The Pin Factory Blog

Second only to zombies, the topic du jour it seems is lambasting the NHS. A new study brings some suitably shocking statistics for those who’ve already sorted their contingency plan for an invasion of the undead and aren’t overly concerned with Kerry Katona’s mental health. Apparently not only do NHS workers take more sick days than the average public sector worker and smoke just as much, but more than a quarter have absences due to ‘stress, depression and anxiety’.

Yes, the figures aren’t promising and are worth some consideration, but in reality they’re far from shocking, and most are in fact related to the job. Work in a hospital? Congratulations, your chances of getting an infection have significantly increased. While the Telegraph says picking up infections from patients wouldn’t explain all the absences, the runny noses and common colds the rest of us can work through will worsen the condition of the already sick. Far better to take a sickie and not risk it.

Saying the smoking figures should be lower because those working in hospitals have seen the effects first hand is failing to acknowledge that we all know someone who’s had cancer, we’ve all seen the effects and it hasn’t stopped one in five of us. Why should they be any different?

And the high stress and anxiety levels also come with the job. Every sympathy with that bad day in the office, but you don’t have people putting their life in your hands, you’re not handing out life-changing diagnoses, and you’re not dealing with people who are upset through sickness and bereavement – all valid reasons for a calming cigarette.

In the end, perhaps not so shocking. If these statistics extracted those in front line services from bureaucrats there might be a story. As it is, it is another missed opportunity to tackle the many necessary debates that need to be had on the future of healthcare in this country.

Writers at the Guardian seem to have skipped out on history and economics class. As an American economics student I was appalled to read the headline: A history lesson for George Osborne: In 1937, Franklin Roosevelt abandoned New Deal spending and cut the deficit. The result? A disastrous double-dip recession.

The article picks random facts about FDR’s administration and economic indicators to draw false conclusions. One conveniently overlooked fact was the Judiciary Reorganization Bill of 1937. Nearly every New Deal policy was declared unconstitutional in the early1930’s. Then, FDR forced the “switch in time that saved the nine.” Afterwards, every New Deal welfare and regulatory policies were constitutionally upheld. This caused a massive increase in economically detrimental policy.

The article also misinterprets statistics. The unemployment rates throughout the 1930’s never dipped below about 13% and were at no point healthy, nor was the budget. Also, Keynes did in fact have direct influence on the FDR administration. There are records of advice from the early 1930’s.

What really hurts the article’s credibility is its claim that the depression ended ultimately due to WWII. This is a subscription to the broken-window fallacy. The saving grace of the Great Depression was not more government-induced destruction, but responsible fiscal policy.

What’s most ironic is the absence of Britain’s history in the period. Britain’s recession from The Great War was extended throughout WWII. Whereas in the US, president Coolidge’s administration halted the early 20’s recession with slashing spending and taxes.

It’s very dangerous to tell false history. The article is correct on one thing: Keynesian economics still influences public policy. Thankfully, Osborne seems to have taken a page out of Friedman’s book.

The Mayday holiday on the first Monday of May has brought holiday fatigue to the middle of Spring. We've had Good Friday and Easter Monday, and the late May holiday, formerly Whit Monday, is this year on May 25th. This early May holiday was introduced by a Labour government to coincide with Labour Day in Socialist countries. (They celebrated it in the Spring, full of the promise of hoped-for achievement. The Americans celebrate it in September when the harvest is in and the achievement secure).

Meanwhile, the late August public holiday is on August 31st, leaving a gaping absence of days off until Christmas Day.  The obvious way to ration them out is to move the superfluous and unsound Mayday holiday to somewhere in the middle of that gap.  Trafalgar Day (October 21st) is an obvious candidate. We could have the holiday on the nearest Monday to it to give us another long weekend. It celebrates a great achievement for our nation, and one which secured its freedom until quite recently. As we struggle now to restore some of that lost freedom, the day and the holiday might strengthen our resolve, so that in later years we could celebrate that victory, too.

In response to a blog a wrote a few weeks ago, I was asked, "Does this mean that the competitive free market economy of Adam Smith does not exist in the real world? That it is today a government managed economy through supply side and monetary policies?" It's an interesting question, and it is very easy to get depressed about the state of the world at the moment – but I still don’t know that I'd go that far.

On the one hand, it is probably true that no country in the world has a pure free market economy. In unstable or extremely undeveloped countries, you don't get proper free markets (even in the absence of government intervention) because the institutions needed to support them, like secure property rights and the rule of law, are absent. And when countries do become stable and developed, they almost always end up with governments committed to managing the economy and micromanaging citizens.

So yes, pure free markets (in the theoretical sense) probably do not exist in the real world. What we have instead is varying degrees of state capitalism – the most successful versions being those that maximize individual freedom and allow the greatest degree of competition.

But on the other hand, I don't think we should despair. Maybe there's no free market utopia, and maybe there never will be. But ultimately individual freedom (and, by extension, the free market) will always be more powerful than statism, because it goes with the grain of human nature – people are inherently entrepreneurial, dynamic and individualistic. So while governments will probably never stop trying to manage everything, they're never going to succeed in managing everything either. Indeed, the more complex, diverse and advanced economies become, the harder it will get. There will never be a perfect world, sure, but in the long run liberty has the upper hand.

The coalition government outperformed most expectations in its first 100 days. The document that set its agenda contained measures causing unease in both parties. It did not just highlight areas of overlap; there were few of those. Instead it represented horse-trading, with Liberal Democrats agreeing to some policies they opposed in return for Conservatives doing likewise.

It has been a surprisingly firm government. George Osborne has impressed the City and most analysts with his resolute approach to spending cuts. He reassured the financial community that Britain is serious about bringing the budget to balance and eliminating the huge deficit run up by Labour.

Education reform is radical. With the state allowance per child going to finance free places at new schools founded by parents, teachers and business groups, parents can escape from under-performing schools. It will restore much of the social mobility lost with the grammar school closures.

Some talk of lowering university admission standards for applicants from poorer schools, but the planned reform outflanks the issue. The new schools should raise standards sufficiently for their students to win university places on merit.

The welfare details have yet to be filled in, but Iain Duncan Smith stressed that welfare dependency as a career option will be closed off. This is as it should be, with welfare to help people without trapping them. Duncan Smith's principle, that work should always be worthwhile, is a good one. Coupled with the raising tax thresholds, the work/welfare balance looks set to shift dramatically.

Critics say that the reviews and commissions established simply kick difficult issues into touch, but what the government has been doing is laying down markers in key areas while it still enjoys some honeymoon popularity. There will be tax simplification. There will be much unwinding of Labour's surveillance state. There will be a power transfer to local levels. There will be reform of financial regulation. There will be a thorough shake-up to make our armed services better able to do their job.

People want from the government a clear sense of purpose and a determination to put right much of what is wrong with Britain. Business still awaits news on how over-regulation is to be curtailed. And we still wait to hear how our police forces are to be made more user-friendly and efficient.

But the early news and the omens are good so far, and better than many people expected. If the coalition carries on as it has started, and survives the faults and fissures of in-party manoeuvring, it could well go the full term.

In his most recent open letter to the Chancellor, the Governor of the Bank of England, Mervyn King, wrote that inflation was expected to remain above its 2% target until the end of 2011. Inflation was running at 3.1% in July. The current bout of above target inflation was attributed to a series of temporary shocks: the VAT hike, energy price rises and increased import prices following a depreciation of the pound. The Governor paints a rosy picture, saying that the effects of these shocks will gradually fade away and that spare capacity in the labour market will ensure inflation returns to target. This outcome is predicted even though the Bank’s current interest rate policy, in more ordinary times, would have caused substantial inflation. The problem with the prediction is, as ever, to do with inflation expectations.

If people and businesses expect higher inflation, they demand higher wages or charge higher fees; this in turn causes inflation, which again increases inflation expectations and so on. The Bank’s interest rate is at its lowest level in three centuries. Quantitative easing has seen the Bank effectively print 200 billion pounds. Presently, most of this 200 billion is part of the monetary base and not yet ‘real money’ and so is exerting only limited upward pressure on inflation. The low interest rate and quantitative easing are signals that the Bank is not serious about tackling inflation, caring more about bolstering GDP figures.

These twin policies may be the thin end of the inflationary wedge. First, by behaving as though it doesn’t care about keeping inflation in check the Bank could well be increasing inflation expectations and so risks becoming a cause of higher inflation in its own right. Second, as the economy returns to growth, there is every possibility that the huge amount of newly printed base money will be converted into real money. This would decrease the purchasing power of each pound and cause upward inflationary pressure, particularly if combined with a low Bank interest rate. What compounds these two pitfalls is that the Bank is unlikely to act against rising inflation soon enough. The Bank’s interest rate policy has its maximum effect on inflation two years after it is enacted. If the Bank has to wait to see rising inflation before it does anything it will already be too late.

In addition to issues like foreign policy and taxation, energy (and its illegitimate cousin, environmental policy) has become a central figure of campaign platforms and stump speeches for US presidential candidates. Classically, Republicans want to increase domestic fuel supply primarily as an aim of foreign policy, while Democrats want to pursue ‘alternative energies’, mandating better fuel efficiency and stricter emissions limits for environmental reasons.

However, candidates from both sides have failed to grasp the economic realities of the situation beyond their own pandering positions. Even as oil prices stretch up to $100/barrel, most Americans still drive personal cars as their primary or only means of transport. And while factions remain that advocate environmental standards or nationalist economic policy, most Americans aren’t ready to drastically change the regular functioning of their lives for far-reaching government agendas – all they really value is lower gas prices.

The National Center for Policy Analysis has found that a major and overlooked culprit of high gas prices is not foreign oil or greedy companies but the lack of refineries, a result of clean air legislation and ethanol quotas which creates a bottle-neck in petrol production. Republicans, usually in favour of the de-regulatory policies that would increase the number of refineries, choose instead to advocate policies in line with their foreign policy, while the Democrats are apparently yet to meet an environmental regulation they don’t like.

Once again, the presidential candidates have passed over sound economics in exchange for manipulative policies that achieve their own foreign and domestic goals, leaving the American voter in the dust.

I went to a fascinating lunchtime discussion at the International Policy Network yesterday. The guest of honour was Grace-Marie Turner (left), the president of the Galen Institute in DC and an expert in free-market healthcare reform. She gave a fascinating talk about the problems facing US healthcare, and the approach President-elect Obama is likely to take to reform.

One of the interesting things about the healthcare debate in the US is that they actually have so many different systems operating at once: there are health savings accounts, private insurance, managed care, government 'insurance' (Medicare), and even single-payer systems (healthcare for veterans and native Americans). And then there is Medicaid (publicly-funded healthcare for the poor), which operates differently in every state. Such multiplicity may make the system difficult for outsiders to understand, but it also means that there is enormous scope for both experimentation and the analysis of different policies.

One state in particular seems to be taking an innovative – and potentially very significant  – approach. Indiana Governor Mitch Daniels has essentially turned Medicaid into a high-deductible insurance plan for those earning less than 200 percent of the Federal Poverty Level. Participants get fully subsidized and comprehensive healthcare, but must pay for the first $1100 of annual treatment themselves. The plan requires individuals to make mandatory monthly contributions (topped up by the state if necessary) to a health savings account, which can then be used to pay directly for these expenses.

The great thing about this system is that ensures everyone has access to healthcare while also confining 'insurance' to its proper place – protecting people against big-ticket expenses. Extending third-party payment to minor treatments (as most health systems, public or private do) is actually a major driver of cost inflation in healthcare, since it imposes significant administrative costs, gives both the doctor and the patient an incentive to maximise costs, and blunts incentives to stay healthy. Getting patients to pay directly solves these problems.

It is fairly easy to see how such a system could be translated into the UK as a major NHS reform, which could have significant benefits for patients, doctors and taxpayers.

Spending more on public schools doesn’t increase students’ academic performance. Fill in the blank.

I’m not sure how this story passed me by, but it is a rather fascinating development in how children are taught. For £12 per hour, Ashmount Primary in Islington is now outsourcing some of its teaching to the university town of Ludhiana in the Punjab.

The school is clearly happy with the service from BrightSpark, which allows for one-on-one tuition via videocalling over the internet. Assistant headteacher Rebecca Stacey said: “We were approached to do the pilot, and started very small with just a few pupils, but we quickly realised it was having a positive impact and so increased it so half of our Year 6 pupils are using it.” It just goes to show that, despite the lack of market incentives, some teaching professionals in the state sector are still willing to put children ahead of the teachers – something that should be commended.

Some of the comments from teachers on the TES website show how misguided the objections to this practice are:

Objection 1: “This idea stinks. It is all about a private sector company making money out of UK education.”

Answer: No – it is all about a private company offering a superior service at a cheaper cost. What matters is the result for children.

Objection 2: “I’m a fully qualified primary school teacher, with years of experience, who has specialised in Maths support and who was made redundant. I'm now considering relocating to New Zealand so I think you can imagine how I feel about this.”

Answer: The fact that people lose their jobs is never something to celebrate (politicians excepted), but the children, schools and parents should be free to improve their lot and not be sacrificed for the benefit of less efficient teachers and methods.

Objection 3: “The ethical issue is whether one can hire teachers for salaries and working conditions which would under no circumstances be unacceptable in UK. Ask yourself why you would have different standards for people in these two countries!”

Answer: This is profoundly naïve. These employees are freely choosing to work in what are in fact very good conditions relative to the majority of the population. To take it away and make their lives worse would be wrong.

The subversion of the power of vested interests that this move represents could, if it takes off, have a profound influence on quality of teaching in this country. When it comes to education, we have a lot learn from the rest of the world. India already has many private schools for the poor, while the cultural value that the people place in education could inspire a society disillusioned on the transformative power of education.