New York’s Workman’s Comp Swamp as Economic Indicator

While there is a lot of irrational animus against government nowadays, some agencies seem tailor-made to provoke public ridicule and scorn. Kudos to N.R. Kleinfeld and Steven Greenhouse for investigating a tragically cronified bureaucracy at the New York State Workers’ Compensation Board:

Workers’ compensation systems across the country are troubled, and reform efforts are under way here. But New York, a pioneer of the concept and home to the nation’s second-largest system, has some signature claims to dysfunction and is widely recognized as the most adversarial.

Though its commissioners largely function as a legal tribunal, most are not lawyers but relatives or allies of politicians, appointed usually without regard to experience in the field.

Though many cases turn on medical evaluations, the board has not had its own medical director for nearly a decade. Decisions are often driven by the opinions of doctors certified by the state as so-called independent medical examiners. Yet claimant lawyers and treating doctors say these examiners often understate workers’ ailments to win business from the insurers who pay them. . . . [E]verywhere the system tolerates delays that can make the injured wait months or years for money and care. . . . “A lot of it is meatball justice” [said one lawyer named Anthony Pizza].

Sadly, this process is becoming ever more common in the US, as endless lines become de facto rationing mechanisms for veterans’ benefits and SSDI payments. The chaotic structure of the NY Board reminds me of Simon Johnson’s must-read article on the financial crisis–particularly the sections on elites’ taste for chaos.

Commenting on the parallels between the US and established crony-capitalist orders, Johnson mentions the Russian experience:

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

James K. Galbraith’s parallel work on this topic–entitled The Predator State–has been written off in some quarters as the biased product of a left-wing economist. Yet when Johnson, an experienced hand at the highest levels of the IMF, begins observing the same parallels, it’s harder to dismiss people like Galbraith. As Johnson notes, in economies in crisis like our own,

Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

Workman’s comp claimants may be an easy mark for such a squeeze–many are too dispirited to rally against the injustices in the system. But if neglect of veterans’ claims remains at Bush-era levels, we should not be surprised by a 21st century Bonus Army.

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