Preston Byrne says legal aid has to go

Over at the New Statesman, Adam Smith Institute Fellow Preston Byrne argues that the state needs to extricate itself from legal aid, in order to allow pricing to operate more rationally and create a competitive market:

Remuneration structures for legal aid mean that service providers have traditionally had no incentives to “compete on price,” competing instead on “the basis of reputation.” This arrangement, pointed out the final report of the Labour-commissioned Carter Review in 2006, penalises “the efficient practitioner who manages to dispose of a case efficiently in circumstances where this is the right course of action” as he or she would “receive less in case fees than the inefficient practitioner who does not succeed in addressing case issues efficiently.” (page 26)

The inefficient practitioner, in certain circumstances, is thus rewarded. This is not to say that reputation should not be a factor in selecting a lawyer – far from it. Even with classes of goods that are more homogenous in function, such as toasters, an individual product can command a higher price if it is of better quality. In the private sector, a client's selection balances a lawyer's reputation against his or her fee, with the client benefiting from price competition between equally talented providers. No such competition, however, exists, nor can it exist, within the current legal aid structure.

The Labour government attempted to address these issues in 2008 by introducing graduated fee arrangements – termed differently, price controls. Lawyers found these problematic when they were introduced, (paragraph 11) and continue to find them problematic today (paragraph 389); much of available state-funded work is “plainly inadequately remunerated,” says the Bar Council, despite the fact that the cost of the system to taxpayers continues to rise.

Read the whole thing.

Politics is so nasty because we're all speaking different languages

If you’re frustrated by how vicious and pointless politics is, a brief Kindle single by Arnold Kling may offer some insight. “The Three Languages of Politics” (£1.34, US link) dissects one of the main problems with politics: that progressives, conservatives and libertarians are all speaking different languages that rarely overlap and cause us to misunderstand and vilify our opponents.

The three languages are based on three different ways of thinking about problems. Progressives, says Kling, see political problems as being conflicts between oppressors and the oppressed; conservatives as between barbarism and civilization; libertarians as between coercion and freedom. These ideologies cannot be boiled down to these three things, but the rhetoric used by their adherents often can be.

As a libertarian I often find discussions with non-libertarians frustrating because they don’t even seem to care about the stuff that matters to me. (I’m told the feeling is mutual.) On drugs, for instance, conservatives seem not to care at all about the fact that people are put into jail for what they do in the privacy of their own home, and progressives often only seem to object to the harm caused by anti-drug laws, not to the very fact that these invasive laws exist at all.

Of course this is frustrating and it is tempting to say that these people are coercive authoritarians – just as a progressive might say that I am a defender of oppressive businesses when I advocate for looser business regulation, or a conservative would say that I want to let British society unravel by letting more people immigrate to the UK. Maybe they have a point, maybe not. We’re speaking different languages without realising it.

The phenomenon of ‘motivated reasoning’ doesn’t help. The more informed a person is, the more closed-minded they are. If your web of belief about politics is well-developed, you will have stronger prior reasons to dismiss new information that contradicts what you already know. We are much quicker to question the methodology of a study whose conclusions we dislike than one we like.

And politics is usually about tribes, too. Even if you aren’t a member of a political party, you probably know people you consider to be on your side in politics, particularly if you are immersed in politics in your job or an extracurricular hobby. Much, even most, political discourse can be seen not as an effort to change the minds of your opponents (or your allies), but as a way of developing your status in your tribe.

All of these factors contribute to a poisonous political environment that rewards tribal point scoring above all else. Disagreement is never comes from honest error, but from malice or stupidity. Arnold Kling’s “The Three Languages of Politics” is a wise, insightful deconstruction of the hatefulness of political discourse. It is a classic. Everyone who talks about politics should read it.

Video of George Selgin's talk "Could deflation be salvation?"

George Selgin spoke the tuesday before last, 28th May, on the possibility some deflation—that coming from improvements in the supply side—is not harmful to the economy, but good. He made an extremely convincing case, pointing out that the so-called Long Depression of 1873-1896 was actually the site of a vast improvements in living standards and social welfare. And he pointed out that the problems attendant with deflation, that economists are fond of pointing out, only obtain when that deflation comes from a demand shock, not a change in supply.

Keith Boyfield

Keith Boyfield is a well known economist, educated at the London School of Economics, specialising in economic, competition and development policy. He heads up a City consulting firm, Keith Boyfield Associates Ltd. He has written over seventy studies for several leading think-tanks. Keith is the Africa Editor of the Journal of World Economics, and has served as Chief Economist and Chairman of Leriba Limited (a pan-African research consultancy). He has written for a wide spectrum of newspapers, magazines and journals worldwide and he is member of the Editorial Board of Economic Affairs, the IEA’s quarterly journal.

Keith has advised and acted as consultant to a range of range of multinational companies, trade associations and non-profits including Aon, the BBC, BNFL plc, the Commonwealth Business Council, The Crown Estate, J P Morgan, and KPMG. His consultancy work has focused on the agri-business, energy, mining, financial services, media, property and aviation, shipping and transport sectors. He has also co-chaired a number of major international conferences and summer schools in Baku, Dublin, Ireland, and Washington DC.

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Chart of the week: US household debt still above sustainable area

Summary: US household debt relative to disposable income rose slightly in Q1

What the chart shows: The chart shows US households gross debt, relative to personal disposable income. This debt/income ratio edged up in Q1 2013 for the first time since Q1 2009.

Why is the chart important: The financial crisis that erupted in 2007 was very much an excess debt crisis. Historically, US households have shown themselves able to carry a debt burden that puts their interest and amortisation payments around 15% of disposable income. By 2007, interest and amortisation took 18% of disposable income and debt was close to 130% of income. The implication was that debt was 1/6 too high at normal interest rate levels. This means that debt had to come down from 130% to below 110% of income. But, unsurprisingly, households continued to deleverage. The Q1 2013 figure (if not revised away) shows that households now feel confident at taking up some debt again. This strengthens the case for a sustained US recovery. US household debt relative to disposable income rose slightly in Q1.

Calculating the cost of bureaucracy

Paul Walker looks at an interesting paper about the costs of bureaucracy in trade. For that is what "trade facilitation" really means: reducing the bureaucracy you have to deal with in trying to export something. The same would obviously be true for importing something. And those costs are high. The general finding is that getting the places with bad bureaucracy up to hte stasndards of those with good (ie, little) would have an effect as large as a general reduction in tariffs. So at least a couple of percent is being talked about here.

We can take this further though. Such costs of bureaucracy are not simply on foreign trade because foreign trade is not the only form of trade we have. We obviously also have inland trade or what we generally call "the economy". People buyin' an' sellin' stuff to and from each other. And the findings that apply to foreign trade will also obviously apply to the inland trade as well. The more bureaucracy there is then the less trade will get done: the simpler (or less of it) the bureaucracy there more trade will get done. And as it is indeed trade that produces economic wealth this would make us all richer.

What's really interesting about the less bureaucracy on foreign trade results is that small firms gain as well as large. Thus we're not seeing the small guy being trampled when the big boys are let off the regulatory leash.

So, there really seems to be no reason at all why we should not reduce bureaucracy in order to make us all richer. And those bureaucrats will now have to go and do something useful for a living: shame, isn't it?

A better way for hospital care II

Two years ago, the ASI’s No Need to Flinch set out a raft of proposals to shake up the NHS’ demand side. We called on the NHS to treat people as individuals with less heavily aggregated risk pools, we called for funding options to be widened, and we made the case for allowing co-payment on procedures the National Institute for Clinical Excellence would not otherwise fund.

Under this system most would be obliged to purchase insurance—like the car insurance regime in the UK—while end of life care and accident and emergency would be paid for by the state, as determined by a political consensus. The issue then becomes reform on the supply side—hospitals.

Governments have grappled with this for generations, giving rise to perennial complaints about “NHS reorganisation”. In fact, hospital doctors always see the civil servants off: they’re the smartest guys in the room, furnished with the best data and ruthless in exploiting the fear-factor. But the public would be best served if the components of secondary care were broken up to embrace a variety of approaches, so that best-practice emerged continuously from what Tim Worstall’s recent blog post called “market processes …an endless repetition of experimentation”.

This would include all secondary care: ambulances, labs, specialist clinics. Most of all hospitals, although it is often argued that full service calls for concentrating the required skills in big operations. There is something in this, but not so much as to render integrated hospitals beyond competition. In the first place the argument misses the mark. Even now, we accept some specialities in regional if not national settings. Meanwhile national guidelines impair the experimentation which makes for progress. More to the point, even the largest hospital is susceptible to competition. This is because even small reductions in demand threaten the specialist functions which justify its existence.

Disposals also promise relief to the Chancellor. ASI’s 2010 study of the UK’s intergenerational obligations, On Borrowed Time, showed Britain’s secondary healthcare to be worth around £200bn. Considering corporation tax reductions and market increases since then, it could now be worth £300bn.

Let’s recast integrated outfits to maximise choice for scheduled activities where patients have discretion. Let’s also contemplate several business models: overseas groups, newly-listed companies, professional co-operatives and charities or universities. And finally, let’s set aside a fraction of receipts for practitioners, following Bevan with the consultants when he “stuffed their mouths with gold” to win them over to the NHS. So the Exchequer might only get half the headline sum. That would be £150bn, not quite fifteen percent of the national debt, but well worth having.

Best of all, if hospitals failed to attract referrals from GPs, already at arms-length, even the largest would shortly find their specialist functions at risk: market discipline would enforce reform, something beyond seventy years of NHS control. So let's free up the rigid UK healthcare system and inject some innovation, competition and diversity in.

Destroying jobs is the entire point of this invention stuff

The ONS has a nice set of statistics about how the world of work has changed over the past 170 years. Changes which underlie my insistence that the whole point of this advance and invention stuff is to destroy as many jobs as possible.

In 1841, over one in five workers (22%) were in the Agriculture and fishing industry.

This has now fallen to under 1%. But we produce an awful lot more food than we did back then.

In 1841, a third of the working population (36%) worked in manufacturing and in 1901 this was at a similar rate of 38%.

This has now fallen to 9%. And we do indeed still manufacture an awful lot more by value than we did back then.

The answer to how we did both is that we invented machines that did a lot of the work of those people. Yes, this did indeed mean that these people thus became unemployed: which was the very point of making the invention. The point of the mechanical hay baler is to make manual hay balers unemployed. The point of the robot riveter is to make human riveters unemployed.

And thus those made unemployued by the technological change can go off and work in services. Which is how we all become richer: we've now got the machines doing the food and the manufacturing, the humans doing the services and we get all three: food, manufactured goods and services.

Think about it for a moment, if we still had 22% in farming and 36% in manufacturing then that's 58% of the people. Currently 81% of the population work in services (there's a bit in construction, water etc as well). If we've 58% who cannot be in services because they're in food or manufacturing then we'd, just as in 1841, only be able to have 33% working in services. So, which half to two thirds of the services we currently do get would you like to give up simply because we don't have the people available to do them? OK, we all agree the diversity advisers can go but beyond that?

Quite. By mechanising agriculture and manufacturing we've been able to get the production of both of those that we desire and also have a vast expansion of services that we also get to enjoy. We have more thus we're richer. And that of course is the point of doing such mechanisation: to make us all richer and long may it continue.

A better way for hospital care I

Relieving the State of a hospital sector it has never been able to control would raise standards and reduce Britain’s national debt by close to fifteen percent.

In the private sector, if outfits fail they are reorganised, we call this bankruptcy. In the public sector, if outfits fail they are supported with our taxes—heaven knows what to call this—solidarity? compassion? How about hokum?

Yes, they keep us alive; yes, they’re free at the point of use; but let’s get real. NHS hospitals are unwholesome—hospital infections are now an NHS commonplace. They're unfriendly—try getting a diagnosis from a consultant whizzing through ward rounds. And they're inharmonious—listen to front-liners talking about clinicians, consultants about GPs, or any of them about porters. Such ill-feeling leads at best to bloody-mindedness, at worst to irregularities like the mid-Staffordshire deaths or newly-disclosed lapses in late-week aftercare.

And the keeping alive thing isn’t going so well: two years ago, the ASI’s No Need to Flinch presented data showing that the NHS is undistinguished by comparison to its peers. It is certainly free at the point of use, but that’s one of the problems: without pricing we have centralised rationing, priorities set by bureaucrats using clinical pretexts for essentially arbitrary decisions.

The NHS has become an ethical dump. Ordinary people are assumed to be unable to make their own decisions. They face policies which second-guess their choices, ration healthcare surreptitiously, allocate provision according to the state of public finances, and deprive patients of treatments in a public setting if they want to fund them directly.

As to economics, for as long as healthcare is unpriced, it is subject to infinite wants, especially as populations age and new technologies emerge for diagnosis, treatment and bodily modification. Prices would help patients make informed choices, as in the private sector.

Looking at practicalities, as ever in public supply the producers have captured the system, running it for their own purposes. Doctors, nurses, radiographers and pharmacists collaborate reluctantly in an ill-tempered armistice covered by paperwork in triplicate. Compare private healthcare, where professionals co-operate promptly. This is because customers with choices ensure that private healthcare competes to meet their needs. By contrast the NHS monopoly prevents customers going elsewhere; instead the Department of Health creates tick-lists, demoralising practitioners who game them. The NHS needs the discipline and coordinating force of the price system.

No healthcare tinkering can deliver the radical shake-up we need

Health minister Norman Lamb MP was our guest at an afternoon seminar in the House of Lords which we held in partnership with healthcare specialists LCS International Consultants. Lamb outlined the new measures on social care currently going through Parliament.

The measure has several objectives:

1. to provide services for the well-being of individuals, not the convenience of the providers;
2. a right to be assessed for state care services without being fobbed off;
3. encouraging innovation and promoting integrated services;
4. a focus on prevention;
5. diversity in service provision;
6. a cap on care costs (the so-called Dilnot proposals);
7. a commitment that nobody should be forced to sell their home during their lifetime to pay for care;
8. no postcode lottery and continuity of care if you move;
9. nobody loses care if a provider fails; 
10. better care for young adults, who often fall between child and adult services.

Who could disagree with the aims of all this? Trouble is, to the gnarled political insider, it all sounds like the same wish-list folk have been talking about forever—well, for at least the last thirty years in my experience. We published back then on individual-state partnerships for long-term care finance, basing our ideas on US models that were already working, a good quarter century before Andrew Dilnot discovered them. We are supposed to have had "joined up government" fifteen years ago under Blair, but still people languish in NHS hospital beds because local authorities don't want them on their budget. And as for putting people before providers—give me a break.

A state health and social care system is never going to deliver person-focused care. It's not the way governments work. State institutions are too big to manage, and individual needs are too diverse for a large bureaucracy to accommodate. When this law is passed, lots of new managers will be recruited and maybe a few people's care will be marginally improved: but there will be no radical and systematic shift to care being built around individuals. Providers will follow the new rules, but still will not be enthusiastic champions for the specific needs of each person they try to help. They are simply too big and too inflexible.

Private charities are much better at dealing with the manifold needs of diverse individuals. So are businesses, which only make money if they keep customers happy. Until we break the state's effective monopoly on funding and provision of health and social care, and empower individuals to buy in the services that they want, I fear we will be having the same conversations another twenty-five or thirty years from now.