Blog Review 750

2290

blog-review-750

More on Krugman's Nobel. His essay upon development economics.

Krugman himself explains his work that led to the prize.

Yes, it really is all obvious or trivial: but only after someone has explained it.

On Blog Action Day, using Adam Smith to explain poverty.

Again for the day, some ideas on what we might do about poverty.

You can't trust government statistics and you can't trust the way they present them.

And finally, possibly the best newspaper in the country.

Save health savings accounts

Adding insurance to the mix creates a whole host of problems. First of all, it imposes significant administrative costs, which often exceed the price of the actual medical service. Secondly, insurance gives both the doctor and the patient an incentive to maximise costs – the patient because he's paid his dues and wants his money's worth, the doctor because he wants to increase his income. Thirdly, it blunts incentives to keep yourself healthy, because that's what you've got insurance for.

Moving to a more rational system, where people pay their doctors directly for routine services and insurance is confined to its natural role, is the key to reforming healthcare the world over – to keep costs under control, free doctors and empower patients. I hope policymakers realize that.

For a more detailed explanation of the benefits of health savings accounts, have a look our 2001 report Medical Savings Accounts.

2286

save-health-savings-accounts

According to the Investor's Business Daily, a Democrat controlled US Congress could attempt to drive Health Savings Accounts (HSAs) out of the market. They won't roll them up overnight, the article says, but they could tie them down with lots of regulation and paperwork, and cap the tax deductibility of savings at a low level – essentially rendering them useless. Given that healthcare is meant to be one the Democrats' priorities, it is hard to think of a more counterproductive step they could take.

According to a presentation I saw from the (US) National Business Group on Health a couple of weeks ago, 27 percent of large employers already offer health plans including HSAs, with a further 9 percent intending to do so for 2009. The reason for this is simple: consumer-directed health plans or CDHPs (which tend to include a savings/direct payment element and high-deductible insurance) are much more cost-effective than traditional group insurance options, coming in at an average $5970 a year compared with $7120 for health maintenance organizations (HMOs), $7252 for preferred provider organizations (PPOs), and $7714 for point of service (POS) plans. CDHPs, which are used in one guise or another by 55 percent of large businesses, can produce 3-year total savings of $1m per 1000 workers without compromising quality of care. In an era of uncontrolled medical inflation, that is nothing to be sniffed at.

The reason HSAs are so important is that unlike most proposed reforms they actually address the fundamental problem with healthcare today – the absurd overuse of comprehensive insurance. This applies as much to government systems like Britain's NHS as it does to mixed or private systems elsewhere in the world. Think of it like this: insurance is very useful for protecting us against unanticipated and costly occurrences, but is completely ill suited to the funding of predictable expenses. Why rely on insurance for a run-of-the-mill doctors visit or a bog-standard prescription? You know these things are going to happen from time to time, so you can plan for them. [Click 'read more' to continue]

Don’t tread on me

2289

dont-tread-on-me

Jacqui Smith has revealed that the government is considering creating a single, centralized database containing records of all telephone numbers called, time and location of calls, websites visited and e-mail addresses used by UK citizens. If this goes ahead, it will be yet another incursion by the state into the private sphere of the individual.

The reactions from Conservatives and the Liberal Democrats have been swift and correct. Dominic Grieve, the Shadow Home Secretary, said: "The Government must justify the case for any such massive increase in state acquisition, sharing and retention of data, spell out the safeguards to prevent abuse and – given its appalling record – explain how it will protect the integrity of any database holding sensitive personal data." Chris Huhne, the Liberal Democrat home affairs spokesman, said: "Ministers simply can't be trusted with confidential data of this sort, as it has shown again and again."

These disagreements are focussed on concerns for the practicality of the scheme. In fact, most of the arguments I have heard and read on this scheme ignore the disturbing ideology behind it. It would be nice to hear politicians refer to the principles of freedom and liberty, instead of simply banging on about the propensity the government seems to have for losing things (relevant as that is). Even if the scheme could catch more criminals and the government was able to protect the information, the essential point still stands that a centralized database of this sort gives powers to the state that they should simply never be allowed to have.

There is a great appetite for greater freedom in the UK, but no major party that is offering to give it to us to any meaningful degree. One reason for this is the ubiquitous demand for politicians to solve all problems and the delusion that leads them to claim that they can. When power is finally taken from Gordon Brown's Stalinist hands, there will be a real opportunity to roll back the frontiers of the state. However, the very real risk is that there will be no one in government with the will or gumption to do it.

Buy books via the ASI blog

2288

buy-books-via-the-asi-blog

As you may have noticed, I've changed the right hand column of the blog. While RSS feeds, category archives and so on can now be found in the left column, the right column is a collection of recommended books. If you click on an image, it will take you to an amazon.co.uk page, and if you buy the book, we get a cut of the sale price. So please – shop away! And if there are any good political/economic books you think we should link to, email them to info@old.adamsmith.org or leave a comment below.

On a related note, I've added paypal functionality to our online shop, so buying Adam Smith busts, ties and medallions has never been more convenient. Remember to think of us when it's time to do the Christmas shopping!

Blog Review 749

2285

blog-review-749

Somewhat in contradiction to Naomi Klein's thesis in The Shock Doctrine, crisis seems to bring on an expansion of State power....or at least, attempts to do so.

On which subject, no, we've not really tried having tax cuts, not yet.

Assuming a recession but no depression, the finance boom will have given us more than it will cost.

What happens when you really don't trust the banks.

Some sense amongst the nonsense about drugs.

The fruits of innovation: ain't capitalism great?

And finally, the journalistic cliche crash.

What next for the Republicans?

2280

what-next-for-the-republicans

The smart money says November is not going to be much fun for the US Republican. The Democrats are going to do very well in the House and Senate elections, and in the last month or so Barack Obama has assumed a commanding – and probably decisive – lead in the presidential polls.

Most of the blame can be laid at the feet of the Bush presidency. On domestic policy, ambitious plans to reform social security and immigration failed abysmally, while Bush's allegedly conservative administration nationalized public education (No Child Left Behind), created a massive new entitlement programme (the prescription drug benefit), and became the biggest-spending government since LBJ's 'Great Society'. And as for foreign policy...

However, you can't blame Bush for everything. John McCain must take some responsibility too. At its best, his campaign has been lacklustre. At its worst, it has been downright nasty and cynical.

Perhaps though, spending some time out of power might be the best thing for the Republicans. Like most political movements that have spent too long with their snouts in the government trough, they have lost sight of what they stand for and what their purpose is. Until they recover their political raison d'etre, no amount of clever campaign strategy is likely to help them.

What kind of party will emerge from such a period of reflection? At this point, it's hard to predict. Given the decentralized nature of US politics, various brands of conservatism will be trialled in the various states before, eventually, a coherent new message is developed at the national level. That may be some years away.

That said, there are a number of obvious possibilities. The Republicans could shift in an even more populist, big government direction, moving to the left on economic issues and to the right on social 'wedge' issues. Or they might move to the centre, adopting something akin to David Cameron's 'liberal conservatism'. They could even go back to their roots and become a party of limited government, individual freedom and personal responsibility.

Time will tell.

Tiptop

2282

tiptop

So the BBC reports that hospitals are already allowing top-up healthcare. Frankly, most people have known this for a long time, but politicians and the media have largely ignored it, in much the same way that they have ignored the costly failure of the NHS.

Of course, professor Mike Richards will present his review of co-payments at the end of this month. Given the pressure coming from the general public, one can only assume that this will formally allow them.

The results of this will be twofold. Firstly, it will finally lay to rest the hugely misguided idea that government could ever provide a comprehensive health service completely free at the point of use. Secondly, it will transform NHS care from an open-ended entitlement to a defined benefit. The inevitable spread of co-payments and private top-up insurance that follows will surely lead to a revaluation of the future role the NHS.

Certainly, a safety net should always exist to guarantee a basic standard of healthcare for all UK citizens, but beyond that minimal guarantee the state, and politics, needs to be taken out of healthcare altogether. People should be free to take control of their own healthcare by redirecting largely wasted taxes into personal health saving accounts, and paying their doctors directly for services rendered. That would be far more efficient, and far more likely to encourage healthy living, than the bureaucratic monolith we have at the moment.
 
Systemic NHS failure is starting to force the hand of politicians, yet they are not keeping up with events. Labour has poured money into healthcare to little effect, the Conservative’s are not prepared to rock the boat, while the Liberal Democrats have a long way to go in their tentative exploration market based solutions.

In fact it is the Liberal Democrats who are best placed to put healthcare reforms on the agenda. With the Conservatives focussing on the less divisive educational reforms, health reform could (and should) form the central pillar to sell the party to the nation. Now where did that orange book go?

Blog Review 748

2284

blog-review-748

This changing the face of finance forever: do we really want to throw the baby out with the bathwater?

The big news of course is the Nobel for Paul Krugman (far more important than the economy going to hell in a handcart, far more so). Why we should be happy about the views of the pre-eminent left wing economist.

What he's actually got the prize for in terms of theory.

One of his more interesting theories and a modification of it.

Thankfully he does have a lot to be proud of.

Back to the economy. Yes, it really could be a failure of regulation we've got here, not a failure of markets.

And finally, pictures, words, 1,000.....

Was Hayek right?

2276

was-hayek-right

So Paul Krugman has won this year's Nobel Prize for economics. Well, congratulations, I suppose, but Krugman's not exactly our kind of economist. Anyone described as neo-Keynesian has got to be bad news.

One interesting question, which I was asked yesterday, is whether there should be a Nobel Prize for economics at all. Friedrich Hayek, who won it in 1974, subsequently said that had his opinion been consulted, he would “have decidedly advised against" its creation.

I can see his point. After all, the old joke is that if you take two economists, you get three points of view. It’s not like physics, where you can test things and then everyone can agree at the end of the test. Economics is complicated. It’s a human science, and human beings are unpredictable.

At the same time, most economics is very academic, very rarefied. Its link with what’s actually happening in the world is tangential. It is too much based on mathematical theorems with little basis in reality.

Hayek used to say the success of a country was inversely proportional to the number of economists. I don’t think he was wrong. But then again, all the economists were Keynesians in his day.

Now I think about it, yes, maybe we should get rid of the Nobel Prize in economics – at least once Israel Kirzner has won it, anyway.

Cause and effect

2277

cause-and-effect

Situated as we are in the midst of the financial crisis, many of the major papers (tabloid and broadsheet), are confusing the effect of the crisis with cause of it. As such, it is good to see that Bruce Anderson in The Independent has written instead on the original sin that caused this crisis.

Anderson writes: “Excessive benevolence is much more to blame than excessive greed." Going on to elucidate that “In the late 1990s, a Democrat-controlled Congress virtually compelled US banks to advance mortgages irrespective of the applicants' financial status. Racial factors played a role in this; a large percentage of sub-prime borrowers were Black or Hispanic. But everything was underpinned by economic optimism. The assumption was that the economy would just keep on growing, so that even the poorest families could have their stake in the American dream."

We at the Adam Smith Institute have been making this point for a while now. Certainly, blame should be apportioned to many individuals outside of the US government, but the fact remains that the nascent cause of the current trouble was anti-redlining laws instituted in the US in 1977 and strengthened in 1995, along with the enormous expansion of the money supply that took place under the auspices of Fannie Mae and Freddie Mac (backed by the Department for Housing and Urban Development). Even as the severity of the credit bubble was becoming increasingly evident, such socialistic polices were advocated by the likes of Polly Toynbee in The Guardian, suggesting that poorer people should be given even more opportunities to borrow.

Bad government policies sowed the seeds that made this current crisis. It is time that the press at large acknowledged this, instead of confusing cause with effect. Government’s must learn their lesson and not be allowed to introduce such utopian policies again. Once again the problem was too much government, not too little.