Capitalisn’t: The Capitalisn’t of the US COVID Response

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capital-ism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Luigi: Today’s episode is very special because we’re going to discuss a new book by Bethany and Joe Nocera about the COVID pandemic and what it is revealing about Ameri-ca. The format will be a bit different. Essentially, I will ask Bethany a bunch of questions and, at the end, we will see whether we can arrive at a common view.

Starting with the beautiful, bold title of the book, The Big Fail: What the Pandemic Re-vealed About Who America Protects and Who It Leaves Behind. Now, even if you don’t read the book, you can probably guess that who are left behind are the poor.

But even after reading the book, I have to say, I have some doubts about who is failing here. Is it Trump, the government, the capitalist system, democracy, the experts, all of the above?

Bethany, who fails here?

Bethany: My overall view is that it’s the failure of leaders to set the right rules and the failure of leaders to lead. Mainly the failure of government. They hid behind epide-miologists rather than stepping forward and saying, these are the risks that society faces, it isn’t just deaths from COVID. It’s school closures. It’s millions of kids being deprived of an education who have now lost their chance at a functioning life. It’s people not being able to get healthcare and put off their healthcare and now dying of diseases that would have been preventable. It’s the el-derly dying because of loneliness. It’s the increase in drug addiction.

It’s all the problems that come with our response to COVID, and it was leaders’ responsibility to look at all the risks and make decisions and not just hide behind the epidemiologists, because the epidemiologists did their job.

Luigi: I mostly agree with you, so I’m going to play the devil’s advocate, just for the sake of this podcast. Failure presupposes a benchmark. Ex post, it is very easy to pinpoint what people did wrong. So, what is the benchmark here? If you want to analyze who did relatively better or relatively worse, either as state governors or as leaders of a country, what are the metrics you’re looking at? Because this is part of the challenge here. It’s not obvious what the objective function is.

Bethany: I think that is part of the challenge and the challenge in any sort of retrospective. And so, I also want to be really clear, the lurch to lockdowns in the early stages of the pandemic . . . Fine, we were all worried about the hospital system overcrowding. But what no one ever did was say: “OK, we’re past that in most areas of the country. What are we going to do now? What’s the goal of the lockdown?”

This is a highly infectious respiratory disease. The idea that we were ever going to lock down COVID and stop it was insane. Any virologist would have told you that. All you need to do is look at China. They locked down for how many years and, as soon as they lifted the lockdown, guess what? Hello, COVID. We lost sight of what the reason for it was.

In terms of what people should have done differently, I think one of the key tenets of our book is that a lot of the problems that made COVID so bad in America were really a long time in the mak-ing. And this is a very inconvenient fact, but more people died in the first year of the Biden admin-istration than they did in the final year of the Trump administration.

And so, to me, it’s really magical thinking to say: “Oh, if we had just had a better president, this whole pandemic would have gone away. We wouldn’t have had a problem in this country. It was all a failure of Trump’s leadership.”

I think Trump did fail as a leader, but to blame the entire pandemic on Trump’s failure as a leader, it ignores the real numbers.

I think there were a lot of problems. I think you have to start with the preexisting terrible state of healthcare in America and the fact that we’ve left healthcare to be a market without ever think-ing about what defines failure or success in that market.

We’ve left a lot of people without access to good healthcare, and maybe if you were an econ-omist, it was easy enough to say before the pandemic: “Well, so what? Those people can’t afford healthcare. They’re on their own; it doesn’t matter.” But what we saw in the pandemic is that we’re all in it together.

Lyndon Johnson had this great quote when he signed Medicare and Medicaid into existence. He said, “Whatever we do as a country depends on the health of our people,” and it’s true. If we don’t have a healthy population, then we’re all vulnerable to the effects of a pandemic. There’s almost no one in the pandemic who . . . There are a few people, but very few who managed to overcome polarization.

One of the most stunning things to me . . . In the early stages of the pandemic, as you probably remember, I was pretty outspoken on Twitter about being opposed to continuing lockdowns, main-ly because I pointed out most of the deaths were happening in nursing homes, and I was adamant that we needed to get children back to school.

I thought it was clear in the numbers coming out of China and coming out of Italy right out of the pandemic that healthy children weren’t at risk and weren’t super-spreaders of this virus the way they were of influenza, and the numbers have been clear for decades about what happens to, especially, underprivileged children if they’re left out of school.

And one of the shocking things to me was I had people I know well, other journalists, friends . . . Somebody wanted to stage an intervention because they were like, “I didn’t know you were a Trump voter.”

I was like: “Wait, wait, wait, wait, wait. What do my thoughts about how to handle a pandemic have to do with who I voted for? How did we conflate those two things?” But most supposedly smart people did actually conflate those two things.

And so, I think the failure is all of ours. When you say who failed, it’s any of us who just have refused to listen and hunker down in our own self-righteousness that we alone know the answers to this.

Luigi: I agree with so much of what you said, not surprisingly, but one aspect that I would have liked to have seen more in the book, speaking of who failed, it is, to some ex-tent, the entire expert-media establishment. You said that the epidemiologists got it right, and some of them might have. But if I need to think about in aggregate terms how traditional media—let’s leave aside the social-media part for a second— have processed the information about COVID, I think it was a bit of a disaster.

First of all, they were late to the game, and I can say that without the benefit of the hindsight. I remember distinctly where I was in my car when I heard on the radio that Wuhan had closed down, and I said: “Shoot, this is huge. This is a gigantic city that closed down. This is real stuff.”

The media in the United States were completely obsessed with the impeachment and com-pletely ignoring this coming. And then, of course, I had the benefit of being Italian, so I got an early view of what was happening there, and it was awful. And I remember going to a restaurant in Chi-cago, and my wife saw me white and said, “What happened?” And I said, “Italy locked down.”

“What do you mean?” She couldn’t even understand what was happening.

But Italy was very transparent. It was not such a distant land. The media could have picked up what I was able to pick up. And then, later on, on all the prescriptions, et cetera, I think that they got it mostly wrong, and they were intolerant in their position. So, to me, honestly, the biggest failure of all has been the expert-media complex, if you want.

Bethany: Well, I think the book is partly about the failure of experts and, to be clear, I didn’t say epidemiologists got it right. I said they did their jobs. An epidemiologist’s job is to model what might happen and forecast the worst and try to make strident recommendations in favor of keeping people healthy. It is then a leader’s job to look at those recommendations, to realize where the models are coming true, where the models are not coming true, and to say what other factors are at stake here.

So, I don’t have a problem with an epidemiologist putting out a really scary forecast. Those are their numbers; that’s what they’re supposed to do. I have a problem with a leader who then says, “The epidemiologist said this, so this is what we have to do,” instead of taking into account other factors.

Look, I agree with you about the media with a little bit of a caveat. I’m a little bit sympathetic to all of our failure to take COVID as seriously as we should have because most pandemics bypass the shores of the United States, and our leaders, including Andrew Cuomo—who, again, the media then made their absolute favorite, biggest hero in the world—were all saying this isn’t a problem here. It wasn’t just Trump.

In retrospect, it’s really obvious to see, with all the flights out of Wuhan and all the direct flights from China into New York and into the United States, there was no way we were going to bypass the pandemic, but that one wasn’t so easy to see at the moment.

I do think, as the pandemic went on, the media very quickly developed a propensity for head-lines and misleading headlines that had a huge fear factor instead of actually looking at the num-bers. And you could see it that most people around the country . . . I don’t remember the exact numbers, but most people around the country, well into the pandemic, thought their own risk of dying from COVID and their children’s risk of dying from COVID was way, way, way higher than it was.

It’s not just the media. Even the CDC would put out broadcasts saying, “Your children are at risk.” Healthy children, their risk of dying from COVID is somewhere less than or around getting hit by a lightning strike. People forgot how to calibrate their own risk in a reasonable way.

Somebody with preexisting conditions, someone elderly should be absolutely terrified of COVID. A healthy 40-year-old white person with access to good healthcare, being terrified of COVID, pfft.

I get it, we have germophobes in our society, but that also, to me, reflects a certain level of self-indulgence. Which isn’t to say that bad things didn’t happen to some very healthy people who got COVID. They did. It’s a random virus that we still don’t understand. But the risk changed dra-matically depending on who you were, and I do not think the media did a very good job of reflect-ing that.

Luigi: I completely agree. I remember that, in May, we were still locked down, and I got a hold of some Italian data on excess deaths. I started to decompose them by co-hort. I had a young research assistant who was helping me, and when we decomposed the data, he looked at me—over Zoom, of course—and said, “Why am I locked down?”

And, actually, what really made the point, during the lockdown in Italy, the excess mortality of young people, the fine, young, below 50, was lower than the year before. Why? Because they were not dying of COVID, and they were not dying of motorbike accidents and other accidents because they were not going out. So, actually, mortality was going down.

On the other hand, there were some towns near Bergamo where 30 percent of the people above 80 had died. This is not conditional on getting the disease. Probably everybody got the dis-ease. But 30 percent of the people above 80 was unbelievable. That information should have been processed and diffused earlier on in the game. And when you see the level of risk for young peo-ple, as you said, it was ridiculous. I think driving a motorbike is much, much riskier than getting killed by COVID, but certainly, for older people, it is different. The problem is that separating one from the other is not easy.

Bethany: No. And it really isn’t easy, but we didn’t want to listen to people who had ideas about how to do it. And so, you remember the Great Barrington Declaration. We had Sunetra Gupta on this podcast to talk about her ideas, and she was with Martin Kulldorff and Jay Bhattacharya. The three of them created this thing called the Great Barrington Declaration. At its core, it was this idea that you let most people go about their normal lives while you protected the elderly. You called it focused protection, and they had very specific ideas about how you did this.

Instead of anybody grappling with those ideas and saying, what does this mean, can we do a better job of taking care of the elderly if we’re not focused on lockdowns for all, people called them fringe epidemiologists who were out to kill everybody, and that, to me, is horrifying. It’s an example of how utterly polarized and ridiculous our culture has become because whatever an epi-demiologist out of Oxford and an epidemiologist out of Stanford and an epidemiologist out of Har-vard are, they’re not fringe. The dismissiveness was crazy.

And so, the question to me is also, if you didn’t tell everybody that they had to be terrified, could you have done a better job of taking care of the very people who should have been terri-fied? I think so. If you’re devoting all of society’s resources toward this blanket everybody, then what it means is the people who need protection get deprived of it.

Of course, you remember the whole phrase “essential worker,” which was one of those abso-lute insults in the guise of a compliment. You’re an essential worker, that means you get to go out and get COVID. And, of course, essential workers are the very people who are most likely to have preexisting conditions because of lack of access to healthcare.

And so, the Zoom class . . . One of the tenets of our book is that, if it hadn’t been for Zoom, we all, and most affluent white-collar workers, would have been nowhere near as happy to lock down because we would have lost our jobs. But Zoom made it really easy. So, you sit at home on Zoom, you collect your salary, you order from your grocery delivery services, you order from Amazon, and you feel very self-righteous, and you don’t even think about the people who are out there doing their jobs so that you get to sit at home protected. And in order to do that, you are putting the very people who can least take care of themselves at risk.

And, by the way, lockdowns also took lots of people and sent them back into multigenerational housing. I think Andrew Cuomo had a statistic at one point that 70 or 80 percent of the New York-ers who were getting COVID, they were getting it from their family members who were then con-fined in small spaces with them.

Closing parks, the insanity of the whole thing. And so, lockdowns . . . Whatever you think about lockdowns as a mechanism, broadly speaking, which I think we chronicle pretty well in the book, the skepticism about them from a scientific perspective, but we weren’t able to do them in a way in America that didn’t rebound on those least able to take care of themselves, and I think that’s an incredible failing.

Luigi: The other thing that I thought was very interesting because I did not notice it at the time, but it’s important, some companies like Walmart successfully lobbied to be considered essential so they could remain open, while maybe the corner grocery store was not as successful in lobbying, and they couldn’t be considered essential.

I think you have the story of this woman in California who had a restaurant outside. She was seeing that everybody else had some privilege, so they were open, and she was losing basically a lifetime of earnings because she couldn’t be open, and she started a half-revolt, right?

Bethany: Yeah. Another contention of our book about who the pandemic leaves behind is also small businesses, and we talk a really big game in this country about the im-portance of small business, and they are critical. That’s where most jobs come from. What generally leads the economy out of a recession are small businesses. We didn’t do much to help them. We offered PPP loans, sure, but when you look at the bounty that was showered on big businesses in the pandemic in order to help them, it just makes a mockery of this notion that America’s a land that cares about small businesses.

And then, you look at what we did to restaurants. The initial round of PPP loans were badly de-signed for restaurants, although some were able to take advantage of it, and it absolutely was a life-saver. But then, restaurants lobbied frantically for more money, and all they got was a pittance through the Restaurant Revitalization Fund, which was emptied before most people could even have their applications processed. And restaurants provide a huge number of jobs for single moth-ers, for first-time jobs, and we just killed them. They’re the backbone of cities, and we just killed them without any real thought for the fact that these were people’s lives.

Which actually gets at another thing . . . It always bothered me, in the early stages of the pan-demic, you would be accused of being a really bad person if you cared about the economy. I was always like: “But the economy is people’s ability to feed their families. It’s people’s ability to sur-vive. Caring about the economy is not separate from caring about people’s lives. The two go hand in hand.”

Luigi: Yes, but, on the other hand, I think that there was, at least at the be-ginning, the trade-off to say, should we, in a moment of the height of the virus, slow down the economy to slow down the disease or not?

Longer term, this was not possible, and this is the part, in my view, that has been missing. What is the goal here? I remember distinctly, after a few weeks that we were locked down and every-body was saying, “Oh, we’re doing this to flatten the curve, et cetera.”

I said: “Wait a minute. If we really need everybody to get COVID, we’ve got COVID at this rate, to flatten the curve, we have to be in this position for years.” So, that was clearly not a long-term solution.

Now, it’s laughable, of course, but at the time there were some people campaigning for the idea of trying to do zero COVID.

After all, we did contain SARS—not we Americans, but in the world—we did contain MERS, we did eradicate polio. If there was an international coordination to eradicate COVID at the beginning, I think that we would have saved an enormous amount. If you think about the continuous mortality costs that COVID imposes, not to mention the long COVID effect, both personal and to the econo-my, et cetera, et cetera, for all these years to come, an initial effort to stop it would have been worthwhile.

Bethany: I think it would have been worthwhile, but I think that initial effort to stop it would have had to come with honesty from China in the very, very early days of the pan-demic, before the rest of the world even knew there was a problem. Because by the time you had the virus seeded all over the world, it was already too late.

Luigi: I know you are not a Trump supporter, but I have to say that reading your book forced me to rethink my view of how Trump dealt with COVID.

Because at the end of the day, Operation Warp Speed—and I would like you to describe it a bit to the listeners—I think it was a gigantic success. Because it was done by Trump, nobody talks about it.

As you say in the book, there are a lot of important lessons that we should learn from it, inde-pendent of whether you’re a Trumpian or not. If you look at Trump’s record, he was against contin-uing lockdowns for a long period of time, which, ex post, was the right thing to do. He invested massively in the vaccine, which was the right thing to do. He had a negative view of globalization, especially with China, that, at least from what I seem to understand from your book, you seem to espouse. And, at the end of the day, except for . . . I cannot pronounce the crazy medicines that they give to horses —

Bethany: Hydroxychloroquine, yes.

Luigi: Yes, you’re much better than me at remembering the exact name. Ex-cept for that, Trump did fairly well, ex post.

Bethany: I’m not sure I agree with that. I agree with most of what you said, and I also think that Trump was right about the importance of getting kids back into school. And I think some of the resistance to getting kids back into school came because people wanted to show they were anti-Trump, which is absolutely horrifying that the most vulnerable children in our soci-ety were used to make people feel good about themselves opposing Trump.

What Trump didn’t do well is that he didn’t lead. He didn’t make the country feel like some-body was in charge. He didn’t stand up in front of people and inspire confidence and act like a leader who had things under control and had a plan because he’s not capable of doing that. So, I think he did fail as a leader, but I think he failed as a leader in the more subtle arts of leader-ship.

There’s an argument that Warp Speed could only have happened under Trump. There’s also an argument that it happened despite Trump, and I’m not sure which one of those I believe. And what I mean by it only could have happened under Trump, someone close to it said to me, only Trump would have been so hands-off as to just let this whole thing happen, because he put people in charge and just walked away and didn’t pay attention to it. And that’s part of why Warp Speed suc-ceeded is that Trump stayed out of the way, and very few presidents would have had the, I don’t know, whatever, to just let it be.

The argument that it succeeded in spite of him is that—and I found this a fascinating part of the story—the people who did Warp Speed . . . It wasn’t a Trump administration initiative, really, it was Alex Azar and other people within the Trump administration who had been marginalized, who understood the way the pharmaceutical industry worked and understood that the pharmaceutical industry on its own was not going to produce vaccines at the speed at which we needed them.

And I think this goes back to the question about capitalism and what capitalism is and how it needs cooperation between a government and the market, because people who understood the pharmaceutical business understood that vaccines aren’t a profitable business, generally. They’re not going to be rewarded by Wall Street because too many times companies have raced to pro-duce vaccines only to find them unused.

So, Wall Street frowns on that business. Government purchasers don’t usually pay a ton of money, and so Wall Street wouldn’t have supported it. And pharmaceutical companies don’t move quickly. Clinical trials take a really long time.

And so, what I loved about the Warp Speed chapter is that it showed that people inside gov-ernment who understood all of this understood that the government needed to get involved to create the market and to provide surety for companies that their vaccines were going to be pur-chased and to jumpstart the manufacturing, which is really the key part of Warp Speed, the indus-trial mobilization needed in order to have those vaccines get through clinical trials and get manu-factured at the speed at which they did.

It’s a really interesting story to me because it illustrates this broader need for this cooperation between government and business, for each to be able to supply what the other is missing, particu-larly in a time of crisis, and for each to understand the other’s motivations and the other’s capabili-ties and be respectful of those motivations and capabilities and figure out ways to make it work in combination.

Luigi: Yeah, I love that part, and I think I knew the part of creating the mar-ket. What, really, the book revealed to me is how to speed up the manufacturing process and to what extent the logistics of the army were crucial in mobilizing that and making it happen.

But this is basically what the Europeans did not do because they don’t have an army, at least collectively. There are individual armies, but there is not a European army. But there is an Ameri-can army and the person put in charge, from what I understand, was phenomenal in doing that and being a complement to the financing component of it.

It’s really a beautiful story. And, honestly, I’ve always been very skeptical of public-private part-nerships because I always fear that, instead of getting the best sides of both, you get the worst sides of both. But this is a phenomenal case in favor of it.

My question is, to what extent are these only feasible when there is an enormous thing at stake that, number one, motivates people to behave properly, and number two, puts a lot of eye-balls on the issue? One thing that you write in the book, which I didn’t know . . . What is the name of the person in charge of Operation Warp Speed?

Bethany: Moncef Slaoui.

Luigi: Moncef Slaoui, OK. Moncef Slaoui actually sold all his shares in Moder-na because he was on the board of Moderna, and he sold all these shares and joined the Trump administration. I think that this guy needs a gigantic reward because he knew what he was giving up. He did it because the stakes were so big.

And then, there has probably been a little bit of waste, but the waste was not as big because everybody felt a moral tension for the moment, and all the newspapers, all the media, were look-ing at the problem and ready to jump if anything was wrong. Unfortunately, this model is not easy to export in everyday life because neither of these two conditions is there, but I think it is fascinat-ing.

Bethany: I don’t think the model is easy to export at that kind of scale, nor necessarily do I think it’s appropriate for every situation. But I do think the part of it that is export-able or at least worth thinking about are preconditions and ground rules, and how government sets the rules for how a market is going to function, and how government provides the structure for what that market is going to be. It’s something we just too often don’t think about. We talk about the market, the market, the market, without thinking about, well, what is that market, what are its ground rules?

For instance, the flip side of Warp Speed, in some ways, is the hospital system in the United States. The way that functions, people think of it as a free market, yet 50 percent of a lot of hospi-tals’ revenue comes from the government in the form of Medicare and Medicaid, and all the ar-cane rules about reimbursement and who gets paid what for what determine which hospitals sur-vive, and which ones thrive, and which ones go bankrupt.

And then people close hospitals based on the fact that those hospitals are going bankrupt with-out ever saying, “Yeah, but we set the rules that determine that they are going to go bankrupt.” Or we cover private equity buying these emergency-room staffing businesses and the way they made money, which is a well-known story, through surprise billing and other tactics.

But if that’s the way your market works, those are the levers you can pull, and you bring in a private-equity firm whose fiduciary responsibility is to its shareholders, what do you think is going to happen? And so, this whole idea that the market is always best, and the free market always func-tions, well, it depends on what market you’re talking about and who set the ground rules for that market and how they were set.

Luigi: Absolutely. And this brings us to what I consider, from my point of view, the central chapter of your book, which is chapter six, “The Folly of Efficiency,” where you are pretty harsh against everything that economists love. So—

Bethany: Stop. Uh-oh.

Luigi: —let’s start. No, no, no, but I think that you make excellent points, so I think it will be very interesting for our listeners to discuss this. In that chapter, if I can summarize it properly, you point fingers at three phenomena. One is globalization. The second is what I call—these are not your words— marketization, and the third one is private equity.

Let’s start with globalization. You seem to suggest that this was a very bad idea, or at least it brought some negative consequences. Can you make your case against globalization?

Bethany: I think we’ve actually made it on this podcast in some ways. It’s not that globalization was bad per se, and I think, in many ways, it was inevitable, and it did bring some good things. But it’s the way it was done carelessly, without any regard for the people whom it was leaving behind, the speed with which it was done, and without any regard for the fragilities it was introducing into the system.

And it turns out, as we all saw through the inability to get PPE in the early stages of the pan-demic, that, lo and behold, when you’ve outsourced all of your manufacturing of masks and other items that hospitals need to China, and a pandemic hits, guess what? No masks, and you can’t get that back.

And so, my complaint about globalization isn’t globalization per se, and I actually think I’m al-most a little worried on the other side of it, now that it’s become very fashionable to critique globalization and say, globalization, bad. I’m not sure we want what’s on the other side of it, either. It’s just that, like many things, it was done carelessly, without regard for the weaknesses that it in-troduced, and so everybody was surprised when those weaknesses came home to roost in the early stages of the pandemic, and everybody was shocked. I was shocked, at least.

I don’t think industry analysts were, but when I realized the extent of semiconductor-chip manufacturing that is now controlled by Taiwan Semiconductor Company and the fact that there is absolutely no catching up—there really isn’t, there is no catching up . . . And I think that just hap-pened without anybody ever saying, “Uh-oh, is this really what we want to be happening?” And so, it’s the carelessness of it that bothers me.

Luigi: I think this is a failure at the political level of having a longer-term view. There are two things. First, globalization took place under dominance of the United States under Pax Americana. Now that the United States is less able to maintain that peace around the world, the problems with globalization start to be much more severe.

Second, it’s not understanding the strategic component. If you outsource the production of toys, that’s not a big deal. But if you outsource the production of chips or very important strategic elements, it’s a different story, especially if you outsource to areas that are dangerous or potential-ly politically dangerous. But—

Bethany: There’s a great quote that is so apropos here, and it’s from The Great Gatsby, of all things, but I think it does summarize a lot of our leaders over the past decades and a lot of our elites. “They were careless people, Tom and Daisy, they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together and let other people clean up the mess they had made.”

Luigi: Yeah, this seems like a very nice parallel with today’s issues.

But I am with you that there is, of course, the risk of the opposite of globalization, which is to push for a mercantilist policy that inevitably leads to national tensions or tensions across nations and potentially war. There is a benefit of international trade that makes you less likely to have a war, because if you trade, you generally don’t fight.

Now, the second point, I think, is very important. You complain about an excessive marketiza-tion of the world. I’m an economist, and I consider myself a market economist, but I’m sympathetic to the fact that there has not been enough discussion about what activities the market does better than the public sector and what activities the public sector does better than the market.

For example, one topic, which is quite important, is prisons. We know that there are private prisons. Those private prisons seem to be, overall, pretty bad because, surprise, surprise, they skimp on quality, and they don’t end up costing that much less.

But for whatever reason, I think there are some activities that are done better by the market, some activities that are done better by the public sector, and I think we should discuss in—easy to say, not easy to do— nonideological terms which is which.

Bethany: I think so, too. And then we should discuss, on top of that, if we do think something is better done by the private market, what incentives are we setting up for the private sector? Are those the incentives we want?

If you allow a private-equity firm to come in and buy a hospital or a nursing home, and the pri-vate-equity firm’s incentive and fiduciary responsibility is to get money to its shareholders, and, as a result of doing so, the private-equity firm is going to do a dividend recapitalization and layer debt on that already-struggling hospital or nursing home, or sell the real estate out from under the hos-pital or nursing home in order to pay itself back for the acquisition, and then leave the hospital or nursing home to pay rent on facilities that it previously owned, are those the incentives you want? Is that what you want to see happen?

And so, even if you’re going to argue that the private sector is better at certain activities—and I would make the same argument, by the way—you have to look at what the incentives are and what the possibilities are and what you’re doing. You can’t just take refuge in the market, the market, the market. It’s lazy.

Luigi: And this brings us to your favorite topic, which is private equity. As the listeners know, I’m not particularly in love with private equity, but I’m a little bit scared by your “I hate private equity” because I think that private equity is simply capitalism on steroids. It’s not just that a private-equity company is worse or better than a public company.

So, I would like to know, what is it that makes you dislike private equity so much? Is it the high-powered incentives? Is it the lack of transparency? Is it maybe conflict of interest? All of the above? What is it that you don’t like?

Bethany: Well, I think—and I’m stealing this a little bit from John Coates’ wonderful book, The Problem of Twelve—it’s not private anymore. Private equity domi-nates huge swaths of American industry, and the whole idea that it’s private is this misnomer.

I don’t hate private equity. I hate private equity in certain industries. When you look at what private equity did to the hospital sector, they came in, in some cases, made a lot of money for themselves, left an industry debt-ridden, struggling, and worse off than it was before. If that’s pri-vate equity’s business model, then how can you possibly be in favor of it?

I don’t think that’s private equity’s business model, not across all businesses, not across all pri-vate-equity firms, but that’s what happened with hospitals, and you have to be aware of that if you let private equity in.

I have nothing against a private-equity firm that buys a company and does what it’s supposed to: brings in brilliant people and makes the company strategy better and leaves the business better than they found it and, in the process, makes itself a lot of money. Great, that’s the way capitalism is supposed to work.

What I do have a problem with is that I think a lot of modern private equity is just financial en-gineering. They don’t bring great strategy to businesses. What they bring is debt, and that debt en-ables them to make returns for themselves in the form of dividend recapitalizations, but it doesn’t arguably do much for the business. It often leaves the business struggling under a huge debt load.

And I do have a problem with those misaligned incentives that have been permitted by dec-ades of really, really easy money. And I think it’s going to be interesting to see what happens in the private-equity industry going forward.

Luigi: I remember reading a long time ago in, of all places, the New York Times, praise for the private-equity firm that took over Duane Reade, this chain of pharmacies in New York. It did rehab them. It made them better, and then, it eventually sold them, I think, to Walgreen. The New York Times was celebrating this as a major success of private equity.

But the issue is why the incentives are not there. The story that we tell our students about pri-vate equity is precisely that you have the proper incentives to do the best. You take over this company, you are the residual claimant, you want to improve it, and, eventually, you want to make money, and it’s not that easy to make money by destroying companies.

In fact, many of the retirement homes that were managed by private-equity companies did not do very well. To my understanding, they lost money in those deals, so they were not good private-equity companies. So, what is it in your view that makes it hard, at least in the hospital sector?

Bethany: So, I think it’s a distortion, one of the many distortions introduced by decades of really, really, really cheap money, because it is actually possible to make money even while destroying a business. If you do these deals, as some private-equity firms . . . I’m think-ing of the private-equity firm Cerberus with a chain of struggling hospitals in Massachusetts that became known as Steward. I think Cerberus made three times its money, I think they made some $800 million, and they left in their wake a struggling hospital chain. And what they did was they sold off Steward’s real estate to this real-estate investment trust called Medical Properties Trust, and they got their money out that way.

Luigi: But if you were queen for a day, what would you do to reduce the negative side of private equity while retaining the positive aspects?

Bethany: Well, the market might be doing that for me. With higher interest rates and rising interest rates, dividend recapitalizations are becoming less of a thing. If private eq-uity can no longer make its money through dividend recaps, I think that helps enormously.

I might demand some extra transparency around private-equity firms selling companies to each other or selling companies to another private-equity fund run by the same private-equity firm, be-cause that starts to take on aspects of a Ponzi scheme, and private equity is too big now and cares for the retirements of too many people for it to be incidental anymore.

And I would take a close look at industries where other values are supposed to be at play. Hos-pitals are a business, yes, but they’re also supposed to make uneconomic decisions in order to take care of people. Is it appropriate for a private-equity firm who, by law, has a fiduciary duty to their shareholders, to buy them? Is that an appropriate combination or is it not? Maybe you say private equity is barred from doing deals in these industries.

Luigi: Can you actually tell the story of Rush Hospital, since we are in Chica-go? It’s a beautiful story that I didn’t know, and I think it is very inspirational.

Bethany: There still aren’t really good answers about this, but one of the things that intrigued me from the very start of the pandemic was, why were some hospitals empty and other hospitals were overflowing with patients? And if some hospitals were empty, why didn’t they have some of those patients?

And so, it gets into this whole issue of when a hospital has to accept transfer patients, and they are supposed to, but the rules are a little bit nebulous. If the hospital says they don’t have beds, or they need their own beds, then they don’t have to accept transfer patients. A lot of hospitals that are used to catering to patients with commercial insurance don’t want to accept patients with no insurance or with Medicaid, especially if they’re going to be on a ventilator for six weeks, because that’s going to be a huge loss.

I wish a government agency with subpoena power would look into what happened during the pandemic in all of these cases. But what Rush did was, from the very beginning, they’d had this guy, David Ansell, who became chief equity officer who was very, very . . . He wrote a book called The Death Gap about the gap in life expectancy between Black Americans on the South Side and white Americans, and he’s been very focused on racial equity.

From the beginning of the pandemic, Rush said: “We’re taking transfer patients. We’re taking as many of these patients as we can.” There were stories about the phones being overwhelmed. One of the Rush nurses joked to me that there were signs on bathroom stalls throughout Chicago: “For a transfer, call Helen,” for the transfer nurse who was in charge of taking transfers at Rush.

But they took everybody they could, and they got an award from the city of Chicago for doing it. And at one point, it looked like they were going to lose, I think, half a billion dollars from taking transfer patients, but they did it because it was the right thing to do. So, I found that just an in-credible story.

Luigi: It’s beautiful. I should know, but who owns Rush Hospital?

Bethany: It’s a not-for-profit, but there’s really not much distinction between not-for-profit hospitals and for-profits. The not-for-profits are every bit as rapacious as the for-profits in most cases. It’s a distinction without a difference. Joe and I argued about this for a while. It’s not shareholders that are to blame. Anyway. But Rush, it’s a university system, so it’s a not-for-profit like the University of Chicago.

Luigi: So, if it is not the profit motive, what is it that makes the difference? Why did a place like Rush do the right thing in that moment at a gigantic cost, and other places didn’t?

Bethany: Because Rush had had, for years in the works, they’d started this gigantic equity process that involved the whole West Side of Chicago, that looked at Rush’s place as the largest employer on the West Side and said: “Wait, wait, wait, this is where we’re located. We need to be doing a better job with everything in our community. We need to be using our pur-chasing power to be purchasing from Black businesses. We need to be taking better care of our population here, even though we’re a world-class hospital that doesn’t” . . . So, it had been in the works for a really long time at Rush, I think under the spiritual guidance of David Ansell, that this was their job, this was the role they needed to play in the community, so it was already built into the DNA of the place.

Luigi: So, would you call this a capital-is, a capitalisn’t, or a state-is or state-isn’t?

Bethany: I would call it a leadership-isn’t, because I think there are some leaders in the book who did do the right thing—General Perna, Moncef Slaoui, the people at Rush—but there are a lot who didn’t.

And is it a capitalisn’t? I think it is a capitalisn’t, and what I worry about that is I still . . . It’s that old Winston Churchill quote that the worst possible system in the world is democracy, with the possible exception of everything else that’s ever been tried.

I think the same is true of capitalism, and I worry that, by failing to look at its failings and where it doesn’t belong and where it is going off the rails and where other values should be at work, or where structures aren’t doing what we want them to do, that we’re throwing the whole thing in the scrap heap because there’s a lot of the younger generation that is thoroughly disillusioned with capitalisn’t, with capitalism. Even I’m using our podcast name now.

Luigi: Fantastic. Thank you very much.

Bethany: Thank you, Luigi.