Posts Tagged ‘consolidation’
“I tend to think that most fears about A.I. are best understood as fears about capitalism”*…
Further to Wednesday‘s and yesterday‘s posts (on to other topics again after this, I promise), a powerful piece from Patrick Tanguay (in his always-illuminating Sentiers newsletter).
He begins with a consideration of Peter Wolfendale’s “Geist in the machine“
… Wolfendale argues that the current AI debate recapitulates an 18th-century conflict between mechanism and romanticism. On one side, naive rationalists (Yudkowsky, Bostrom, much of Silicon Valley) assume intelligence is ultimately reducible to calculation; throw enough computing power at the problem and the gap between human and machine closes. On the other, popular romantics (Bender, Noë, many artists) insist that something about human cognition, whether it’s embodiment, meaning, or consciousness, can never be mechanised. Wolfendale finds both positions insufficient. The rationalists reduce difficult choices to optimisation problems, while the romantics bundle distinct capacities into a single vague essence.
His alternative draws on Kant and Hegel. He separates what we loosely call the “soul” into three capacities: wisdom (the metacognitive ability to reformulate problems, not just solve them), creativity (the ability to invent new rules rather than search through existing ones), and autonomy (the capacity to question and revise our own motivations). Current AI systems show glimmers of the first two but lack the third entirely. Wolfendale treats autonomy as the defining feature of personhood: not a hidden essence steering action, but the ongoing process of asking who we want to be and revising our commitments accordingly. Following Hegel he calls this Geist, spirit as self-reflective freedom.
Wolfendale doesn’t ask whether machines can have souls; he argues we should build them, and that the greater risk lies in not doing so. Machines that handle all our meaningful choices without possessing genuine autonomy would sever us from the communities of mutual recognition through which we pursue truth, beauty, and justice. A perfectly optimised servant that satisfies our preferences while leaving us unchanged is, in his phrase, “a slave so abject it masters us.” Most philosophical treatments of AI consciousness end with a verdict on possibility. Wolfendale ends with an ethical imperative: freedom is best preserved by extending it.
I can’t say I agree, unless “we”… end up with a completely different relationship to our technology and capital. However, his argument all the way before then is a worthy reflection, and pairs well with the one below and another from issue No.387. I’m talking about Anil Seth’s The mythology of conscious AI, where he argues that consciousness probably requires biological life and that silicon-based AI is unlikely to achieve it. Seth maps the biological terrain that makes consciousness hard to replicate; Wolfendale maps the philosophical terrain that makes personhood worth pursuing anyway, on entirely different grounds. Seth ends where the interesting problem begins for Wolfendale: even if machines can’t be conscious, the question of whether they can be autonomous persons, capable of self-reflective revision, remains open:
Though GenAI systems can’t usually compete with human creatives on their own, they are increasingly being used as imaginative prosthetics. This symbiosis reveals that what distinguishes human creativity is not the precise range of heuristics embedded in our perceptual systems, but our metacognitive capacity to modulate and combine them in pursuit of novelty. What makes our imaginative processes conscious is our ability to self-consciously intervene in them, deliberately making unusual choices or drawing analogies between disparate tasks. And yet metacognition is nothing on its own. If reason demands revision, new rules must come from somewhere. […]
[Hubert Dreyfus] argues that the comparative robustness of human intelligence lies in our ability to navigate the relationships between factors and determine what matters in any practical situation. He claims that this wouldn’t be possible were it not for our bodies, which shape the range of actions we can perform, and our needs, which unify our various goals and projects into a structured framework. Dreyfus argues that, without bodies and needs, machines will never match us. […]
This is the basic link between self-determination and self-justification. For Hegel, to be free isn’t simply to be oneself – it isn’t enough to play by one’s own rules. We must also be responsive to error, ensuring not just that inconsistencies in our principles and practices are resolved, but that we build frameworks to hold one another mutually accountable. […]
Delegating all our choices to mere automatons risks alienating us from our sources of meaning. If we consume only media optimised for our personal preferences, generated by AIs with no preferences of their own, then we will cease to belong to aesthetic communities in which tastes are assessed, challenged and deepened. We will no longer see ourselves and one another as even passively involved in the pursuit of beauty. Without mutual recognition in science and civic life, we might as easily be estranged from truth and right – told how to think and act by anonymous machines rather than experts we hold to account…
Tanguay then turns to “The Prospect of Butlerian Jihad” by Liam Mullally, in which Mullally uses…
… Herbert’s Dune and the Butlerian Jihad [here] as a lens for what he sees as a growing anti-tech “structure of feeling” (Raymond Williams’s term): the diffuse public unease about AI, enshittification, surveillance, and tech oligarchs that has not yet solidified into coherent politics. The closest thing to a political expression so far is neo-Luddism, which Mullally credits for drawing attention to technological exploitation but finds insufficient. His concern is that the impulse to reject technology wholesale smuggles in essentialist assumptions about human nature, a romantic defence of “pure” humanity against the corruption of machines. He traces this logic back to Samuel Butler’s 1863 essay Darwin Among the Machines, which framed the human-technology relationship as a zero-sum contest for supremacy, and notes that Butler’s framing was “explicitly supremacist,” written from within colonial New Zealand and structured by the same logic of domination it claimed to resist.
The alternative Mullally proposes draws on Bernard Stiegler’s concept of “originary technicity”: the idea that human subjectivity has always been constituted in part by its tools, that there is no pre-technological human to defend. [see here] If that’s right, then opposing technology as such is an “ontological confusion,” a fight against something that is already part of what we are. The real problem is not machines but the economic logic that shapes their development and deployment. Mullally is clear-eyed about this: capital does not have total command over its technologies, and understanding how they work is a precondition for contesting them. He closes by arguing that the anti-tech structure of feeling is “there for the taking,” but only if it can be redirected. The fights ahead are between capital and whatever coalition can form against it, not between humanity and machines. Technology is a terrain in that conflict; abandoning it means losing before the contest begins.
Wolfendale’s Geist in the Machine above arrived at a parallel conclusion from a different direction: where Mullally argues that rejecting technology means defending a false vision of the human, Wolfendale argues that refusing to extend autonomy to machines risks severing us from the self-reflective freedom that makes us persons in the first place. Both reject the romantic position, but for different reasons:
To the extent that neo-Luddites bring critical attention to technology, they are doing useful work. But this anti-tech sentiment frequently cohabitates with something uneasy: the treatment of technology as some abstract and impenetrable evil, and the retreat, against this, into essentialist views of the human. […]
If “humanity” is not a thing-in-itself, but historically, socially and technically mutable, then the sphere of possibility of the human and of our world becomes much broader. Our relationship to the non-human — to technology or to nature — does not need to be one of control, domination and exploitation. […]
As calls for a fight back against technology grow, the left needs to carefully consider what it is advocating for. Are we fighting the exploitation of workers, the hollowing out of culture and the destruction of the earth via technology, or are we rallying in defence of false visions of pure, a-technical humanity? […]
The anti-tech structure of feeling is there for the taking. But if it is to lead anywhere, it must be taken carefully: a fightback against technological exploitation will be found not in the complete rejection of technology, but in the short-circuiting of one kind of technology and the development of another.
As Max Read (scroll down) observes:
… if we understand A.I. as a product of the systems that precede it, I think it’s fair to say ubiquitous A.I.-generated text is “inevitable” in the same way that high-volume blogs were “inevitable” or Facebook fake news pages were “inevitable”: Not because of some “natural” superiority or excellence, but because they follow so directly from the logic of the system out of which they emerge. In this sense A.I. is “inevitable” precisely because it’s not revolutionary…
The question isn’t if we want a relationship with technology; it’s what kind of relationship we want. We’ve always (at least since we’ve been a conscious species) co-existed with, and been shaped by, tools; we’ve always suffered the “friction” of technological transition as we innovate new tools. As yesterday’s post suggested (in its defense of the open web in the face on a voracious attack from powerful LLM companies), “what matters is power“… power to shape the relationship(s) we have with the technologies we use. That power is currently in the hands of a relatively few companies, all concerned above all else with harvesting as much money as they can from “uses” they design to amplify that engagement and ease that monetization. It doesn’t, of course, have to be this way.
We’ve lived under modern capitalism for only a few hundred years, and under the hyper-global, hyper-extractive regime we currently inhabit for only a century-and-a-half or so, during which time, in fits and starts, it has grown ever more rapcious. George Monbiot observed that “like coal, capitalism has brought many benefits. But, like coal, it now causes more harm than good.” And Ursula Le Guin, that “we live in capitalism. Its power seems inescapable. So did the divine right of kings.” In many countries, “divine right” monarchy has been replaced by “constitutional monarchy.” Perhaps it’s time for more of the world to consider “constitutional capitalism.” We could start by learning from the successes and failures of Scandinavia and Europe.
Social media, AI, quantum computing– on being clear as to the real issue: “Geist in the machine & The prospect of Butlerian Jihad,” from @inevernu.bsky.social.
(All this said, David Chalmers argues that there’s one possibility that might change everything: “Could a Large Language Model be Conscious?” On the other hand, the ARC Prize Foundation suggests, we have some time: a test they devised for benchmarking agentic intelligence recently found that “humans can solve 100% of the environments, in contrast to frontier AI systems which, as of March 2026, score below 1%”… :)
* Ted Chiang (gift article; see also here and here and here)
###
As we keep our eyes on the prize, we might spare a thought for a man who wrestled with a version of these same issues in the last century, Pierre Teilhard de Chardin; he died on this date in 1955. A Jesuit theologian, philosopher, geologist, and paleontologist, he conceived the idea of the Omega Point (a maximum level of complexity and consciousness towards which he believed the universe was evolving) and developed Vladimir Vernadsky‘s concept of noosphere. Teilhard took part in the discovery of Peking Man, and wrote on the reconciliation of faith and evolutionary theory. His thinking on both these fronts was censored during his lifetime by the Catholic Church (in particular for its implications for “original sin”); but in 2009, they lifted their ban.
“Attention is the rarest and purest form of generosity”*…
… But that most valuable of gifts is being hijacked, subverted/converted into a commodity, and used to mold not just consumer behavior, but society-as-a-whole. We live in an attention economy, and its media/tech ownership landscape is becoming ever more consoldiated.
Kyla Scanlon unpacks the way in which concentrated ownership of media and tech and their automated manipulation reshape democracy…
It’s nearly impossible not to get lost in the news right now. I was at a wedding last week, and every conversation eventually drifted back to the same subject: the World We Are in and All That is Happening. The ground feels like it’s moving faster than anyone can feasibly keep up with.
Some people think the shift is progress. Others see collapse. Either way, the line between digital and physical life is increasingly blurry. What happens online is real life. What we consume is what we become.
Plenty of thinkers have circled this before – Postman, Debord, Huxley, Orwell on media; Machiavelli, Tocqueville, Thucydides, Gibbon on human corruptibility during times of uncertainty. The convergence of endless information and a ragebait economy creates the perfect environment for splintering how we understand the world and how we understand each other.
The deeper problem is this: we no longer trust institutions to provide truth, fairness, or mobility. Once, they were scaffolding that helped us climb from raw data to wisdom. And when that scaffolding gives out, people adapt: some over-perform in the status race (because you have to) and others defect from obligations altogether (why would I work for institutions if they don’t work for me).
There are a few ways to picture our distorted information ecosystem.
- The DIKW Pyramid (Data → Information → Knowledge → Wisdom): raw posts and clicks at the bottom, trending content in the middle, shared truths above that, and finally wisdom, the rare ability to see causes instead of just symptoms.
- Or the Ladder of Inference: we start with data, add meaning, make assumptions – and our beliefs tend to affect what data we select. Bots and algorithms hijack that ladder, nudging us toward polarized beliefs before we realize what’s happening.
Taken together, we can combine them into what we might call a hierarchy of information:
- Raw data: the endless stream of posts, likes, bot spam
- Information: headlines, hashtags, trending things
- Knowledge: the narratives we share and fight over.
- Understanding: recognizing what might not be real (or is hyperreal)
- Wisdom: systemic analysis, the ability to see causes instead of just symptoms.
Right now, we’re stuck sloshing around in the middle layers of the hierarchy: drowning in outrage, fighting over partisan hot takes, rarely reaching understanding, almost never wisdom.
Chaos always has an architect. And if we want to make sense of American democracy today, we need to understand who those architects are, and how they profit from confusion.
This polarization rests on media concentration.The Telecommunications Act of 1996 was sold as a way to increase competition in media and telecommunications, but in reality, it did quite the opposite. Within five years, four firms controlled ~85% of US telephone infrastructure. That deregulated spine carried today’s consolidation of the entire media environment – not just telephones. Newspapers. Social media. TV stations.
We have the increasing concentration of media ownership, the financialization of attention, and the transformation of information from a public good into a private commodity to be bought, sold, and manipulated…
[Scanlon characterizes and explains the concentration, examines its impacts, and unpacks the roles of bots…]
When manufacturing consensus is both cheap to produce and valuable to those who benefit from confusion, you get industrial-scale manipulation.
Truth becomes whatever can capture the most attention in the shortest amount of time. Traditional journalism, with its slow fact-checking and institutional processes, can’t compete with bot-amplified outrage. Democratic deliberation, which requires shared facts and good faith dialogue, becomes nearly impossible when the information environment is designed to maximize conflict.
We’re living in a speculation economy where perception drives value more than fundamentals. Look at the stock market: Nvidia gained $150 billion in value based the back of a $100 billion OpenAI investment (which OpenAI will use to buy more Nvidia chips). Ten companies pass hundreds of billions back and forth, and the S&P jumps like it’s measuring something real.
It’s all memes wearing suits. Meme stocks and Dogecoin at least looked like jokes; now the same speculative energy runs through the corporate core. Attention, perception, and narrative drive valuation more than production or profit.
We’ve built a world where the hierarchy of information has flipped upside down.
At the bottom, bots flood us with raw noise. In the middle, outrage and team narratives harden into “knowledge.” At the top, the ladders to wisdom like journalism, schools, civic discourse, shared institutions are weakened. The scaffolding that once helped us climb no longer holds.
The traditional solutions – fact-checking, media literacy, content moderation – assume we’re dealing with a content problem when we’re actually facing an infrastructure problem. You can’t fact-check your way out of a system designed to reward misinformation. You can’t educate your way around algorithms optimized for polarization. You can’t moderate your way past economic incentives that make confusion profitable.
Recognizing this as a market structure problem rather than an information problem changes everything. Instead of focusing on individual bad actors or specific false claims, you start thinking about the underlying systems that make manipulation both profitable and scalable.
The information wars are economic policy, determining how we allocate attention, structure incentives, and organize the flow of information that shapes every other market and political decision we make. I don’t think it’s useful to get on a Substack soapbox about this – but we need to take (1) the power of media seriously and (2) those trying to influence it extremely seriously. There is a way to get to the top of the information hierarchy! We don’t have to be stuck in these middle layers…
Follow the money: “Who’s Getting Rich Off Your Attention?” from @kyla.bsky.social
For more on how the Telecommunications Act of 1996 helped set all of this in motion, see: “On Jimmy Kimmel: It’s Time to Destroy the Censorship Machine and Repeal the Telecommunications Act of 1996” from @matthewstoller.bsky.social.
For more on thoughts on why companies are behaving in the ways they are: “Why Corporate America Is Caving to Trump” and “Media consolidation is shaping who folds under political pressure — and who could be next.”
And lest we think that this came out of nowhere: “David Foster Wallace Tried to Warn Us About these Eight Things.”
[Image above: source]
###
As we reclaim recognition, we might recall that on this date in 1452 an earlier information revolution began: Johannes Gutenberg started work on his Bible (which was completed and published in 1455). An inventor and craftsman, Gutenberg created the movable-type printing press, enabling a much faster (and cheaper) printing process. (Movable type was already in use in East Asia, but was slower and used for smaller jobs.) His Bible was his first major work, and his most impactful.
The printing press later spread across the world, leading to an information revolution– the unprecedented mass-spread of literature throughout Europe. It had a profound impact on the development of the Renaissance, Reformation, and Humanist movements.
“This massive ascendancy of corporate power over democratic process is probably the most ominous development since the end of World War II”*…
Food is a major topic of conversation these days. Americans feel that they’re paying more for less, with explanations ranging from rising production costs and supply chain disruptions, to concentration among suppliers leading to profit-gouging. In an excerpt from his new book, Barons: Money, Power, and the Corruption of America’s Food Industry, Austin Frerick reminds us that, while those issues are all too real, the emergence of food behemoths has brought other issues as well…
Like the broader Gilded Age economy that Walmart exemplifies and has played a role in shaping, the wealth in Bentonville obscures the hardship surrounding it. After all, the Walton family has so much money to spend on museums and bike trails because they have extracted it from the communities in which Walmart operates—from shoppers but also from the company’s employees, the towns themselves, and even from taxpayers through a series of hidden government subsidies.
For example, as Walmart expanded its traditional stores into Supercenters, it would often construct a new, larger building nearby instead of simply adding on to the existing one. Those old stores frequently sat empty or underused, just like the original Walmart in Rogers. That may be why Walmart openings have been linked to declines in nearby home values.
Walmart and other major retailers have made the situation even worse by including restrictive covenants in the deeds of old buildings, which prevent other retailers from using the space for competitive purposes. These provisions perpetuate food deserts and tie the hands of communities struggling to figure out what to do with these ghost buildings. After all, it’s not easy to find a use for an old Walmart that doesn’t involve grocery or retail. One former Walmart Supercenter in Brownsville, Texas, became the center of a national debate when it was bought by a firm detaining migrant children.
Limiting competition is apparently not enough for Walmart. The company understands what happens to communities when its stores are abandoned, and it uses this knowledge to leverage a tax break. The company often engages in what is known as the “dark stores” loophole, a tax dodge that lets it evade millions in property taxes by valuing its stores as if they were closed.
These shenanigans further tilt the scales in Walmart’s favor and deprive local communities of needed tax revenue. They are particularly egregious in light of the fact that many of their stores were built with massive taxpayer subsidies in the first place. Of course, this isn’t the only tax loophole the family has exploited. In 2013, Bloomberg reported that the family pioneered an estate tax loophole that is now widely used by American billionaires.
As bad as Walmart is for communities as a whole, it creates conditions that are particularly damaging for workers. As labor historian Nelson Lichtenstein noted, Sam Walton built a company rooted in a “southernized, deunionized post-New Deal America.” Walmart has long been defined by transnational commerce, employment insecurity, and poverty-level wages, which is an ironic geographic twist on history given that the region was at the heart of the New Deal and the antichain movement.
Walmart employs about 1.6 million people in the United States alone, making it the nation’s largest private employer. In fact, more people are on the company’s payroll than the populations of eleven states. The company’s impact on the labor market is so big that it drives down wages in the areas in which it builds Supercenters. In the words of one academic, Walmart effectively “determine[s] the real minimum wage” in the country. That’s why it’s national news when the company decides to raise wages.
From its founding, Walmart has been notorious for its poverty-level wages; in its early years, the company exploited a loophole in order to pay the mostly female store employees half of the federal minimum wage. It took a federal court battle for the workers to receive the minimum wage. In 2021, Walmart employees’ median income was about $25,000, whereas CEO Doug McMillon took home $25.7 million that year.
Given this history, it should come as no surprise that Sam Walton hated unions. “I have always believed strongly that we don’t need unions at Wal-Mart,” he stated in his memoir. Over the years, the company has aggressively fought efforts to unionize, and it seemingly closes stores whenever they gain traction. For example, after deli counter workers in a Texas Walmart Supercenter voted to unionize in 2000, the company switched to prepackaged meat and closed the department. In 2015, Walmart suddenly closed five stores to deal with what it said were extensive plumbing issues, which it said would take six months to fix. Some speculated that the real reason it closed the stores was to let the employees go as retaliation for labor activism.
And it’s not just labor laws that the company has eluded. A 2017 report based on a survey of over one thousand Walmart employees found that the company was likely violating worker protections such as the Americans with Disabilities Act and the Family and Medical Leave Act, among others. According to the New York Times, the company “routinely refuses to accept doctors’ notes, penalizes workers who need to take care of a sick family member and otherwise punishes employees for lawful absences.”
As the company’s power grew, it reshaped labor options and norms for millions of Americans. Gary Chaison, a labor expert, told the New York Times in 2015, “What you’re increasingly finding is that it’s the primary wage earners who work at Walmart, because a lot of workers have more or less given up on getting middle-class jobs.” Meanwhile, many older Americans are working at the store past the normal retirement age because of their financial insecurity, a sad reality reflected by the recent TikTok trend of elderly Walmart employees asking for donations.
This power imbalance between Walmart and its employees explains the poverty-level wages for many of Walmart’s 1.6 million workers but also for employees of its competitors. Some unionized grocery stores have even used the opening of a Supercenter as an excuse to demand cuts to their own employees’ wages and benefits.
These low wages also obscure a generous hidden subsidy that the company receives from taxpayers. Many Walmart workers depend on government public assistance programs such as Medicaid (health care), the Earned Income Tax Credit (a low-wage tax subsidy), Section 8 vouchers (housing assistance), LIHEAP (energy assistance), and SNAP (food assistance), among others. In 2013, one estimate by congressional House Democrats found that taxpayers subsidized Walmart to the tune of more than $5,000 per employee each year through all of the government assistance programs that its workers need.
In effect, instead of paying a living wage to these employees, the Walton family shifts the burden onto taxpayers. Although many people may recoil at the idea of the public filling the gap between Walmart’s pay and the income its workers need to survive, not all policymakers see an issue with this sort of billionaire welfare. Jason Furman, former chair of the Council of Economic Advisers under President Obama, wrote a paper before joining the administration titled “Wal-Mart: A Progressive Success Story” that called for even more of these subsidies to Walmart’s bottom line.
There is, of course, another way to address the issue. Walmart failed to establish dominance in Germany because of the country’s strong labor protections and antitrust guardrails. These market protections may explain why the company eventually threw in the towel and sold off its operations there.
In some instances, Walmart even receives a double subsidy. Its workers and shoppers frequently rely on SNAP, the Supplemental Nutrition Assistance Program, formerly known as “food stamps.” The program originated as part of the New Deal as a temporary measure and was made permanent by President Lyndon Johnson in a bill signed in 1964. This program and several smaller food assistance programs are now part of the Farm Bill. In fact, these food assistance programs make up more than 75 percent of the most recent Farm Bill.
SNAP is in many ways a triumph of progressive social policy, with an average of 41.2 million people participating in the program each month in 2022. The use rate is so high because, unlike many other programs, SNAP was structured by the US Congress so that anyone who qualifies is guaranteed to receive assistance. As a result, the program is a lifeline for millions of Americans who might otherwise struggle to put food on the table.
But because of Walmart’s dominance of the grocery sector, a very large portion of SNAP dollars now run through the company’s cash registers. In 2013, the company received $13 billion in sales from shoppers using SNAP. By comparison, farmers markets took in only $17.4 million of all SNAP spending that same year. The amount of SNAP money received by the company surged with the expansion of SNAP benefits in response to the COVID-19 pandemic. With some back-of-the-envelope math, I came up with a rough estimate that Walmart now receives somewhere around $26.8 billion each year from SNAP.
Unfortunately, more concrete numbers are not available because the US Supreme Court has ruled that the amount of taxpayer money that the company receives from SNAP can be kept secret. In 2019, the Court heard a case involving the USDA’s decision to deny a request by a South Dakota newspaper for this information. “Most of the time, the government tells the public which companies benefit from federal dollars earmarked for taxpayer-funded public assistance programs,” agriculture and food reporter Claire Brown noted. “We know which insurance companies make the highest profits from Medicare and Medicaid, for example, and those figures have been used to pressure them to offer better options to their clients.” But in this instance, the Court rejected this level of transparency, with Justice Elena Kagan joining the Republican-appointed members of the Court to uphold the USDA decision under the notion that it was “confidential” business information.
The program is important enough that it factors into Walmart’s operational decision-making. Many Americans enrolled in SNAP schedule their trips to the grocery store around the days when their funds get deposited. In fact, the company factors this bump into its ordering system…
Expensive food is only one of the prices we pay to “Food Barons“– @AustinFrerick in @ProMarket_org.
* “This massive ascendancy of corporate power over democratic process is probably the most ominous development since the end of World War II, and for the most part “the free world” seems to be regarding it as merely normal.” – Wendell Berry, Bringing it to the Table: On Farming and Food
###
As we ponder the point at which profit becomes predation, we might recall that it was on this date in 1950 that Hormel registered the name and trademark “Spam” for its canned meat product. It is also interesting to note that the company had marketed the product since 1937, and only felt the need to protect the name 13 years later.
“Old ways of thinking die hard, particularly when they were weaned by legally enforced monopolies”*…
According to the US Bureau of Labor Statistics, from 2000 to present, prices in the hospital industry have grown faster than prices in any other sector of the US economy. The $1.3 trillion US hospital sector accounts for 6% of US GDP, nearly a third of all health care spending (which is materially higher as a share of GDP in the U.S. than in any other country). The average price for an inpatient hospital stay is $25,000.
A new working paper from the NBER assesses the impact of these rising costs. From its abstract:
We analyze the economic consequences of rising health care prices in the US. Using exposure to price increases caused by horizontal hospital mergers as an instrument, we show that rising prices raise the cost of labor by increasing employer-sponsored health insurance premiums. A 1% increase in health care prices lowers both payroll and employment at firms outside the health sector by approximately 0.4%. At the county level, a 1% increase in health care prices reduces per capita labor income by 0.27%, increases flows into unemployment by approximately 0.1 percentage points (1%), lowers federal income tax receipts by 0.4%, and increases unemployment insurance payments by 2.5%. The increases in unemployment we observe are concentrated among workers earning between $20,000 and $100,000 annually. Finally, we estimate that a 1% increase in health care prices leads to a 1 per 100,000 population (2.7%) increase in deaths from suicides and overdoses. This implies that approximately 1 in 140 of the individuals who become fully separated from the labor market after health care prices increase die from a suicide or drug overdose.
– NBER WORKING PAPER SERIES- WHO PAYS FOR RISING HEALTH CARE PRICES? EVIDENCE FROM HOSPITAL MERGERS
Four of the authors of that paper looked more deeply into the issue, exploring why those costs are rising; they identified consolidation in the hospital sector– 90% of hospital markets are now highly concentrated, according to the thresholds set by the FTC and the U.S. Department of Justice– as a key culprit:
The study, conducted in collaboration with researchers at Harvard University, Yale University, and the University of Wisconsin-Madison, found that of 1,164 mergers among the nation’s approximately 5,000 acute-care hospitals that occurred in the United States from 2000 to 2020, the Federal Trade Commission (FTC), which is tasked with preserving competition, challenged only 13 of them — an enforcement rate of about 1%.
Meanwhile, the researchers show that the FTC, using standard screening tools available to the agency during that period, could have flagged 20% of the mergers — 238 transactions — as likely to cause reduced competition and increase prices…
Unchallenged hospital mergers should have had minimal effects on competition and prices if the FTC were optimally targeting enforcement, the researchers noted. However, using data on the prices that hospitals negotiate with private insurers, the researchers found that mergers the FTC could have challenged as predictably anti-competitive between 2010 and 2015 eventually led to price increases of 5% or more.
The researchers estimate that the 53 hospital mergers that occurred on average annually from 2010 to 2015 raised health spending on the privately insured by $204 million in the following year alone. Putting this spending increase in context, the researchers note that the FTC’s average annual budget and antitrust enforcement budget between 2010 and 2015 were $315 and $136 million, respectively…
The study found that mergers in rural regions and areas with lower incomes and higher rates of poverty generated larger average price increases, often in outpatient services. The researchers suggest this occurred because those regions — compared with higher income, urban settings—have fewer free-standing clinics that offer surgical and imaging services that compete against hospitals in the outpatient market…
Consolidation in Hospital Sector Leading to Higher Health Care Costs
As Cory Doctorow succinctly observes…
The health system is a perfect example of how monopolization drives more monopolization, and how that comes to harm the public and workers. Health consolidation began with pharma mergers, that led to pharma companies gouging hospitals. Hospitals, in turn, engaged in a nonstop orgy of mergers, which created regional monopolies that could resist the pricing power of monopoly pharma – and screw insurers. That kicked off consolidation in insurance, which is why most Americans have a “choice” of between one and three private insurers – and why health workers’ monopoly employers have eroded their wages and working conditions.
How consolidation in the hospital sector is increasing healthcare prices and creating even steeper costs more broadly in the economy. @nberpubs @AEAjournals @doctorow
* Mitch Kapor
###
As we measure our blood pressure, we might send concerned birthday greetings to Janette Sherman; she was born on this date in 1930. A physician, toxicologist, author, and activist. She researched pesticides, nuclear radiation, birth defects, breast cancer, and illnesses caused by toxins in homes and was a pioneer in the field of occupational and environmental health.
Dr. Sherman served as a medical-legal expert witness in more than 5,000 workers’ compensation claims and served as an expert witness for residents in communities affected by environmental hazards, most famously the Love Canal neighborhood of Niagara Falls, N.Y. Her medical-legal files, among the largest collections of their kind in the United States, are preserved at the National Library of Medicine at the National Institutes of Health in Bethesda, Md.
“Success is in making money, not in the size of the airline”*…
Airlines make more money from mileage programs than from flying planes—and it shows. Ganesh Sitaraman explains…
… From the late 1930s through the ’70s, the federal government regulated airlines as a public utility. The Civil Aeronautics Board decided which airlines could fly what routes and how much they could charge. It aimed to set prices that were fair for travelers and that would provide airlines with a modest profit. Then, in 1978, Congress passed a sweeping law deregulating the airline industry and ultimately abolishing the CAB. Unleashed from regulation, airlines devised new tactics to capture the market. American Airlines was one of the most aggressive. In the lead-up to the deregulation bills, it created discount “super saver” fares to sell off the final few remaining seats on planes. That meant cheap prices for last-minute travelers and more revenue for American, because the planes were going to take off whether or not the seat was filled. But these fares upset business travelers, who tended to buy tickets further in advance for higher prices. So in 1981, American developed AAdvantage, its frequent-flier program, to give them additional benefits. Other airlines followed suit.
In the early years, these programs were simple, like the punch card at a café where your 11th coffee is free. But three big changes transformed them into the systems we know today. First, in 1987, American partnered with Citibank to offer a branded credit card that offered points redeemable for flights on the airline. Second, in the ’90s, the airlines proliferated the number of fare classes, charging differential prices for tickets. With more complicated fare structures came the third change: Virgin America realized that the amount people spend on a flight, based on the fare class, is more important to their bottom line than the number of miles flown. So, in 2007, it introduced a loyalty program rewarding money spent rather than mileage accrued.
These three shifts fundamentally transformed the airline industry. They turned frequent-flier systems into the sprawling points systems they are today. And they turned airlines into something more like financial institutions that happen to fly planes on the side.
Here’s how the system works now: Airlines create points out of nothing and sell them for real money to banks with co-branded credit cards. The banks award points to cardholders for spending, and both the banks and credit-card companies make money off the swipe fees from the use of the card. Cardholders can redeem points for flights, as well as other goods and services sold through the airlines’ proprietary e-commerce portals.
For the airlines, this is a great deal. They incur no costs from points until they are redeemed—or ever, if the points are forgotten. This setup has made loyalty programs highly lucrative. Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone. A 2020 analysis by the Financial Times found that Wall Street lenders valued the major airlines’ mileage programs more highly than the airlines themselves. United’s MileagePlus program, for example, was valued at $22 billion, while the company’s market cap at the time was only $10.6 billion.
Is this a good deal for the American consumer? That’s a trickier question. Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. Certainly the system is bad for Americans who don’t have points-earning cards. They pay higher prices on ordinary goods and services but don’t get the points, effectively subsidizing the perks of card users, who tend to be wealthier already.
…
The strange evolution of airlines into quasi-banks reflects how badly deregulation has gone. Regulation carefully set the terms under which airlines could do business. It was designed to ensure that they remained a stable business and a reliable mode of transportation. Deregulation, in turn, allowed the airlines to pursue profits in whatever way they could—including getting into the financial sector.
The proponents of deregulation made a few big promises. The cost of flying would go down once airlines were free to compete on price. The industry would get less monopolistic as hundreds of new players entered the market, and it would be stable even without the government guaranteeing profitable rates. Small cities wouldn’t lose service. In the deregulators’ minds, airlines were like any other business. If they were allowed to compete freely, the magic of the market would make everything better. Whatever was good for the airlines’ bottom line would be good for consumers.
They were wrong. As I explain in my forthcoming book, most of their predictions didn’t come true, because air travel isn’t a normal business. There are barriers to entry, such as the fixed supply of airport runways and gates. (And, for that matter, mileage programs, designed to keep customers from ditching an established airline for a rival.) There are network effects and economies of scale. There are high capital costs. (Airplanes aren’t cheap.) The idea that anyone could successfully start an airline and outcompete the big incumbents never made much sense.
After a relatively short period of fierce competition, the deregulated era quickly turned to consolidation and cost-cutting, as dozens of airlines either went bankrupt or were acquired. Service keeps getting worse, because the airlines, facing little competition, have nothing to fear from antagonizing passengers with cramped legroom, cancellations, and ever-multiplying fees for baggage and snacks. Worse still, without mandated service, cities and regions across the country have lost commercial air service, with serious consequences for their economies. And when a crisis like 9/11 or the coronavirus pandemic comes along, the airlines—which prefer to direct their profits to stock buybacks rather than rainy-day funds—need massive financial relief from the federal government.
Deregulation even failed to deliver the one thing it is sometimes credited with: lowering prices. Airfare did get cheaper in the years after the 1978 deregulation law. But the cost of flying had already been falling before deregulation, and it kept falling after at about the same rate.
The old system of airline regulation wasn’t perfect. Barred from competing directly on price, the airlines got into an amenities arms race that notoriously included in-flight piano bars. But the cure was worse than the disease. The industry went from being a regulated oligopoly, which had real problems, to an unregulated oligopoly, which we are now seeing is much worse…
Painful reading: “Airlines Are Just Banks Now” (gift article) from @GaneshSitaraman in @TheAtlantic.
* Gordon Bethune (Long-time chair of Continental Airlines)
###
As we pray for an aisle seat, we might console ourselves that at least we’re not boarding the S.S. Minnow; on this date in 1964 Gilligan’s Island premiered on CBS. Seven castaways– five paying passengers who’d booked a “three hour tour” from Honolulu, and their two-person crew– spent the next three seasons marooned on an uncharted island.
You must be logged in to post a comment.