Social systems, economics and the thing itself


In writing a series of essays last year I came to an obvious conclusion. It’s perhaps one that others had come to years ago, but then there’s something in coming to a conclusion from a position sympathetic to its opposite.[1. As J.S. Mill wrote: “He who knows only his own side of the case knows little of that. . . . He must be able to hear the arguments of adversaries; . . . He must feel the whole force of the difficulty which the true view of the subject has to encounter and dispose of. . . . Ninety-nine in a hundred of what are called educated men {do not do this}, even those who can argue fluently for their opinions. Their conclusion may be true, but it might be false for anything they know. They have never thrown themselves into the mental position of those who think differently from them and considered what such persons may have to say, and consequently, they do not, in any proper sense of the word, know the doctrine which they themselves profess.”] Economics as it was constructed from Adam Smith on, was built on an insight that one could abstract from a great deal in the economy and still know what mattered to policy. Smith’s insight – following on Mandeville and various other provocateurs – was that the self-interest of actors could be transformed through the alchemy of the market into the social interest. Providing markets worked ideally, the one mapped onto the other.

In many ways, this presages a hollowing out of economic discourse, away from the micro-details of everyday life towards various abstractions – like the extent of competition in a market, technical characteristics of production (scale economies and externalities for instance). Marshall, the preeminent English-speaking economist of the turn of the twentieth century was, despite being an architect of this revolution in abstraction, nevertheless proud of the decades he’d spent learning the intimate details of industrial life. Samuelson not so much. Well hardly at all actually.

Samuelson’s sensibilities have also come to dominate policy making. Before the age of economic reform beginning in the Whitlam period but strengthening into maturity by the mid 1980s, it was axiomatic that if one were building schools, hospitals, welfare services, universities, the military or any other public social institution, one would focus first and foremost on ‘the thing itself’ – on the provision of those services and the skill and commitment with which they were provided. The most important profession in building a school system would be teachers and educationists, and in building a health system would be doctors, nurses and health administrators. Of course, this wasn’t a perfect arrangement. There are other skills necessary and indeed, the expertise imparted in a standard medical degree may be a fairly poor preparation for designing or running a hospital or some other aspect of a health system.

Still, today we seem to have moved beyond the point of having much interest in the thing itself. It seems naïve, somehow beside the point with this point being replaced by somehow creating ‘markets’. We measure and incentivise and ensure things are subject to competition. The rest just falls into place. Like Bach said when asked how to play the organ “you just move your fingers up and down here and the thing more or less plays itself.”


It was with these thoughts in mind that I observed the advertisement of medical products in the US. This is prohibited pretty much everywhere else I know of unless the advertising is for simple over the counter products like paracetamol. There are lots of ways to stoke incipient hypochondria to shift medical product. Here’s Sally Field emoting all over the camera to shift osteoporosis meds.[2. As the Youtube blurb states “In 2006, Oscar-winning actress Sally Field starred in a series of testimonial ads for the osteoporosis medication, Boniva. In the wake of the overwhelming success of the Boniva spots, due in no small part to Sally’s warm and empathetic presence, A-listers in Hollywood and beyond have started to embrace the idea of pharmaceutical product endorsement as a legitimate, bona fide revenue opportunity with no negative PR.” #WhatsThereNotToLike? For a general recent history of pharmaceutical ads, try this NPR program.] So medical ads are not some esoteric part of the advertising market – they’re a substantial and growing part of advertising – running at $5  billion per year in the US Television market. It struck me as mostly pretty abhorrent. Its manipulativeness is evident. It’s wasteful and it’s hard to imagine it doesn’t do a lot of damage in paving the way for lots of anxiety, wishful thinking, over-servicing and, perhaps, mis-prescription. [3. This paper finds “that low-quality drugs diffuse more quickly compared to high-quality drugs in the US relative to four comparison countries” (which include Australia).]

But when I watched the ad I’ve reproduced above, I did see the possibility of another side. Because I’ve been wondering if I should get a shingles inoculation and so it struck me that such an ad could be useful in prompting others to ask themselves the same question. It’s creepily manipulative. But this is the just business as usual for TV advertising. The ad is effective at stirring up anxiety and that might prompt one to act more in one’s own interests. So perhaps there’s a case for some use of such ads. More generally, this commentator makes the reasonable claim that TV commercials “may have positive impacts through breaking social stigmas against getting medical help — particularly with depression medications …”.

But. But, but, but.


For me the ad stands as an exemplar of how far institutions can stray from their proper social and economic function by not attending to the thing itself – which in this case is informing and motivating consumers to promote their own interests. If you watch the ad it’s a study in dysfunction. There are two parts to the ad. The first 30 seconds is the ‘ad’ part and the ‘fine print’ lasts 45 seconds during which there’s a blizzard of disclaimers about all the possible side-effects etc etc. [4. Many of the medical ads have no such information because they’re generic – and simply advertise the malady that could befall you and then tell you to hightail it down to the medical establishment, as for instance for this ad on the same problem of shingles.] Given the wide approval for use, I presume most if not all these side-effects are pretty unusual. So it’s stupid to say any more at all in an ad other than ‘consult your doctor’. You could announce that “there could be side effects” but then that would be on all ads so it would become a meaningless token in every ad which strikes me as contrary to what we know about conveying information (try to stop people switching off as you warn them). It’s like telling people how to buckle their seatbelt on planes. And if there are specific side effects to guard against, then they should presumably be highlighted in the ad, though measures should be put in place to identify and deal with the risks – through people’s interaction with the medical system more generally. 45 seconds of disclaimer is completely stupid way of managing the potential for side-effects unless you’re a lawyer.[5. Here, fresh out of an economics textbook, is the ‘due-diligence’ model of information flow. The consumer, ferrets out all the necessary information and then calculates what’s best for them. And regulation gets them the right information. The only problem is that, for good reason, people don’t relate to complex information like this. They need shortcuts, and that generally involves relying on someone or something else. And if they’re minded to exercise ‘due diligence’, it will be due diligence about the reputation of those they rely on. So, if we’re putting our faith in market solutions, that’s where we should focus our regulatory energies; to improving the integrity with which reputations are made. So just as mandatory product disclosure statements for retail investors in Australia are almost invariably a complete waste of time, so going through the motions of helping the consumer do ‘due diligence’ on something it’s quite unreasonable to expect them to know much about, doesn’t get us anywhere. Ask a silly question: get a silly answer.]

So the combined experience of medicine in the developed world boils down to a binary choice. Allow medical providers to advertise or don’t. Banning ads passes up the potential good it could do. And regulating it doesn’t really address the many problems such advertisements raise, instead settling for a whitewashing disclaimer – all sanctioned by government regulation. Buy this product if you’re sufficiently manipulated by this ad, but you can’t say that you weren’t warned that it might do you any amount of harm – we especially warned you about taking neomycin, even if you had no idea what neomycin is and may be taking it under some different brand name.


An alternative would be to start from scratch and design something to inform and motivate consumers in their own interest. If you started from that premise, I think you’d conclude that such ads might be beneficial in various ways, but that their beneficial effects would be unlikely to materialise if they were funded and controlled by people whose dominant incentive is to shift product. That would lead one to develop new institutions to explore the new terrain in search of improvements. One can imagine some system in which ads were commissioned and funded by some agency funded from a levy on such products or in some other way.

To some extent this has been developed in some areas. For instance, there are car safety ads funded from vehicle insurance levies. There are also ‘deprogramming’ ads, for instance, ads to promote responsible gambling or to encourage people to quit smoking funded from the activity they’re seeking to deprogramme against. But this is generally selling one message, rather than providing a template for the kind of function that advertising has in an economic textbook – which is to inform people of the availability and value of different products. While the case for reconfiguring advertising in such a way is strongest in areas in which asymmetric information presents the biggest problems – in medicine and finance for instance – it applies to most TV advertising, where the emphasis is not really to convey information, but rather to cultivate various subconscious, non-rational effects.

Postscript: for some mysterious reason, comments are closed on this thread right now, so I’ll just add that, if it hasn’t been linked to, this old post of mine should have been linked in this piece.

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