What Lies Beneath: The Inequality-Commodification Nexus

There’s a glowing review of Robert Frank’s Falling Behind in the NYT. In case you’ve found my series a bit too diffuse (here are parts one, two, three, and four), just take a look at it for Frank’s main arguments. Here’s a taste:

Like politics, all relative deprivation is local. What does this societywide arms race for goods have to do with income inequality? Frank trots out sobering data. Between 1949 and 1979, the rising tide of the American economy lifted all boats more or less equally. In fact, the incomes of the bottom 80 percent grew more rapidly than the incomes of the top 1 percent, and those of the bottom 20 percent grew most rapidly of all. But since 1979, gains have flowed disproportionately to top earners. In an economy where the wealthy set the norms for consumption and people at every rung strain to maintain the consumption of those just above them, that spells trouble.

The review focuses on how conspicuous consumption of observable goods, like cars and houses, drives up the standard of “adequacy” for everyone. Economist Ori Heffetz has even developed a “vindex” to measure the degree of visibility of such goods. Though these spending dynamics are certainly important, I suspect that more invisible forms of commodification may be even more disturbing than Frank’s narrative.

For example, one example of positional competition is the culture of cosmetic surgery and cosmetic dentistry. This growing industry promotes the commodification of appearance–and, more importantly, spurs demand by marketing (and creating) ever-more-unattainable standards. Its results are certainly visible–it’s hard to imagine a good whose value so completely depends on its apperance. But what lies beneath it?

The uncomfortable answer is: a reallocation of societal resources from meeting basic biomedical needs (such as the alleviation of suffering) to serving artificial desires driven by competition and marketing.

Consider, for instance, recent controversies over the Medicaid reimbursement rates for dental care. After a Maryland child died from an abscessed tooth, Congressional hearings investigated why his mother had such a difficult time finding a dentist willing to treat him. As Yale tax professor Anne Alstott observed, “In congressional testimony, one Maryland dentist reported that his staff called 748 dentists listed as Medicaid providers and found that only 23 percent would take new Medicaid patients.”

Alstott further notes that “In 1999, Maryland’s Medicaid payments for common dental procedures ranged from 37 percent to 73 percent of the market rate; a 2000 state-by-state report by the Government Accountability Office documents that such below-market rates are the norm.” She therefore argues that states need to “pay dentists who fix poor people’s teeth the same rate they get for taking care of anyone else.”

This may seem like an elegant solution. But the distribution of dentist incomes has become bimodal, with higher income accruing to those concentrating on cosmetic procedures. More and more dentists are shooting for this higher-end market, leaving the lower end behind. If more dentists can get wealthy persons to pay them thousands of dollars for removing flecks from their teeth, they may not need to work the rest of the day–whatever the Medicaid reimbursement rate is. And as the number of millionaires skyrockets, you can count on more and more demand for higher-end services. And those who can’t pay for the fleck-removal are ever more efficiently identified as not being part of the “upper crust.”

Alstott suggests that there is a set “market price” for dental procedures, which government must catch up with. But in a “winner-take-all-society,” those with means may endlessly win a bidding war against those reliant on government payments–even if they command relatively trivial procedures compared with the desperate need of the poor. As Robert Frank has shown in other work, the expected value of a career serving the higher end may appear much higher than a safer, more pedestrian one.

I like to think of the dilemmas here as evidence of a “commodification/inequality nexus.” To the extent you live in a society where the time of medical professionals is allocated according to professional or medical norms (and not according to the whims of the highest bidder), you don’t really need to worry about inequality disturbing your expectations in that aspect of your life. But to the extent medical professionals’ time is frankly commodified and distributed according to ability-to-pay rather than medical need, you should be very concerned about your rank in the distribution. The awesome rationing power of money may leave you without care.

Of course, the classic market response here is: won’t the higher demand for dentists or doctors just lead to more of them? That leads us to the crux of the inequality-commodification nexis: the purchase of influence in Washington. As Milton Friedman argued long ago, medical licensure can be explained not simply as a public safety measure, but also as a rational move of a cartel designed to keep prices high. You can count on lax campaign finance laws to preserve that influence and hamstring efforts to increase the doctor supply. Generalized attacks on taxes also help to undermine funding for the education of doctors, dentists, and nurses.

(By the way, for anyone wondering “what does this have to do with the law,” the answer is: everything. The FTC chose, in some rather questionable antitrust enforcement actions, to rein in the licensing restrictions issued by boards that could have limited the number of plastic surgeons. Relaxation of limits on advertisements by physicians also helped spur the boom in cosmetic surgery, as Deborah Sullivan has noted in her book on the topic. Finally, ongoing battles between doctors and insurance companies made cash-only practices like cosmetic surgery all the more alluring.)

In any event, the commodification/inequality nexus provides a good jumping off point for my next piece in the Robert Frank series, analyzing the plausibility of Frank’s proposed solution to the problems caused by inequality: a steep tax on consumption over about 500K per year. As you might guess, I think the political dimensions of the commodification/inequality nexus make that a very difficult sell in Washington.

Hat Tip: Ezra Klein.

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