Summary: Don Berwick, who will soon become the head of the Centers for Medicare and Medicaid, has declared himself an “extremist” insofar as he is a passionate advocate of “patient-centered care.” Earlier this week, Ezra Klein used the declaration to make a provocative argument that Don Berwick is, in fact, a conservative. Congressional right-wingers should be happy, even if they don’t know it yet.
There is much to like about Klein’s argument, though in the end I have to disagree. There is an enormous difference between “consumer-driven medicine” which appeals to conservative free marketers, and “patient-centered medicine” grounded in the more liberal idea of shared decision-making. Ultimately, patient-centered medicine is about sharing information. It’s also about respect and empathy. Ideally ,Berwick says, medical decisions should be based on medical evidence, but, after discussion, physicians should yield to an individual patient’s preferences, and his right to choose what happens to his own body, even if that means that he doesn’t “comply” with the doctors’ recommendations.
If we accede to patients’ wishes, won’t that mean that they’ll bankrupt the system? No, Berwick observes, experience suggests that informed patients are likely to want less care, not more.
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In an essay titled “What “Patient Centered” Should Mean: Confessions of an Extremist,” published in Health Affairs online, earlier this spring, Dr. Donald Berwick, the newly appointed director of the Centers for Medicare and Medicaid (CMS), argues that in a patient-centered practice “the needs and wants of the patient should come first.”
Anticipating criticism, he asks a provocative question: "Should patient ‘wants’ override professional judgment about whether an MRI is needed?" he asks. "My answer is, basically, 'Yes.'”
Earlier this week, the Washington Post’s Ezra Klein quoted these lines to argue that conservatives should be happy that Berwick will be taking the top post at CMS: Berwick is actually one of them:
“Insofar as Berwick is a radical, he's a radical in believing that vastly more power has to be devolved to the judgments, preferences and desires of patients.” Klein wrote, and again quotes the Harvard pediatrician: “An overarching aim for an ideal practice [is] that its patients would say of it, 'They give me exactly the help I need and want exactly when I need and want it.'”
“This view is traditionally associated with conservatives, not liberals, Klein added. “Liberals tend to believe that the doctor is, and should be, the primary decision maker, and so the way to reduce costs across the health-care system is to change the doctor's incentives, give her more information about the efficacy of treatments, give her fewer financial incentives to err on the side of expensive interventions rather than watchful waiting.”
But Klein continued, “Berwick doesn't agree. He believes the focus should be on giving the patient the information, incentives and ability to make their own decisions in consultation with their doctor.”
Klein then comes to Berwick’s question about whether the patient’s desire for an MRI should override professional judgment, and concludes that “Berwick is something of a bulwark against the sort of rationing conservatives fear. He wants patients elevated above either government or providers. . . . Conservatives have scored a big win here, even if they don't know it yet.”
What Will Conservatives Make Of This?
What I like about Klein’s argument is that it follows one of the first rules of combat: “Confuse your enemies.” Make no mistake, the battle between health care reformers and hard-line conservatives has just begun, and Klein’s column must have left many conservatives scratching their heads.
But I’m concerned that Klein might also confuse some liberals. When Berwick talks about giving a patient the MRI he wants, he is not talking about simply casting evidence-based medicine aside in order to satisfy patient demands. In the essay published in Health Affairs, Berwick explains: “I contemplate . . . a mature dialogue, in which an informed professional engages in a full conversation about why he or she—the professional—disagrees with a patient’s choice.”
In Berwick’s view, a physician shouldn’t just say “No, you don’t need it. Trust me, I’m the doctor.” Patient-centeredness means talking to the patient about why he thinks he needs the test, giving him a chance to express his anxiety. Maybe the patient is scared; maybe his brother died of a brain tumor. At that point, a patient-centered doctor would engage in a dialogue with the patient, explaining why he doesn't think the MRI is indicated in this case. At that point, if the patient feels that the doctor has listened to him, most patients would accept the physician’s advice .
But if one patient persists, convinced he needs the MRI, ultimately Berwick would give it to him. A combination of compassion and respect for the fact that only the patient can know if this headache “feels different” from any headache he has ever had, drives the decision to say “Yes.” I would add that, at the very least, the test might well have a placebo effect—i.e. the headache the patient thought was a brain tumor will fade. That would be worth the price of the MRI.
But Berwick acknowledges: “If, over time, a pattern emerges of scientifically unwise or unsubstantiated choices—like lots and lots of patients’ choosing scientifically needless MRIs—then we should seek to improve our messages, instructions, educational processes, and dialogue
In other words, while it does little harm to give one patient an unnecessary MRI, doctors shouldn’t be giving MRIs to “lots and lots of patients” even if MRIs are all the rage. If many patients are insisting on the test, physicians should take this as a signal that they need to do a better job of educating patients, and explaining why over-testing can lead to over-diagnosis and overtreatment of what some physicians call “pseudo disease.” It’s not just that overtreatment is a waste of health care dollars; it puts patients at risk.
Moreover, Berwick admits that in some cases a physician must deny the patient’s request:
“I can imagine just as easily as my critics can a crazy patient request—one so clearly unreasonable that it is time to say, ‘No.’ A purely foolish, crazy, or venal patient’s wants should be declined. But my wife, a lawyer, told me long ago the aphorism in her field: ‘Hard cases make bad law.’ So it is in medicine: ‘Exceptional cases make bad rules.’ You do not successfully rebut my plea for extreme patient-centeredness by telling me that, on rare occasions, we ought to say, ‘No.’
“I say, ‘Your’ rare occasions’ make for very bad rules for the usual occasions.” In other words, a physician shouldn’t make “No” bhis knee-jerk response. Physicians shouldn’t let themselves become petty bureaucrats who automatically say “No” to every request. (Often, the bureaucrat takes pleasure in his power.) Medicine is a service profession, Berwick insists, and the question the physician should always be asking is “How can I help you?’ Helping,” he writes “not the enforcing of restrictions, is tonic for our souls.”
But what about a physician’s professional duty to serve as a steward of social resources—and scarce health care dollars? Here, Berwick points out that we have little evidence that patients’ demands drive overtreatment. Sure, there are patients who will ask for an MRI; others will want a drug that they saw on TV. But few patients demand that someone crack their chest open, or insist that they be hospitalized. Most would prefer to die at home, rather than in a hospital, undergoing yet another round of chemo. These are the big-ticket items. (Relatives may push for “more,” but the patient who is going to endure the pain and the side-effects is rarely a glutton for punishment, especially if a palliative care specialist has spelled the likely benefits and potential risks of further treatment.)
Berwick observes that patients are often more conservative than their doctors. Research done by Annette O’Connor and colleagues shows that when patients who have been told that they are candidates for elective surgery are given full information about the upside and downside of treatment —and an opportunity to share in the final decision—23 percent decide not to go under the knife. The Dartmouth research also suggests that “supply drives demand, not the other way around,” Berwick notes. Traditionally, doctors and hospitals tell patients what they need, and patients accede.
Fear that patient-centered medicine could lead to an epidemic of unnecessary, wasteful treatments is probably overblown. Or as Berwick puts it “Pandora’s box may be empty.”
Indeed, the patient-centered approach—giving patients what they want and need—means accepting the fact that patients may well say “no” to a physician’s recommendations. In such cases, they risk being labeled “noncompliant”—a word Berwick dislikes. “I wish we would abandon the word ‘noncompliance.’ he writes. “ In failing to abide by our advice or the technical evidence, the patient is telling us something that we need to hear and learn from. Honestly, how many of us have ever . . . skipped a statin dose? Are we fools who did that? Or did we choose that because of some sensible, local considerations of balance, convenience, or even symptom information that the doctor never had?”
In the case of statins, a great many patients are listening to what their own bodies are telling them: for some, deep muscle pain and other side effects just aren’t worth the possible benefits to staying on the drug.
Patient-Centered Medicine vs. Consumer-Driven Medicine
In order to make his argument, Klein winds up stretching a few points, and this is where he might confuse progressives..
For example, he suggests that “liberals tend to believe that the doctor is, and should be, the primary decision maker, and so the way to reduce costs across the health-care system is to change the doctor's incentives, give her more information about the efficacy of treatments, give her fewer financial incentives to err on the side of expensive interventions.”
In truth, liberals such as Berwick or the Dartmouth researchers believe in “shared decision-making,” (see the Foundation for Informed Medical Decision-Making website here ) which means giving the patient the same information that the physician has about the comparative effectiveness of various treatments. They do not believe that the physician should be the “primary decision-maker.” The doctor-patient relationship depends on mutual trust and respect; neither is “above” the other, though ultimately the physician will respect the patient’s choices.
As liberal healthcare economist Victor Fuchs explains: “The patient-physician relationship is very different from the one that we accept in commercial marketplaces because it requires patients and health professionals to work cooperatively” (rather than as adversarial buyers and sellers). Fuchs points out, patient and doctor must collaborate, with the doctor bringing his medical knowledge and experience to the table, while the patient contributes her knowledge of herself and her body as well as what she hopes, what she fears, what she is willing to wager, and what she is not willing to risk. .
Klein also argues that Berwick “wants patients elevated above either government or providers,” and that in this, he sides with conservatives. “In general, liberals have opposed consumer-driven medicine . . . “Berwick is attempting to rescue it, presenting it instead as a way to create a more humane health-care system.”
First, there is an enormous difference between “patient-centered medicine” and “consumer-driven medicine.” Klein is right that many free marketers are drawn to the idea of “consumer-driven medicine.” The notion that “the consumer” should be in the driver’s seat is grounded in an ideology that says free market competition should decide which treatments we receive. Sellers (i.e. health care providers) are expected to fashion their product to meet the desires of the buyer in a world where the customer is always right.
Consumer-driven Medicine is probably best defined by Harvard Business School professor Regina Herzlinger, who Money magazine has named the “godmother” of consumer-driven medicine.) In her book Market-Driven Medicine Herzlinger defines “smart consumers” as people who want “top quality, fast delivery, and excellent service—all of the time. They do not want to play games. A furniture retailer notes that American shoppers say, ‘I want it the way I want it and when I want it—and I want it instantly.’”
Above all, Herlzinger believes that health care consumers should demand “convenience, control and choice" Control or “mastery” places second on Herzlinger’s list of priorities. Here she praises “health care activists” such as Janine Jacinto Sharkey, who told Town and Country magazine how she custom-designed the types of incisions that her surgeon used to remove her breast cancer tumor, faxed questions that arose from her research about breast cancer to her surgeons, and even selected the classical music to be played in the operating room. Notes Sharkey: “I’m not the kind of person to sit there and allow someone else to dictate to me. I question. I’m involved.”
This is not what Berwick has in mind. For one, consumer-driven medicine leaves little room for evidence-based medicine. It ignores the need for dialogue, or the idea that the patient can learn from the physician, just as the physician learns from the patient. Secondly, Berwick doesn’t see the patient as a shopper, nor does he view the physician as a salesman, eager to beat the competition by delivering whatever the patient “wants”—regardless of his or her medical needs. Patient centered medicine aims to meet both the wants and the needs of someone Berwick views not as a “the buyer, ” but as a human being who needs help.
As for the government’s role, Berwick believes it is to make public policy using medical research. He writes: “Through modern clinical epidemiology, technology assessment, and clinical research, we have developed powerful new tools to assemble, digest, and judge the evidence-base for clinical practice. Rational care plans can emerge, based firmly in scientific evidence, and drawing on research published in hundreds of journals that serve as the basis for the expert opinions and guidance of professional medical societies."
At the same time, he would not impose comparative-effectiveness research (CER) on doctors and patients. Government should offer guidelines, not rules: “Mandatory compliance with CER directives could be dangerous, if you overdo the tightness of the connection between the knowledge of effectiveness and the rules of compliance. Then you get into the ‘proletarianization’ of medicine — physicians, payers, and patients being told what to do instead of being able to use their own judgment. There’s a balance here between advisory declarations with enough knowledge that they really have some force, and requirements.”
Conservatives, by contrast, don’t like the idea of “guidelines” and many tend to be wary of science. They prefer that medicine remain mired in custom, habit, doctors’ druthers, and patient demands –as long as the patient has the money to pay the tab.
As Berwick points out, that is how we ration care today—“blindly”, by ability to pay, without regard to patients’ medical needs. He would ration care “eyes wide open,” looking at the individual patient, the pro’s and con’s of the treatment. This is, I would submit, “patient-centered” rationing.
The Heart of Patient-Centered Practice
But in the end, for Berwick, patient-centered medicine has less to do with how much treatment the patient receives, and more to do with how he or she is treated. He begins “What Patient-Centered Should Mean: Confessions of An Extremist” with an anecdote that cuts to the heart of the phrase (*Bolding added by MM):
“Three years ago, a close friend began having chest pains. She headed for a cardiac catheterization, and, frightened, she asked me to go with her. As I stood next to her gurney in the pre-procedure room, she said, ‘I would feel so much better if you were with me in the cath lab.’ I agreed immediately to go with her.
“The nurse didn’t agree. ‘Do you want to be there as a friend or as a doctor?’ she asked.
“’I guess both, I replied. ‘I am both.’
"’It’s not possible. We have a policy against that,’ she said.
“The young procedural cardiologist appeared shortly afterward. ‘I understand you want to have your friend in the procedure room,’ she said. ‘Why?’
"’Because I’d feel so much more comfortable, and, later on, he can explain things to me if I have questions,’ said my friend.
"’I’m sorry,’ said the cardiologist, ‘I am just not comfortable with that. We don’t do that here. It doesn’t work.’
"’Have you ever tried it? I asked.
"’No,’ she said.
"’Then how do you know it doesn’t work?’ I asked.
"’It’s just not possible,’ she answered. ‘I am sorry if that upsets you.’
“Moments later, my friend was wheeled away, shaking in fear and sobbing.
“What’s wrong with that picture?”
“Most doctors and nurses, I fear, would answer that what is wrong with that picture is the unreasonableness of my friend’s demand and mine, our expecting special treatment, our failure to understand standard procedures and wise restrictions, and our unwillingness to defer to the judgment of skilled professionals.
“I disagree. I find a lot wrong with that picture, but none of it is related to unreasonable expectations, special pleading, or disrespect of professionals. What is wrong is that the system exerted its power over reason, respect, and even logic in order to serve its own needs, not the patient’s. What is wrong was the exercise of a form of violence and tolerance for untruth, and—worse for a profession dedicated to healing—needless harm.
“The violence lies in the forced separation of an adult from a loved companion. The untruth lies in the appeal to nonexistent rules, the statement of opinion as fact, and the false claim of professional helplessness: ‘impossibility.’ The harm lies in increasing fear when fear could have been assuaged with a single word: ‘Yes.’”
Inevitably, some doctors will protest “We can’t cater to each patient’s whims and desires. We’re already too busy; it would take too much time.” But Berwick argues that controlling the patient, directing the patient, chastising the non-compliant patient, treating the patient as a child, restricting the patient . . . . all of this also takes time, and enormous energy –most of it negative. It is exhausting.
Saying “yes” is “the best tonic,” Berwick argues, not only for the patient, but for the doctor. Saying “no” forces the doctor to distance himself from the patient, and what the patient is feeling, in an unnatural way: “threats to the health of the professions come far more from denying our basic instincts to help than from embracing them. What undergirds authentic patient-centeredness are the very same words we use when we first came to the patient’s side: ‘How can I help you?’ Helping, not the enforcing of restriction, is tonic for our souls.
Looking forward, Berweick envisions changing how physicians are trained: “The education of the new professional will reverse the academic notion that we must suppress our emotions in order to become technicians…. We will not teach future professionals emotional distancing as a strategy for personal survival. We will teach them instead how to stay close to emotions that can generate energy for institutional change, which might help everyone survive.
“Ask patients today what they dislike about health care, and they will mention distance, helplessness, discontinuity, a feeling of anonymity—too frequently properties of the fragmented institutions in which modern professionals work and train.”
Berwick’s Own Fears “What Chills Me to the Bone”
Berwick ends his essay by confessing that he dreads the day when, inevitably, he will become the patient.
“Partly, that fear comes from what I know about technical hazards and lack of reliability in care. But errors and unreliability are not the main reasons that I fear that inevitable day on which I will become a patient. For, in fighting them, I am aligned with the good hearts and fine skills of my technical caregivers, and I can use my own wit to stand guard against them.
“What chills my bones is indignity. It is the loss of influence on what happens to me. It is the image of myself in a hospital gown, homogenized, anonymous, powerless, no longer myself. It is the sound of a young nurse calling me, ‘Donald,’ which is a name I never use—it’s ‘Don,’ or, for him or her, ‘Dr. Berwick.’ It is the voice of the doctor saying, ‘We think…’ instead of, ‘I think…’ and thereby placing that small verbal wedge between himself as a person and myself as a person. It is the clerk who tells my wife to leave my room, or me to leave hers, without asking if we want to be apart. . .
“That’s what scares me: to be made helpless before my time, to be made ignorant when I want to know, to be made to sit when I wish to stand, to be alone when I need to hold my wife’s hand, to eat what I do not wish to eat, to be named what I do not wish to be named, to be told when I wish to be asked, to be awoken when I wish to sleep.”
In speech earlier this month, Berwick added: “Call it patient-centeredness if you will. . . It welcomes me to assert my humanity, my individuality, my uniqueness. And if we be healers, I suggest to you that this is not a route to the point. It is the point.
In the end, Klein is right in this: Berwick is not an ideologue. Nor is he a conservative. His idea of patient-centeredness isn’t driven by politics, it’s driven by empathy. His vision of best practice isn’t liberal or conservative; it’s merely human—and humane.
You can listen to a short (3 minute) version of what Berwick has to say here
Just today I had a patient tell me they wanted everything possible done. “I don’t want to die yet”. So patients do drive medical treatments in the face of medical evidence.
Amy–
Thank you for your comment.
Anecdotes about one patient–or 100 patients– are interesting, but they don’t really tell us what is happening with hundreds of thousand of patients.
That is why the reaserach done by folks like O’Connor and the Dartmouth researchers is useful.
Patients coming from different ethnic and religous groups, of different ages and income levels, living in different parts of the country,with more or less education, have very different attitudes when it comes to wanting “more” or “less” care.
Maggie,
I am surprised that Ezra Klein misread Berwick.
Your characterization of Don Berwick is much more astute and accurate.
Thanks,
Dr.Rick Lippin
Southampton,Pa
Dr. Rick–
Thank you, but I have to say I enjoyed Ezra’s column
It was original, adroit, and made me think–Wait a minute. . . this isn’t true, what’s wrong with this picture?
I also wonder whether Ezra was writing tongue-in cheek?
His column caused me to go back to Berwick’s essay on patient-centeredness, which I had read before, more than once, and really think about it. This was useful.
Best, Maggie
And then there’s the question about why a test is so expensive? MRI’s for example – yes, an MRI machine is expensive. Why is an MRI test expensive? Does the machine break or require expensive repair after x MRI’s? Or do they, like a computer server, or a cellphone tower run for a long time with minimal cost? Wouldn’t the cost of an individual MRI test be low if the MRI machine was used for tens of thousands or hundreds of thousands of tests? Maybe we need to look into the medical system’s pricing strategies AND the actual lifecycle costs of medical test equipment?
Harry C–
Very good questions.
First, the equipment has become more and more expensive as manufacturers add bells and whistles (that often are not necessary or don’t add great benefit).
Secondly, we have more MRI
machines that we need. Five hospitals within an 8 mile radius of each other may all have MRI units (which they could be sharing by referring patients to other hospitals, but they don’t)
In some places, the equipment isn’t being used constanty–there is no line of patients waiting 10 minutes for an MRI (which there should be if we are going to use this very expensive equipment efficiently.)
Finally, the equipment doesn’t usually wear out, but hospitals replace it with the newest model because they’re competing with each other and all want to brag that they have the “latest” equipment. The FDA does not require that manufacturers show that new medical devices or equipment are better than existing products.
I think you’re spot-on here; shared decision-making is vital, and it doesn’t happen nearly often enough. Hospitalized patients usually don’t know what tests they’re getting and why; when they decline treatments they are rewarded with a psychiatric consult; when they ask to have their IVs removed and to wear regular clothes they are considered delirious. In my opinion, there is nowhere that this is a problem more than in maternity care, where all a physician has to say to shut down any protests a woman may have is that her baby might die if she doesn’t do as she’s told.
Most of my patients make informed decisions and opt against unnecessary studies. Occasionally, like Dr Berwick, I do order an MRI per patient request (it only happens about once a month). I do draw the line at treatments or tests with the possibility of considerable harm. For instance, I will not refer for a cardiac catheterization, or order a CT scan with contrast if the likelihood of finding something clinically relevant is extremely low. I won’t order radiology exams in children unless absolutely necessary.
It’s funny that Berwick would be labeled a conservative. Since I think patient-centered care is valuable and should be respected, and because such care generates less profit for physicians, hospitals, pharmaceutical companies, and device makers, it seems liberal to me. Conservatives seem to want to allow private businesses to do as they please.
This is so funny. There is no way Dr. Berwick can mean what he says, with the exception of “…a physician’s professional duty to serve as a steward of social resources—and scarce health care dollars?”
This blog, and the entire “health care debate,” is about how to dole out a very finite amount of medical resources (medical personnel, drugs, facilities, etc.) against an infinite demand for same. (See Dr. Rich) for details.
Mahar, Dr. Lippin and Dr. Berwick believe in the top-down, command-and-control, socialist style epitomized by the UKs National Health Service. Given that well over 75% of all dollars that flow through the medical “system” come from some branch of government, this makes sense. Them that has the gold makes the rules.
The only real point of discussion is what will be the purpose of this government health care system? Shall it focus on prevention? Abandon (or greatly reduce acute care)? Or continue down the road of heroic “pull yer arse out of the fire, again” medical care?
Given the rapidly escalating cost of acute care coupled with the huge surge of medicare eligible Boomers flooding the system plus the lack of available taxes due to the lackluster economy, the current system is doomed.
Tomorrow will find the medical system transformed into one that strongly guides people to live healthy and to practice safety. Tomorrow, doctors and nurses will be scarce, replaced by councilors and social workers. Hospitals will be converted into condos. Ambulances will be a relic of the past.
Tomorrow’s health care system will let you die when you get cancer or heart disease or diabetes because all three are, by and large, tied to lifestyle. Get in a high speed car crash not wearing a seat belt? You are going to die at the scene, again because you foolishly put yourself at risk. The government will enforce this, as it realistically has no other choice.
You will be rewarded for staying on the healthy wagon. Fall off, and the results will be fatal. It will be harsh, but those that learn and adapt will survive. Troglodytes will be history.
Bobman–
You write:
“Tomorrow’s health care system will let you die when you get cancer or heart disease or diabetes because all three are, by and large, tied to lifestyle.”
No, fatal heart diseases and diabeties are not simply tied to “lifesyle,” or the choices we make. To a very large degree, they tare tied to income–, i.e.. whether we had the good luck to be born into a wealthy family or the bad luck to be born into a poor family.
Your chances of dying of cancer are also much, much higher if you are poor.
Finally, your vision of the future ignores the fact that we have elected a progressive government and that Congress has passed relatively progressive health reform legislation.
Your predictions are based on looking in a rear view mirror. Meanwhile, when it comes to heatlhcare, the country is moving forward.
Sharon MD–
Thanks very much for your comment, particularly this:
“when [patients] decline treatments they are rewarded with a psychiatric consult; when they ask to have their IVs removed and to wear regular clothes they are considered delirious.”
Brilliant. I’ve made a note to myself to quote this the next time I write about patient autonomy.
You also write that “Most of my patients make informed decisions and opt against unnecessary studies.”
This suggests that you take the time to engage in the dialogue and give them the information they need to make informed decisions.
I am so lucky to be very wealthy so that i can buy what i need. The two tiered system will be even more glaring in the future. Good luck.
Doug–
I don’t think this country is going to choose a two-tiered system.
But I do think that we’re going to have to close the yawning gaps between the mega- rich, the rich, the upper- middle-class, the middle-class, the working poor and the poor.
How do we do this? By raising wages for 90% of all Americans, while raising taxes for the wealthiest 10%.
We need to go back to the system that gave us economic and social stability in the 1950s and early 1960s.
Good luck.
“We need to go back to the system that gave us economic and social stability in the 1950s and early 1960s.”
I really don’t think that’s possible and, for the most part, it’s not desirable either.
Consider the following:
1. Far more people worked on farms in the 1950’s as compared to today. Due to massive increases in productivity, only about 2% of the U.S. population work as farmers today. Yet, farm products are one of our major exports.
2. Productivity in the manufacturing sector has also increased materially. It takes far fewer labor hours to produce a ton of steel or to assemble a car today than it did 50-60 years ago. Moreover, due to tremendous technological improvements in equipment found on factor floors today, many jobs have been de-skilled to the point where people in many foreign countries can make them as well or better than we can while paying far lower wages. At the same time, much of the most labor intensive manufacturing (think textiles and apparel) has long since moved offshore.
3. School teachers, most of whom were women, were paid a comparative pittance prior to the late 1960’s when teachers unions came on the scene. They are much better paid today, including generous healthcare and pension benefits, but state and local taxes are much higher as well.
4. Medicare and Medicaid didn’t exist prior to 1965. It does now, but the incremental tax burden required to support it is quite high, at least for those of us who earn our income from wages as opposed to qualified dividends and capital gains.
5. Civil rights legislation didn’t pass the Congress until 1964.
6. As for the tax burden on the wealthy, comparatively few actually paid those sky high federal marginal rates back then. The capital gains tax rate was 25% during the 1950’s and most of the 1960’s. In NJ, we did not even have a state sales tax until 1966 when it started at 4% (7% today). We didn’t have a state income tax until 1976 when it was pushed through the legislature based on the promise to lower property taxes. Now our top state income tax rate is 8.97% while we have the highest property taxes in the country. Any discussion of tax burdens and the notion of a “fair share” must consider the total tax burden – federal, state and local as a percentage of gross income, not just the federal marginal rate.
On balance, I don’t think most of us would like to go back to what life was like in the 1950’s and early 1960’s. I’m also quite certain that nobody wants to go back to 1950’s healthcare even at 1950’s prices.
Barry,
I’m talking about going back to the 1950s and 1960s in terms of income and wealth distribution only.
In those decades, doctors, CEOs etc. did not earn 5-8 times what the average worker earned.
And when you include federal, state, local, sales, payroll and inheritance taxes, the wealthy paid a much larger share of their income in taxes than they do now.
Note– the share of income that people at different income levels pay determines whether there are wide gaps, or narrower gaps, in total income and wealth on the income and wealth ladders.
Also, back then, lower-middle and middle-income people were paid more for manufacturing jobs than they are paid today for service sector jobs.
As economists have been arguing recently, there is no reason that we couldn’t improve the productivity of the service sector, restructuring it so that it adds more to the wealth of the nation (by shifting jobs to education, pre-school through college, improving the environment, etc. etc.) and paying workers far more for these services.
In the 1950s and early 1960s, because the tax burden was more evenly distributed (based on ability to pay) and salaries were more evenly distributed (without the out-sized mega-salaries that came into fashion in the 1980s) the U.S. was a largely middle-class to upper-middle-class country.
In Europe today, most countries are largely middle-class to upper-middle-class, with far less poverty than we have here–and without the proflieration of mega-salaries. They also have all of the social safety net programs we haave– Medicare, Medicaid, Social Security–except they are much better funded.
Here is an excerpt from a reivew of Paul Krugman’s book, The Conscience of a Liberal, describing what happened over the course of the past 90 years:
“Krugman’s new historical narrative therefore goes roughly as follows. From the 1870s to the 1930s the United Stateswas characterised by great inequality. . . . one indicative number is that the top 10 per cent of earners in the 1920s took about 44 per cent of total income, and the top one per cent accrued about 17 per cent (p. 16).
“It took the skilful electoral coalition-building of Franklin Roosevelt, against the backdrop of depression and war, to remake this inegalitarian political order and to undertake what Krugman calls ‘the great compression’. By the mid-1950s, the real income of the median family had roughly doubled since 1929, while the real after tax incomes of the richest one per cent were 20–30 per cent lower than in the previous generation (pp. 41–2).
“Krugman ascribes this narrowing of inequality to the New Deal’s taxes, public spending, labour market regulation, and eventually war-time wage controls, all of which made working people better off and elites significantly worse off.
“This economic redistribution in turn bred a more democratic society: a sense that US citizens were living lives that were roughly similar in their material conditions and that ordinary Americans enjoyed a sense of dignity lacking in earlier, more class-conscious generations. Even the Republican Party became reconciled to this new Americaafter losing to Truman in the 1948 Presidential election.
“But this was not to last, thanks to the rise of movement conservatism within Republican ranks. As Krugman notes, the post-Goldwater electoral plausibility of conservatism derived from a burgeoning alliance between businesses keen to suppress trade unions and Southerners opposed to civil rights legislation, the latter shrewdly exploited by the dog-whistles of politicians such as Reagan. The aim of this movement, as summarised by the leading conservative organiser Grover Norquist, is to take the US back to its condition ‘up until Teddy Roosevelt, when the socialists took over’ (pp. 10–11). And, as Krugman illustrates, Norquist and his associates have had considerable success in these efforts, with a return to pre-1930s levels of inequality the inevitable consequence.
“In 2005, as in the 1920s, the top 10 per cent of earners once again net about 44 per cent of total income, and the top one per cent again take home about 17 per cent (p. 16). And although the average income in the US has increased substantially since 1973, the median income – the income of the person or family exactly in the middle of the income distribution – has on some measures actually declined and on others only modestly increased (pp. 125–8). In other words, the rise in average income in the USover the last three decades is largely due to a few people becoming much, much richer.
“Krugman thinks that all of this shows the crucial role of shifts in fiscal policy, labour market institutions and social norms in pushing up USinequality. Some of this will be familiar – clearly, cutting taxes on the rich and failing to uprate the minimum wage will widen inequality – but it’s worth saying more about a couple of the less obvious causal drivers that Krugman highlights: labour market institutions and social norms.
“By ‘labour market institutions’, Krugman principally means trade unions. He argues that strong unions had three main effects on inequality during the ‘great compression’. First, they raised the average wages of their members and of non-members in similar occupations (non-unionised employers tried to avert the threat of union organisation in their workplaces by matching union pay deals). Unions therefore helped to narrow the earning gap between workers and higher paid occupations. Second, unions narrowed income differentials within the workforce itself, securing bigger wage increases for lower paid members than for higher paid (again, non-union employers tended to follow suit). Third, unions increased the political power of working people relative to the rich. For example, by politicising their members, unions reduced the class bias in voter participation. Krugman cites one study showing that if union density in the US labour force had been as high in 2000 as it was in 1964, then an additional 10 per cent of adults in the lower two-thirds of the income distribution would have voted, compared with three per cent extra in the top third (p. 70, citing Leighly and Nagler, 2007). Another example of the additional clout given to working people by union membership was that it gave an incentive to managers and company directors to keep their own remuneration under control; any board endeavouring to dispense twenty-first century levels of executive pay in the 1950s would quickly have generated labour unrest.
“This also bears on the other less obvious cause of growing inequality Krugman identifies: the role of social attitudes or norms in shaping the remuneration packages of very high earners.
***”There is no inescapable economic logic driving up the pay of top executives, Krugman argues. Rather, it is principally the ‘death of outrage’ that has let corporate salaries soar away at the top. High earners have received loud and clear the signals sent by politicians, the media, colleagues, and weakened trade unions that they can get away with paying themselves ever more extravagant salaries and bonuses.”
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Barry, in the years ahead, more afflulent Americans are going to have to pay significantly higher taxes .That’s the only way that we can keep the economy and the society on a stable footing.
I realized that some years ago, which is why I began transferring retirment savings into my Roth (paying taxes now rather than deferring taxes to pay later.)
I’m far from rich, but when I retire, I expect I’ll have just enough income to be in a higher tax bracket than I am now.
That said, most of my retirement savings are in tax-deferred accounts and I expect to be paying higher taxes on that money. That’s okay.
But I do think that Americans need to realize that things are changing. These huge gaps in income and wealth just aren’t sustainable.
As long as there are wealthy people you better believe there will always be a two-tiered system. Life isn’t fair and once one truly accepts this given, life ceases to seem unfair. Once again, the best of luck to you.
Maggie,
I agree that taxes are likely to go up over the next 3-10 years. I fully expect a value added tax (VAT) to be enacted though it will probably start at a comparatively low rate like 5% or 6% and be part of a package of broader tax reform that might also lower the corporate income tax. The VAT, of course, would affect the broad middle class as well as the wealthy though we will probably find a way to insulate the poor. Capital gains taxes are also likely to rise and I’ve consistently said that I think they should. The rate was 28% after the Tax Reform Act of 1986 was passed and 25% in the 1950’s and early 1960’s. I think 28% is reasonable vs. the current 15% rate. I do not think it is wise to raise the top ordinary income tax rate beyond the 39.6% rate it would be at assuming the Bush tax cuts are allowed to expire at the end of this year. For people who earn most of their income from wages and live in high tax states, the state income tax rate is often in the high single digits while they are also paying the Medicare tax on the entire wage base and Social Security taxes on the first $106,800. Pushing marginal rates much higher will have strong disincentive effects, increase the size of the underground economy and, probably, cause a lot of people who currently hire others to clean their house, watch their kids and cut their grass might start to do more of that work themselves.
As for the greater economic equality that we had in the 1950’s, I think part of it was an accident of history. After World War II, the industrial bases of Europe and Japan were seriously degraded while the U.S. emerged unscathed. Competition was at a low ebb internationally, U.S. corporations were in a strong position and there was a lot of pent up demand for housing, appliances, cars, furniture, etc. Unions were able to push up wages while the companies thought they could easily pass the higher labor costs along to consumers by raising prices. There seemed to be plenty of good paying jobs in the auto, steel, tire and rubber, coal mining, railroad, trucking and a few other industries. Over time, the combination of union greed, management incompetence (especially in the auto industry), and increasing foreign competition forced many of these companies into bankruptcy while new technology reduced the number of workers needed to produce the products or provide the services. Today’s employment in all of these industries is a shadow of what it once was. Today, unions are strongest in the public sector and it is plain for all to see what is happening to state and local finances as we struggle to pay for outsized pension and healthcare benefits that were agreed to by shortsighted politicians who opted for the short term gain of labor peace while the ultimate day of reckoning would be someone else’s problem down the road. That day seems to have arrived. The problem with unions is they don’t know when enough is enough, when to fight and when to back off. It usually takes the impending threat of bankruptcy before they conclude that 85% of something pretty good is a lot better than 100% of nothing.
Finally, you don’t get rich in America by working for a salary, even an executive level salary. You get rich by being an owner or partner in a successful business. For corporate types, that means stock options and restricted stock awards which, by the way, are taxed at ordinary income rates and are paid for by shareholders in the form of earnings per share dilution. They are not paid for by customers or by workers. That said, I think the awards are excessive and should be pared back considerably.
In the 1950’s and early 1960’s, the Dow Jones Industrial Average never exceeded three digits. Today, it’s over 10,000 while the Consumer Price Index is up about six times during that period. A successful business owner who might have sold out for $10 or $20 million 50 years ago might easily realize 10 or 20 times that amount today without ever having earned a huge salary or gotten a stock option.
Doug–
Yes, some people will always have more wealth than others.
But there is an enormous difference between a sharply tiered class system, with wide gaps between rich, upper-middle class, middle-class, workign class and poor–which is what we have in the U.S. — and the much more equitable distribution of wealth and income in most of Western Europe.
In Western Europe the vast majority of people are middle-class to upper-middle class. And social mbility (your ability to move up the scale) is much greater.
This wasn’t always the case; at one time, the class system in Europe was more sharply tiered and social mobility was less.
But now the situation has reversed.
Barry–
I’ll be back to comment on taxes.