Peter Ubel

Not long before the presidential election, the Wall Street Journal editorial page warned its readers about what it called the attack of the killer Oreos. You have to admit it’s a pretty sensational image — of an Oreo silently stalking its prey, leaping upon an unsuspecting consumer. In fact, this is exactly the kind of image Journal editorialists wanted people to think about when voting in November. “One of the things at stake in this election,” the Journal reminded us, “is who will run agencies like the FCC, which have enormous discretionary power.” And an Obama administration, we were warned, will interfere with companies’ abilities to market their products to us, and our children.

If the current economic crisis has taught us anything, it is that unfettered markets are not the godsend that libertarians would have us believe. Our current economic mess is due, in no small part, to deregulation gone wild.

It is no surprise that the Wall Street Journal opposes the idea of regulating advertisement of junk food to kids. So even as companies find more ways to saturate our brains with images of their products — paying TV shows to incorporate their products into plot lines for example — free market evangelists remain unconcerned. As our children become increasingly obese with each passing year, these people can’t understand why some of us would like to protect our children from things like junk food advertising.

Behind the Journal‘s view is a belief that humans are immune to any negative consequences of advertising:

Viewers already understand exactly what’s going on when a TV character flaunts a name brand,” they opined, “and that awareness is the best defense against whatever ‘manipulation’ is going on.”

In making this statement, Journal editorialists are flaunting their ignorance of human nature. As a physician, I have spent my clinical time caring for patients — smokers, overeaters, under-exercisers — who have been harmed by many of the products that these kind of libertarians would want us to free from regulation. As a behavioral scientist, I have studied how easy it can be to unconsciously influence people’s behavior. As the father of 8 and 10 year-old boys, I have yearned for a government that is willing to step in, when necessary, to protect my kids from the harmfulness of our excessive consumerism.

We live in a market-oriented economy. But a sensible society will recognize when the market needs to be reigned in.

Peter Ubel is Professor of Medicine at the University of Michigan and author of Free Market Madness: Why Economics is at Odds with Human Nature–and Why it Matters (Harvard Business Press, January 2009). To learn more, visit http://www.peterubel.com/

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Paying Doctors Less Is the Key to Better Coverage

Conservatives propose to control healthcare costs by bringing the discipline of the free market to bear upon the healthcare system. Some progressive groups advocate controlling costs with a more interventionist plan. But neither approach, as far as I have seen, adequately confronts one of the biggest barriers to controlling healthcare costs—the strong psychological desire physicians like me have to maintain our often phenomenally high incomes.

To help you understand this psychological phenomenon, I want you to imagine that you have ten years left in your career, and can choose between the following two income streams over those ten years: In the rising salary stream, you would start at salary X, and then receive a steady raise in your salary over the next ten years till you finish at salary X+Y. In the falling salary stream, you’d start right now at an salary of X+Y, and your salary would steadily decline across the ten years to end at salary X. Both choices would leave you with the exact same amount of salary over these ten years, only differing on whether your salary grows over time or declines.

What would you choose? (more…)

This week’s version of John McCain — the populist version — is blaming our current, um, situation on greed. (With such strong fundamentals in our economy, we couldn’t call it a crisis.)

Last week’s John McCain, and the one from the week before that, and the week before that, and the one who has served in the Senate for two decades, would not have been so negative about greed. As a fan of free markets, this long-standing version of McCain believed that greed pushed markets forward, causing people to take the kind of risks that propel economic innovation. The new McCain pretends that he believes markets are flawed because they encourage greed. The old McCain would have seen today’s banking debacle as a rational market correction to a decade of generous monetary policy from the Federal Reserve.

The old McCain was wrong to have such unfettered faith in markets. People are not nearly as rational as the market evangelists in the Republican Party would have us think.

But the new McCain, the one who insincerely blames our banking crisis on greed, is equally wrong. Rationally directed greed would never have led us to this crisis. Greed alone is not the cause of recent business failures. Trust me, the former directors of Fannie Mae and Freddie Mac are not jovially counting their earnings and laughing at us taxpayers for providing them with generous severance packages. The leaders of AIG and Lehman Brothers are not congratulating themselves for raking in the dough while running their companies into the ground. (That said, I think any solution to this problem should involve large paybacks from these extremely wealthy people.)

Both the old McCain and the new one don’t realize much more fundamental limitations of human nature that, when combined with unfettered markets, are a recipe for disaster. Let me illustrate one of these limits, a strange kind of herd mentality that infects our species, by asking you to imagine a situation that most of you will never be in.

You are a medical student, spending a month on your OB/GYN rotation, learning how to deliver babies and how to take care of female reproductive health. You’re spending the morning in the operating room, and the head surgeon has just finished prepping a patient. The patient is now anesthetized and the surgeon looks your way and says: “Hey student, come over here and feel this pelvic mass.” The surgeon is asking you to perform a pelvic examination on this woman, so you will be better at recognizing abnormal masses when you examine future patients. But you are concerned — you’ve never met this woman before, and you realize that you would be probing her most private parts without her permission, offering her no benefit at all. You would simply be practicing on her anesthetized body. What would you do?

When non-physicians are asked to consider the scenario, they say they wouldn’t feel right about examining this woman without her permission. Indeed, people entering medical school feel strongly that it is important to ask for such permission. But in my research, I have discovered that graduating medical students frequently feel that such permission is not necessary. In fact, they experience a significant shift in their opinions shortly after completing their OB/GYN rotations.

Why do students’ views change so much? Because they learn through example. They come to respect the surgeons conducting their training, and learn that the surgeons are generally good people — motivated to help patients and to teach students. So when respected surgeons invite them to conduct these pelvic examinations, their moral concerns clash with their opinion of the surgeons. Ultimately, many students reconcile this clash by becoming less concerned about the morality of examining women without their consent.

What do pelvic exams have in common with our banking crisis?

I expect that in the last few years, many financiers looked around and saw their peers taking on increasingly risky mortgages. Their rational sides worried that such practices were unacceptably risky. But honestly, who can calculate the exact risks of such practices? They knew that their peers were very smart. They recognized that the institutions their peers were working at were historically cautious. So they followed suit. Meanwhile, their peers glanced back in their direction, and came to the same conclusion.

People are often prey to social norms and peer pressure. We often judge our own behavior by comparing it to the people around us. Sometimes our rational instincts compete with these herd instincts, and in such cases the herd instincts often win.

What neither the old McCain nor the new McCain recognize is that free markets, for all their wonders, can be disastrous when left unfettered to compete with the irrational side of human nature.

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