By Doug Gentry, on January 13th, 2012
In honor of the first week in our Healthcare Economics class, and the beginning of a 6 week session on healthcare via OLLI, here is an interesting report from The New York Times.
National health spending rose a slight 3.9 percent in 2010, as Americans delayed hospital care, doctor’s visits and prescription drug purchases for the second year in a row, the Obama administration reported Monday.
The recession, which lasted from December 2007 to June 2009, reined in the growth of health spending as many people lost jobs, income and health insurance, the government said in a report, published in the journal Health Affairs.
 from The New York Times There are a couple of takeaways from this news.
First, the reduction in spending on healthcare could mean a welcome, albeit temporary relief to those governments and organizations that pay for healthcare….BUT…no real relief for state and local agencies which provide/finance healthcare for poor people. Recessions, of course, result in greater numbers of people qualifying for government-supported care.
The other point is a reminder that some portion of healthcare services are discretionary. When healthcare spending was growing by 10 percent or more each year in the 1980s, that growth probably wasn’t driven by an increase in the need for services. Likewise the slower growth over the last several years is probably not due to the population getting healthier and needing fewer services. Instead, people moderated their demand for healthcare. They put off diagnostic tests, or did not follow through on treatments or prescriptions. Going in the other direction, hospitals routinely see increases in elective surgeries near the end of a calendar year, as people have already met insurance deductibles, and decide to seek care before those deductibles are reset in the new year.
Is this good news? Not necessarily. To the extent the people put off truly necessary tests and treatments, those delays may cost us more in the long run. To some extent, though, tough economic times force us to be more cautious about discretionary spending, and there may be very little impact on long run health status. There is the old saying that if you get a cold, it will take 7 days to go away, but if you see a doctor you’ll be cured in a week! One important element of effective healthcare reform is to introduce that sense of caution in our population. It is a delicate balance – not wanting to interfere with early testing and early, cost-effective treatment, but also discouraging care that has less impact on long term health.
Prices for medical care services and supplies also stayed roughly on par with general inflation during this last year, which is a change from the decades of the 1980s and 1990s where the medical care component of the consumer price index routinely outstripped regular price increases.
I wouldn’t have to polish my crystal ball very much to predict that spending increases for healthcare will pick up speed as the economy recovers. This remains the single most important issue in our nation’s federal deficit struggles.
By Simon Grey, on November 29th, 2011
I’ve been meaning to comment on this for a very long while: Many people think life without the welfare state would be chaos. In their minds, nobody would help support the less fortunate, and there would be riots in the streets. Little do they know that people found innovative ways of supporting each other before the welfare state existed. One of the most important of these ways was the mutual-aid society.
Mutual aid, also known as fraternalism, refers to social organizations that gathered dues and paid benefits to members facing hardship. According to David Beito in From Mutual Aid to the Welfare State, there was a “great stigma” attached to accepting government aid or private charity during the late 18th and early 19th centuries. Mutual aid, on the other hand, did not carry the same stigma. It was based on reciprocity: today’s mutual-aid recipient could be tomorrow’s donor, and vice versa.
One critique of libertarianism is that it has no regard for poor people, as if only the government is capable of showing concern for poor people. Of course, governments have historically ignored the plight of the poor, and thus it is an historical anomaly in the first place that the government even offers any aid to poor people.
That aside, the historical norm, at least in America, is that poor people were generally helped by mutual aid societies. Or, stated another way, welfare was primarily a market function. In keeping with this, the market served admirably in this capacity, encouraging poor people to engage in thrift and to comply with certain social norms. In many ways, then, mutual aid societies are superior to their state-run alternatives because they encourage positive behaviors instead of subsidizing counterproductive behaviors.
The current system does indeed leave much to be desired. It does not go far enough in tying aid to productive behaviors. Even with the recent reforms, there are still some who successfully game the system. Welfare workers are understaffed, preventing them from policing recipients as they should. Recipients, then, are able to get money without having to work or in some way improve their life. The government is, in many ways, impotent to address this problem because there are many interest groups who would charge the government with targeting minorities by requiring that they change their culture. In essence, the government is hamstrung by multiculturalism.
As such, the current form of welfare is not only expensive, but it is considerably inferior to its free market alternative because it cannot offer near the same amount of accountability that market-based forms of welfare do. Thus, the libertarian doctrine that welfare should not be a state activity is actually quite reasonable for the free market has actually done a better job at charity than the government has.
By Bron Suchecki, on November 23rd, 2011
The text below was forwarded to me a few years ago and I rediscovered it today. I’ve edited it to take out Australian specific references. The Squirrel and the Grasshopper story really resonated with me when I first heard it as a kid. I thought the squirrel was prudent. I’m sure other kids felt sad for the Grasshopper. I propose everyone can be divided into two groups – those who side with the squirrel and those who side with the grasshopper.
ORIGINAL VERSION
The squirrel works hard in the withering heat all summer long, building and improving his house and laying up supplies for the winter.
The grasshopper thinks he’s a fool, and laughs and dances and plays the summer away.
Come winter, the squirrel is warm and well fed. The shivering grasshopper has no food or shelter, so he dies out in the cold.
MODERN VERSION
The squirrel works hard in the withering heat all summer long, building his house and laying up supplies for the winter.
The grasshopper thinks he’s a fool, and laughs and dances and plays the summer away.
Come winter, the squirrel is warm and well fed.
A social worker finds the shivering grasshopper, calls a press conference and demands to know why the squirrel should be allowed to be warm and well fed while others less fortunate, like the grasshopper, are cold and starving.
The media shows up to provide live coverage of the shivering grasshopper; with cuts to a video of the squirrel in his comfortable warm home with a table laden with food and informs people that they should be ashamed that in a country of such wealth, this poor grasshopper is allowed to suffer so while others have plenty.
Do gooders demonstrate in front of the squirrel’s house. A Lefty Politician rants in an interview that the squirrel got rich off the backs of grasshoppers, and calls for an immediate tax hike on the squirrel to make him pay his ‘fair share’.
In response to pressure from the media, the Government drafts the Economic Equity and Grasshopper Anti Discrimination Act, retroactive to the beginning of the summer, and creates The Grasshopper Housing Department. The squirrel’s taxes are reassessed. He is taken to court and fined for failing to hire grasshoppers as builders, for the work he was doing on his home, and an additional fine for contempt when he told the court the grasshopper did not want to work.
The grasshopper is provided with a Grasshopper Housing Department house, financial aid to furnish it and an account with a local taxi firm to ensure he can be socially mobile. The squirrel’s food is seized and re-distributed to the more needy members of society – in this case the grasshopper.
Without enough money to buy more food, to pay the fine and his newly imposed retroactive taxes, the squirrel has to downsize his home.
A 60 Minutes special shows the grasshopper finishing up the last of the squirrel’s food, though spring is still months away, while the Grasshopper Housing Department house he is in, crumbles around him because he hasn’t bothered to maintain it. He is shown to be taking drugs.
Inadequate government funding is blamed for the grasshopper’s drug ‘Illness’.
The grasshopper gets arrested for stabbing an old dog during a burglary to get money for his drugs habit. He is imprisoned but released immediately because he has been in custody for a few weeks. He is placed in the care of the probation service to monitor and supervise him.
Within a few weeks he has killed a guinea pig in a botched robbery.
A commission of enquiry, that will eventually cost $10 million and state the obvious, is set up.
Additional money is put into funding a drug rehabilitation scheme for grasshoppers.
The grasshopper dies of a drug overdose.
The usual sections of the press blame it on the obvious failure of government to address the root causes of despair arising from social inequity and his traumatic experience of prison.
The squirrel’s taxes are increased to pay for law and order, and they are told that they will have to work beyond 65 because of a shortfall in government funds.
By Simon Grey, on October 12th, 2011
I wonder if there is any way to get Americans to shed their lazy mindset: Another Times article published this week, however, challenges the idea of “perfect substitutes” advanced by the NBER study and paints an alternate picture of the economic reasoning behind Alabama’s legislation. John Harold, a Colorado farmer profiled by the Times, tried to hire some unemployed Americans to work on his ranch and paid them a wage of $10.50 an hour, like the migrant workers he usually employs from the federal H-2A program (Colorado’s regular minimum wage is $7.36). The American workers quit, citing the labor as too hard – something that didn’t happen with the Mexican laborers Harold traditionally used. [Emphasis added.]
I’m sure there are plenty of socio-cultural reasons why Americans view this sort of manual labor as too tedious for them.Americans are, by and large, a rather soft people, at least these days.
Personally, I blame video games for a good part of this* (all of the psychological rewards of work with none of the sweat!). But, I’m guessing that the social safety net plays a role in this as well. How many people would quit their jobs at the ranch if they knew that there was no guarantee of money if they quit (i.e. no welfare)? I’m guessing that number would be a little bit lower. It’s easy to quit because the work’s too demanding when you can live off of welfare until you find an opening at Target. It’s not so easy when quitting means that you lose your house and go hungry.Since it’s hard to tell how big a role state and federal social safety net programs have played in all this, it’s correspondingly difficult to figure how much blame the respective governments bear for this current mindset. At any rate, though, I think it’s safe to say that the government has certainly been complicit in sowing the seeds to America’s destruction.
* I kid, I kid.
By Simon Grey, on September 23rd, 2011
“Of jobs created in Texas since 2007, 81 percent were taken by newly arrived immigrant workers (legal and illegal),” says the report from the Center for Immigration Studies, a group that advocates reduced levels of both legal and illegal immigration. The report estimates that about 40 percent of the new jobs were taken by illegal immigrants, while 40 percent were taken by legal immigrants. The vast majority of both groups, legal and illegal, were not American citizens. (Hat tip: Vox Day.)
Native-born Americans filled just 20 percent of the new jobs in Texas, the report says, even though “the native born accounted for 69 percent of the growth in Texas’ working-age population.” “Thus, even though natives made up most of the growth in potential workers, most of the job growth went to immigrants,” the report concludes.
If you want to fix the unemployment mess America currently faces, do four things:
One, round up all illegal immigrants and guest workers and deport them. I am unable to comprehend how a government that claims to represent the interests of its people even tolerates any foreign workers when the unemployment rate is hovering around 16%. Why is this allowed when citizens are jobless and looking for work? Citizens should be given preference when it comes to domestic policy, and labor is no exception.
Two, deregulate labor. Get rid of the minimum wage, the minimum age, and mandatory overtime pay laws. Price floors always, without fail, create a surplus. Again, labor is no exception.
Three, get rid of government-sponsored welfare, unemployment compensation, and all other forms of paying people to not work. This will give the currently unemployed a very powerful incentive to find and/or create a job. Note, however, that one should not end the dole without first having eliminated minimum wage.
Four, get rid of payroll taxes. Milton Friedman’s monstrously stupid idea to have taxes withheld from one’s paycheck places compliance costs on businesses that they do not face when hiring illegal workers.This, in turn, makes it more difficult for legal workers to compete with illegal workers. As such, ending payroll taxes will reduce the costs of employment, and make it easier for citizens to compete for jobs.
By Simon Grey, on September 22nd, 2011
Aside from these lies, Social Security is a Ponzi scheme. The major difference between Social Security and Bernie Madoff’s Ponzi scheme is his was illegal. Three Nobel laureate economists have testified that Social Security is a Ponzi scheme. Dr. Paul Samuelson called it “the greatest Ponzi game ever contrived.” Dr. Milton Friedman said it was “the biggest Ponzi scheme on earth.” Dr. Paul Krugman predicted that “the Ponzi game will soon be over.”
The media and government need to take a hint here. When two Nobel-prize-winning Keynesians say that Social Security is a Ponzi scheme, it’s safe that Social Security is a Ponzi scheme.(Because if there’s anyone who knows Ponzi schemes, it’s going to be a Keynesian.)Incidentally, I was also ahead of the game in demonstrating that Social Security is a lie, at least in terms of guaranteed benefits. While I only focused on Flemming v. Nestor, it is important to also look at Helvering V. Davis: Another lie in the Social Security pamphlet is: “Beginning November 24, 1936, the United States government will set up a Social Security account for you. … The checks will come to you as a right.” Therefore, Americans were sold on the belief that Social Security is like a retirement account and money placed in it is our property. The fact of the matter is you have no property right whatsoever to your Social Security “contributions.”
You say, “Williams, you’re wrong! We have a right to Social Security payments.” In a U.S. Supreme Court case, Helvering v. Davis (1937), the court held that Social Security is not an insurance program, saying, “The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.” In a later Supreme Court case, Flemming v. Nestor (1960), the court said, “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.” [Emphasis added.]
Of course, Social Security is not technically a Ponzi scheme because one is not forced to pay taxes contribute to a true Ponzi scheme: It’s true that Ponzi engaged in fraud; his victims never would have “invested” with him, had he accurately explained the business model. Libertarians therefore agree with everybody else that Charles Ponzi was a criminal and would have to face legal consequences in any just legal order.
However, so far as we know Ponzi never threatened anybody. He didn’t tell struggling young workers, “Give me 15 percent of your paycheck every week, so that I can make you a fantastic return — or else I’ll send goons to kidnap you.”
In this respect, Social Security isn’t a Ponzi scheme after all. It’s more analogous to mobsters shaking down people for protection money, because otherwise “bad things could happen.”
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By Ajay Shah, on June 27th, 2011
Suppose we go back to 1870 and think of four interesting and promising countries.
Britain was the incumbent, the pioneer of the industrial revolution, home of Newton and Darwin, with a head start on building institutions, with sound economic policy and deep integration with a global empire.
Germany, the rising power of Europe, rapidly catching up with the frontier (and ahead of Britain in some fields). More centralisation of power, which perhaps gave an edge in certain things.
The US, a vast country blessed with a great constitution, inhabited by a cast of characters made up of the mavericks, misfits, nutcases and adventurers of Europe.
Argentina, a vast country with boundless prospects, sound policies after 1852, and tightly integrated into the London capital market.
Today we think `Argentina?’. But in the middle of the 19th century, there were many people who thought that Argentina had better prospects than the US. From 1850 to 1930, Argentina did astonishingly well. In particular, from 1880 to 1905, GDP growth averaged 8 per cent over 25 years, which was unheard of in those years.
With the benefit of hindsight, we know what happened. We know that Argentina collapsed into illiberal populism (first into socialism/fascism (1930) and then into Peronism (1946)), that Germany collapsed into militarism, and that the US and the UK managed to build liberal democracies.
So with this framing, let’s ask about how India and China will go.
Will India make it to good institutions, like the UK or the US? Or will India collapse into illiberal populism, much like Argentina did?
All too often, the Indian elite tends to take good outcomes in the deep future for granted, but I am not so sure and it is worth worrying about the foundations of liberal democracy and a market economy. Given the weak foundations of liberal ideas in India, political freedom is not something to take for granted. Given the weak foundations of market economics in India, economic freedom is not something to take for granted. Argentina’s binge of welfare programs and populism is uncomfortably close to the instincts of most Indian politicians.
Will China make it into good institutions, like the UK or the US? Or will China descend into chauvinism and militarism, much like
Germany did?
The story of Argentina and Germany, from 1870 to 1914, reminds us that what works in a country for a few decades is often not enough to carry the country through to a happy ending. Germany did very well from 1870 to 1914 (44 years). Argentina did very well from 1850 to 1930 (80 years) of which 50 years were really high growth. To many people, sustained success (a la India) has generated complacence: we have started trusting in our governance DNA, thinking that it has delivered results. This hinders the process of identifying incipient problems, criticising the status quo, and changing course.
But the fact that a economic/political recipe worked well for a few decades does not mean that this recipe will continue to deliver. For a country to work out in the long run, it has to constantly renew the foundations of liberal democracy and the market economy, and
repeatedly reinvent itself.
In the late 19th century, growth rates were low in absolute terms, other than outlandish episodes like Argentina (1880-1905). Germany was the star performer of Europe over 1870-1914, with GDP growth of 2.9 per cent. The UK did just 1.9 per cent in this period. At 2.9 per cent growth, GDP doubles each 24 years. In other words, the economy and the political system need to be reinvented in each generation.
At 7 per cent growth, in India, we are getting a doubling of GDP every decade. This requires a reinvention of the economy and the
political system every decade. We have a stark contrast where we have grossly failed on modifying laws, government agencies, policy
frameworks and world views at a rapid pace.
By Simon Grey, on June 3rd, 2011
Scott Adams notes the problem with an increasing number of people who don’t pay taxes:
We all understand that no entity can survive for long if it gives away its resources while asking nothing in return. And this leads me to my point: In the United States, 51% of adults pay zero federal income tax, and yet they have the right to vote. That’s the very definition of a system that can’t last.
I’m not sure where the tipping point is. So far, the power of the non-tax-paying majority has been blunted by the influence of political parties and the misdirection of the media. If the majority ever figures out that they can legally confiscate the wealth of the minority, tax rates will double overnight. My best guess is that the United States will go into a death spiral at about the point that 55% of adults pay no federal income taxes. We’ll probably get to that point as baby boomers continue to retire in large numbers.
As Vox has noted, “It’s not quite a legitimate analysis, in that many of those who don’t pay any income tax do pay payroll taxes.” I would also add that everyone pays certain federal taxes indirectly, like the taxes on automotive fuel, so even those living off government largesse don’t escape all taxes. At any rate, Adam’s sentiment is largely correct, and is a sentiment shared by economists Thomas Sowell and Walter Williams, among a host of others. Furthermore, the United States is definitely trending towards becoming a nation that has more taxtakers than taxpayers. Consider the following chart from Zero Hedge:
If this trend keeps up, we will definitely be in trouble.
By B.P.T., on April 18th, 2011
From whitehouse.gov:
In his State of the Union Address, President Obama promised that this year, for the first time ever, American taxpayers would be able to go online and see exactly how their federal tax dollars are spent. Just enter a few pieces of information about your taxes, and the taxpayer receipt will give you a breakdown of how your tax dollars are spent on priorities like education, veterans benefits, or health care.
I think this is a great idea, since it will clearly show the priorities of our federal government, so I went to the site and entered my information. Once I had done that, I entered information for several other common scenarios, and found a problem:
Oops! Given that over 40% of American households pay negative income tax, it seems unfair that they wouldn’t be able to use this calculator. Someone should tell the White House about this accessibility error, since I am sure they would like every person in the nation to be able to use this handy tool, and not only those with a positive income tax bill.
By Ajay Shah, on February 21st, 2011
My collection of links on the transition at SEBI from C. B. Bhave to U. K. Sinha.
How India’s banks killed the future of commerce on the Cleartrip blog.
The defining problem of the Indian State is the tension between spending on program that benefit the few (e.g. the typical UPA
welfare program) versus programs that benefit all (i.e. public goods). This problem even extends to skimping on resources for the
judiciary. See Dhananjay Mahapatra in the Times of India.
Greasing our shock absorbers by Ila Patnaik in the Indian Express, 3 February 2011. And watch her talk about the economy.
There is quite a bit of debate in India about big government versus small government. On this subject, Blanca Moreno-Dodson and Nihal Bayraktar have a note How Public Spending Can Help You Grow: An Empirical Analysis for Developing Countries. They compare a set of fast-growing developing countries to a mix of developing countries with different growth patterns. Considering the full government budget constraint, the empirical analysis shows that public spending, especially its `core’ components, contributes to economic growth only in countries that are capable of using funds for productive purposes. In addition, those countries must have an adequate economic policy environment with macroeconomic stability, openness, and private
sector investments that are conducive to growth. Unfortunately, their definition of `productive and core sectors’ reflects World
Bank ideology, and does not focus on public goods.
IT strategy for the Goods and Services Tax.
A great article on Saudi Arabia by Laurence Wright.
Tunisia and Egypt continue to be incredibly important and riveting. I really enjoy the thought, however fatuous, about every
strongman across the world sleeping a little less easy. See Why Egypt should worry China by Barry Eichengreen on Project
Syndicate. On the East Asia Forum, Peter Beck tells the story about how the dictatorship collapsed in Korea. Robert
L. Tignor on Project Syndicate locates the present discussion in Egyptian history.
Read this interview with Andreas Wesemann.
The wonderful world of Android: link, link.
Is Your Job an Endangered Species? by Andy Kessler in the Wall Street Journal.
Abrupt change in authoritarian regimes: Gary Becker, Richard Posner.
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