more high–tech scan or other medical test may require just a few cents of electricity and a couple of hundred dollars worth of a technician’s or a doctor’s time. But diagnostic procedures can be billed at several thousand dollars a shot. Prices are often well above marginal costs, yet economists involved in health care reform rarely recognize this as a problem.
Dean Baker is Co-Director of the Center for Economic and Policy Research and author most recently of Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. His other books include Getting Back to Full Employment, The Conservative Nanny State, and Taking Economics Seriously. Baker’s commentary on economics reporting can be found at Beat the Press.
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Historian Gerald Horne has developed a grand theory of U.S. history as a series of devastating backlashes to progress—right down to the present day.
Reflecting on three monumental works of modernism—James Joyce’s Ulysses, T. S. Eliot’s The Waste Land, and Ludwig Wittgenstein’s Tractatus Logico-Philosophicus—a hundred years on.
Both regulators and employers have embraced new technologies for on-the-job monitoring, turning a blind eye to unjust working conditions.