Why is American health care so expensive?

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It's an interesting question, why American health care is so expensive. It's also an important one as various parties line up to radically change how the system works and throw the odd $ trillion or two around while doing so. As Greg Mankiw, Russ Roberts and others point out, part of it may be to do with the remuneration doctors get. Other explanations are also floated, such as the tax deductibility of employer provided health insurance, excessive treatment in the last few months of life, the way in which the US system carries much of the development costs of new drugs, well, add your bugbear to the list. And there's truth in all of those complaints as well.

It's certainly true that the US spends more of its GDP on health care than other countries, there can be no doubt about that. But why not look at this through the other end of the telescope? What if it's the US that is spending the correct amount of national income on health care and everyone else who is wrong, everyone else that is the piker? That was the thought that Johnny Munkhammar of Timbro floated back in 2005 and I still find it persuasive.

Firstly, take the point that as income changes we spend different proportions of those incomes on different things. Subsistence farmers spend almost nothing on entertainment as they are too busy ensuring they subsist. As incomes rise we quite naturally spend more on leisure, education, clothing, housing and making idiotic TV shows. It isn't just amounts that change, but proportions: food now takes some 10% of the weekly budget as opposed to multiples of that only a few decades ago.

Now, how would we decide what is the "correct" portion of these rising incomes which should be spent on any particular sector? The best way to find out what the individuals whose income it is think about it is to have a free market in it. Let the people choose as it were. Now, neither Munkhammar nor I are saying that the US health care system is an entirely free market. But it's a lot more free than anyone else's in the rich world. So perhaps, as incomes rise, people actually do want to spend 15%, 16% of national income on health care, for that's where they perceive the greatest marginal utility? The biggest bang for their buck?

If this is true then it's the US that has the better system, not us in Europe who deliberately cram down the amount spent on health care as a percentage of national income. We're deliberately denying the will of the people in over riding their wishes and insisting that the Man in Whitehall knows best.

Why we're mad as hell

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A council cleaner in Buxton earning £14,000 a year - officially below the poverty line - pays her income tax and then gets an extra bill from the BBC for a licence tax. She pays that to a wealthy TV executive driving into London who claims on his expenses for a congestion tax paid to a government quango.

The taxes are used to fund a taxpayer maintained MP's flat-screen television so that the MP, eating food paid for by the taxpayer can watch the Prime Minister on television talk about a "fair and equal" society and how he is determined to make the economy grow.

That's mad as hell, and so are we, and we are NOT going to take it any more.

The dispersed interest of taxpayers is gradually being allowed transparency of the grand corporate culture that emerges when big institutions get grand ideas.

Those cultures have to change. Three hundred pound hotel rooms, expensive meals after an "extended working day of 12 hours" do not go down well with the small businessman tucked in his Travelodge bed with the late evening hamburger half-eaten at the bedside after 16 hours on the road trying to avoid trading losses. They go down worse with the cleaner from Buxton hearing about six hundred pound restaurant meetings for Controllers when she's stuck in a janitorial cupboard being told by her supervisor that her supplementary hours are being cut due to shortage of cash.

It's time the BBC executives "got it" as well as MP's.

All good things…

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After a wonderful month in Westminster, I bid a fond farewell to my friends at the Adam Smith Institute.

It was an exciting time in UK politics and, consequently, an exciting time to be at a leading UK think tank. Courtesy of the ASI, I had a front row seat for the unfolding of the MP expenses scandal, the historic European Parliament elections and the near collapse of Prime Minister Brown’s government. There was a two-week period when not a day went by without a major media outlet – be it CNBC, the BBC or a national newspaper – calling for an interview with someone on the ASI staff. I had an amazing experience from start to finish.

It was a privilege and a pleasure to work with the outstanding people at the ASI. The people at ASI are of the finest quality as are the ideas and work product they generate. They certainly convinced me to reevaluate my policy positions in a number of areas.

Although I leave 23 Great Smith Street behind, I will certainly remain connected to ASI through the Facebook groups, Twitter and, of course, the Blog.

Change is coming to the House of Commons. I can hardly wait to see what role ASI will play in the development of a new (and better) Britain.

Public sector ineptitude

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The DWP (Department for Work and Pensions) announced yesterday that the amount of five key income related benefits that went unclaimed rose to £10.5bn in 2007/08. While it is perhaps sobering to know that there are those out there who do not feel the need to rely on the government to survive, we also have to bear in mind that the unclaimed money won't be coming back to us anytime soon.

For many of those non-claimants, especially the pensioners, the money that is currently rotting in government hands is in fact their own that they lost through being forced to pay taxes. The government over the past 12 years has created a monster: a complicated tax system and an incomprehensible benefits system. The simple approach of setting free all of those who are low-earners by raising the allowance would of course render a huge number of civil servants redundant, but at least they'd understand the claims system. This is the approach that is needed to tighten up wasteful spending by government and to assist in lowering the burden of taxation.

The unclaimed benefits numbers are further compounded by the fact that the level of fraud/over-payment continues to remain around £2.7bn. There are also underpayments of around £1.2bn. All of these figures represent why the public sector should not be handed our money to dish out on the whims of politicians. And why the system as it currently stands is in serious need of a simplifying overhaul.

MP Expenses: Do two wrongs make a right?

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The MP expenses scandal dominated the headlines during much of my time at the Adam Smith Institute. Each day I watched with great interest as new stories unfolded. The one thing that struck me about the public’s response to the scandal was how genuinely surprised so many people appeared to be that the MPs would do such a thing. It was a stark contrast to what I perceive as very low expectations among Americans for the scruples of their elected representatives.

Beginning with Watergate, the American public’s confidence in government officials has been rocked by scandal after scandal. Hollywood and the news media only foment the discontent with sensationalized accounts of government corruption. Public opinion has spiraled downward to the point that there is almost an assumption that all politicians engage in some sort of clandestine impropriety. For example, what surprised the US public about the Monica Lewinski affair was not that Bill Clinton was messing around with an intern, but that he actually got caught doing it.

I believe that this deeply ingrained distrust of politicians is one reason why Americans resist increased state involvement in their lives: they do not trust government to do the right things for the right reasons.

Perhaps the MP expenses scandal will awaken the UK electorate to a similar sense of governmental skepticism. If such a nationwide mentality were to develop and lead the public to take matters into their own hands (i.e. tell the government that it has had its chance at managing the national infrastructure, and it is time for the citizenry and the markets to take over), then what is now a blight on the reputation of Parliament may eventually be celebrated as the first step towards freedom.

Jacqui Smith's expenses

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I’ve never been the biggest fan of Jacqui Smith, but her latest interview makes me wonder how and why she remained in one of the most crucial public jobs for so long. She seems genuinely unremorseful for her part in the expenses scandal and still fails to understand why the public are so angered.

She claims that she was treated unfairly by the media and the public, as she received a lot more criticism than other MPs who had made claims for much greater amounts. She sounds like a school playground excuse, ‘the other children are all misbehaving too!’

The fact is, one of the jobs of a Home Secretary is to combat crime, her position became untenable once she decided to start robbing us of our hard-earned money. Like many MPs she thought she had the ‘right; to whatever she wanted without any repercussions.

It is difficult to get into the mindset of an MP who fiddles their expenses but still tries to convince themselves and the public that they only ever went into politics to help society. They’re either still trying to pull the wool over our eyes, or they’re pulling it over their own. In the interview Jacqui Smith claims that she stepped down from politics because it was the right thing to do ‘for her’ and ’her family’ – well at least she’s not lying to us any more, she admits there was no consideration for the public in her decision to step down. She had simply milked the system for as much as she could.

The real kicker came when she admitted, with a ‘butter wouldn’t melt’ face, that she would probably still be in public office if the expenses had not been exposed. Yes Jacqui, it’s our fault you’re corrupt!

Journalism and the expenses scandal

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Sunday Telegraph editor Ian Macgregor (left) was our guest at a power lunch in Westminster this week. His topic was "The importance of journalism in modern society".

And of course, that's a topic that Telegraph have earned a right to talk about in the last couple of months, with their brilliantly handled investigation into MPs expenses. There's no question the story has been good for the Telegraph's business, winning them many thousands of new readers. But I also think they have performed a genuine public service, by making people realize that you just can't trust politicians to be responsible with taxpayers' money.

Moreover, this precisely is the sort of thing that newspapers should be doing. My own view is that the media has been far too supine over the past decade, much too content to simply act as a broadcasting service for the government. The Telegraph's expenses splash is a welcome step in the right direction.

That said, I don't know whether it's going to mark a lasting change in the all-too-cosy relationship between politicians and journalists. It's one of the big problems with the way Westminster operates today – ministers leak stories to favoured journalists before making announcements to Parliament, journalists build their careers on these political connections, and then if they step out of line their supply of insider information gets cut off.

New House of Commons speaker John Bercow is making the right noises, saying he'll take a tough line on ministers who speak to the media before Parliament, but that alone won't be enough to change the spin culture. The real hope has to be that the media will see the success the Telegraph has had with its expenses revelations, and realize that the public wants to read proper, value-added journalism, and not just recycled press releases.

Ultimately, if they want to survive the competition from online news sources, I can't help thinking that's the way the press need to do it.