Tag Archives: National Health Service

Spurious economic thinking from our politicians. Inflation is not the greatest of evils, in fact the opposite can be true

Over the last few days, there has been series of government ministers trotting out the same tired explanations of why a pay cap is necessary for the workers in the public service. These are two, the first is that the public finances are insufficient to finance a wage increase and that any such increase would only increase the national debt. There was the famous television broadcast in which the Prime Minister told a nurse that there was no magic money tree, an argument she has since undermined by her own actions. However what I want to demonstrate is the fallacious nature of the second reason giving for denying public sector workers a wage increase. This is the argument that it will be inflationary. The incorrect assumption these politicians make is that inflation is always bad. It’s not sufficient to say that taking a certain action is wrong because it can increase inflation. There are circumstances in which inflation can be good.

Price rises are welcome when the price increase is a consequence of the worker/s being paid a fair wage. Wages have fallen so low that nurses and other public sector workers are having to go to food banks so as to be able to feed themselves and their families. One of the unfortunate consequence is that now more nurses are leaving the NHS than are joining it. If we wish as a nation to have a health service that is able to deliver high quality care more money must be found to pay the health service staff. The cost of health care will rise but would this would be outweighed by the benefit to national as a whole.

The government would say that to increase the incomes of the thousands of public sector workers would be inflationary. These workers must continue to bear the pain of low incomes, as to do otherwise would be to threaten the nations well being. This is a totally fallacious argument, as what this inflation would represent would be a change in power relationships within the economy. Public sector workers will now as group have a much larger share of the nation’s incomes. As they spend there increased incomes demand for goods and services will rise and so will prices. One consequence of this is that other groups will find that there purchasing power is diminished.

There will be some unfortunate consequences in that workers in the private sector on low incomes will suffer disproportionately from price increases. However this could be offset by an enlightened government increasing the minimum wage to compensate for the reduced value of their incomes. Many workers will themselves solve this problem by transferring from poorly paid work in the private sector to better paid work in the public sector. There is within the economy an automatic adjustment mechanism, in that private sector employers will have to increase the wages they pay their staff if they wish to retain them. There is no great harm to be inflicted on the economy if inflation increases from its current rate of 2.9% per annum to 4 or 5%. This was the average rate of inflation throughout the 1950s and 60s and economic growth was then at its highest.

From within the private sector there will be siren voices arguing against this saying that they cannot afford to run their businesses with wage costs so high and that they will have no choice but to dismiss workers. Against this argument is the compelling moral one, if they are such rotten employers that they can only run their business if they pay wages so low that the employee is forced to turn to the food banks or to the government for wage supplements such as tax credits they deserve to close. There will be a temporary increase in unemployment and this will require a more generous approach to the payment of unemployment benefits from the government. This will only be a temporary increase, because the increased spending of the public sector workers will kickstart an economy which is at present in the merely idling mode. Economic growth will increase and so will the demand for newly unemployed workers.

One particular imagined scenario gives me pleasure. The City banker with an income of £100,000 plus will now find that as a consequence of the increased wages to the barista, there morning cappuccino will have increased from say £2.50 to £3.00. Having worked with such people I can imagine the indignation they will express at having to pay more for their coffee. Such people will see it as threat to their life style. Rich and super rich people will be able to buy less of the time of the less well off than they did formerly, which will hurt. There will be a return of the servant problem of the 1960s, when the rich found it difficult to recruit people willing to work long hours for low pay in personal service. Once wage rates and employment opportunities were available elsewhere the number of young women willing to enter domestic service dropped dramatically.

What needs to be prevented to stop inflation getting out of hand, is measures to stop the group that has most benefitted from the low wages of the past decade from over compensating for the loss in there purchasing power by disproportionately increasing their incomes. These people are those in the private finance sector, those whose wealth comes from large property holdings and company directors. This can simply be done by re-introducing a progressive income tax, together with a wealth tax and an effective capital gains tax.  The effect of these taxes will make it less desirable to earn excessive incomes, as a significant part of any increase will be taken in tax.  The tax take from this new taxes would help with funding of the public service sector.

There is one group that would be the losers from an increased inflation rate and that would be pensioners such as myself. The income I receive is fixed for a year and it would diminish in value as the year progressed, and although I do receive an increase in my pension at the end of the year equal to the new rate of inflation, that will not compensate for the erosion my income during the past year. However I will benefit from knowing that the health service is better funded and that my generation are the ones most likely to benefit from increased spending on this service.

Stupid, Stupid Economics

  

Whenever I open the paper I read yet another article that makes me despair of the competence of our politicians in managing our affairs. The latest example occurred when I read that our Chancellor of the Exchequer was going to fund the increase in spending on the National Health Service (NHS) by ending grants given to student nurses to fund their training and instead make them fund their own training by forcing them to take out loans. It does appear on the surface as a reasonable policy as it means it can transfer the £800 million pounds spent on grants to und extra health service spending. However in both parliament and the media this went unquestioned as all accepted his reasoning. However the logic of his actions was nonsensical as any enquiry would have shown.
First of all that £800 million is not going to be taken from nurses training to fund extra NHS, he is in fact increasing overall spending by a further £800 million. The money that would have gone to fund these grants will now instead be paid to the loans company to enable them to lend the money to student nurses to fund their training. Nurse training takes several years and these nurses will not start paying back these loans until some time in the future. Then when they do start to repay them, repayments will only total a small proportion of the total. Sleight of hand and some imaginative book keeping will make it appear that the Chancellor has kept within his budgetary limits on NHS spending when in fact he has done the reverse. When Disraeli said that there are ‘lies, damned lies and statistics’ he could have been speaking of the practices of contemporary Western governments as when such stupid economic practises are commonplace. 
The British media is fond of reporting on the nonsense spoken by some of the more extreme of the Republican candidates for the American Presidency but in the words of the Bible, they have pointed out the splinter in their neighbour’s eye, while ignoring the beam in their own eye. Just because British politicians speak in an educated voice, one developed in years of tutoring at elite schools and universities, it does not mean that they are not incapable of speaking nonsense equal to that spoken by Donald Trump. Their education is one of manner not intellect.
Just last Sunday I had to travel 20 miles to collect my daughter from a railway station. The train service that should have come to her home station, terminated at this distant station. When I arrived at the station there were hundreds perhaps even a thousand people queuing in the cold night waiting for a replacement bus to take them to their destination. This is no unusual occurrence as every train traveller has similar stories, in Britain we have come to accept that on Sunday’s and public holidays our railways cease to work. In this case it was said to be a signal failure, when in effect it either routine maintenance work or essential upgrading work that had gone wrong. In Britain the convention is never tell the people the truth.
Perhaps this is yet another good example of stupid economics. British railways to the user provide what at its best is an adequate service, which all too often is mediocre or occasionally awful. Yet our elected politicians see the privatised railways as a success story. What they see is increased numbers travelling by rail as demonstrating the successful of privatisation. Failing to see that this is due the flight from the cities caused by high housing costs forcing millions to live distant from their place of work. These millions then have no alternative but to use the train to get to work. No matter how many complaints about the inadequate service, such as thousands being forced to travel at peak times in conditions worse than those in which livestock are transported, all politicians know the railways are a success story. They just know that railways run by private enterprise are superior to those run by the state, now matter how bad the service appears to customers. Politicians see their role as that of the PR division of the railway companies whose role is to deflect complaints about poor service by convincing rail users that they are not receiving a poor but the best possible service. As with so many evangelical salesman they tell people that their patience and will be rewarded with a place in railway heaven. 

Why is Stupid Economics so prevalent
The question must be asked why is stupid economics so widely practised. There are several possible answers. One must be the education that our leaders received, nearly all studied philosophy at an elite university. There they would have been taught that we live in a post modern age and what were assumed to be economic truths, were only the truths of a former age, that of mass production. Truths such as those that said a universal welfare and health system can be provided out of taxation are the ephemera of another age and have no place in today’s society. Post modernism teaches that truth is relative to a particular historical period and the truths of one age have no place in another time. The truth of post modernism is Neo-Liberalism and the associated in the virtue of the free markets. It is said that this is no longer an age of great truths, whereas it is an age that no longer believes in the big or great government. It is the age of the small state, the unregulated market and unrestricted freedom. The Treasury has even rewritten economic theory to reverse one of the truths of the modern age which is that government spending increases the level of economic activity, now it is claimed to do the reverse. Post Modernism teaches that what you believe is true is true, it’s what in former times was called relativism. Therefore stupid economics must prevail there are no economic truths, there are no grounds from which to crisis erupted the practise of stupidity..

There is one other answer that comes from the education our leaders received at their elite universities. Nearly all studied politics of which a part is a study of voting behaviour. This teaches that people respond not to policies but to emotion and feeling. Therefore rational policy making is less important that engaging with people’s feelings and emotions. As they are so distant from the people that they cannot gauge what the people are thinking from the press and other intermediaries. All to often they equate the headlines in the tabloid press with popular feeling. (Such headlines may coincide with popular emotions and feelings but not necessarily so), what they are seeing in these papers are what a number of university educated journalists believe is the popular feeling. They are looking at a mirror which reflects their contempt for the people, a people incapable of thought. Such contempt is a bad foundation of which o make policy.

One other factor is the decline in the great institutions that make up the democratic state. Parliament is seen less as the great assembly in which to make one’s reputation, than as a pathway to a profitable career in consultancy or to a directorship in a newly privatised industries. 
  
What these leaders would never understand that there can be a place for nonsense as opposed to stupidity in economic policy making. The former is a practise which contributes to the well being of the country, while the latter is just stupid as does no one any good. A good example of nonsense economics comes from the Second World War. People were urged to contribute their aluminium pots and pans to the war effort to provide the material for constructing Spitfires. In fact the amounts collected could never have helped build more than one Spitfire. Government economists used this policy as a ploy to convince people that they were contributing to the war effort and helping beat the enemy. It was nothing more than a morale boosting exercise, but it was a very effective one, as it made the householder believe than by sacrificing one pan they were helping to beat Hitler. I fear this good practise of nonsense economics is beyond the wit of our contemporary leaders. They prefer to practise the dumb economics of the herd think. 

Why the privatisation of health care is wrong

Political leaders in the UK are enthusiasts for Neo-Liberalism they are committed public services to the out sourcing of public service provision to the private sector. The latest folly is the desire to privatise much of the state run and funded National Health Service. Our political predecessors who nationalised health care in 1948 had a shrewder grasp of the economics of health care than do today’s politicians. What I will argue is that the politicians of 1948 were correct in their understanding that the free market mechanism was ineffective in providing universal health care.

At the heart of free market economics is the belief that society is best served if individuals freely enter into exchanges of goods and services. They, the people know what they want, it is wrong for the state to second guess the consumer. Certainly the free market is an unrivalled mechanism for the buying and selling of cars; but just because the free market works well in the consumer goods market does not mean it will work elsewhere. What makes the car market work is the approximate equality of knowledge, the customer knows how a car functions and what they want from that particular car. The salesman understands the customers needs and can supply a car that meets the customers specifications. Obviously this is an over simplification as the seller is usually better informed that the buyer, but any fraudulent action by the seller is subject to severe legal sanction. This market is completely unlike the market for health care, which is characterised by ignorance rather than knowledge. There can be no equal exchange when cash is exchanged for a service of which the buyer is almost totally ignorant of the product (Pharmaceutical drugs) that they are buying. This relative inequality in which all knowledge resides with the seller (medical practitioner) means that the buyer is totally dependent on the seller’s knowledge and good intent, which means that the free and equal exchange of goods and services that is experienced in car market is impossible.

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Blame must also be apportioned to economists who believe that any free universal service will be misused, if it’s free people will over use it, as it costs them nothing. They believe in some principle of charging as it would compel people to make a rational decision about whether or not they really need medical care. What they ignore is that the NHS devised a much fairer system of rationing health care, in which front line practitioners, general practitioners acted as gatekeepers, only allowing those who needed intensive medical care access to hospital services. It did mean queues developed for some services, but better that than cash be the criteria by which access to health care was decided.

What else is unique in the health care market is that it is contracts are based on a mixture of desperation and hope. Illness makes the customer (patient) so desperate that they want a cure at almost any cost. This gives the medical practitioner the opportunity to exploit that person’s desperation or to use an economist’s term they charge what the market can bear. Therefore in a free market the poor are priced out of medical care. Prior to 1948 doctors could get a good income from treating the relatively few well off who paid well for their services. Medicine then was an occupation for gentleman, a well brought up young man would not have to sully his hands dealing with the poor. People such as my grandmother depended on charity, when my mother was being born it meant a call on the services of ‘The Sisters of Mercy’.

There can be no equality in the bargaining process when the client is largely ignorant of the product or service they are buying. People of my grandmother’s generation believed that Beecham’s pills taken once a day, were essential to maintaining good health. Not realising that none of the pill’s ingredients helped maintain good health. One ingredient was detergent. Pharmaceutical companies and ‘medical practitioners’ have always been able to exploit the gullibility of people. Health care is perhaps the only market in which the characteristic feature is ignorance.

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Health care is the one market that needs regulation and in the UK there is an effective system of self regulation. If a medical practitioner wishes to be recognised as an M.D. they must undergo training at a college recognised by the British Medical Association and then be accepted as a doctor by the same body. This means the sick person can get treatment from a health professional, who will not administer ineffective or harmful treatment. However that leaves plenty of scope for practitioners of alternative medicines to sell treatments to the desperate. The BMA’s self regulation is only effective because it has the support of the government. A truly free market in health would mean that the market would be free to any new entrant who claimed to be a doctor, which would be harmful to the nation’s health. At least the present system excludes dangerous practitioners from the market.

However ignorance of the means and the effectiveness of treatments is not confined to the patient. Unfortunately the doctor also displays a degree of ignorance about his trade which you would not find with the car dealer. One estimate is that there are 10^34 pathologies than can affect modern man, while the GP will have a good knowledge of the more common pathologies there are many of which they will be ignorant. One recent study of post mortems revealed that 40% of the deceased had been misdiagnosed. A market in which relative ignorance of the practitioners is prevalent needs to be regulated. Consider this, arsenic was used in treating syphilis until the 1950’s and earlier in the twentieth century it had been used to treat arthritis. Unlike in the car market where the bad dealer loses out to better performing rivals, the ill informed medical practitioner has little to fear because of the ignorance of his patients (customers) because they have now way of judging his competence.

Good medical practice has been ensured in the UK through the following government funding for a system of universal health care and the high quality of care being maintained through a combination of the public service ethos and the Hippocratic oath. Now there will be with the proposed privatisation of the NHS there will be added a new commercial ethos, profit maximisation. Adding the profit maximisation imperative into the medical practitioner ethos will do little for patient care, as reducing costs to maximise profits does the reverse.

Politicians have assured us that it does not matter who Is the service provider whether it be the state managed NHS or a private health care corporation as the same service will be delivered to the patient. Naively this is what politicians believe despite evidence to the contrary. A private health care corporation has an incentive to perform those medical treatments that are straight forward and involve short term stays in hospital, as this will increase turnover and profits. The long term and difficult treatments will receive a much lower priority as they involve long and expensive treatments that reduce the profitability of the business. If cancer treatment is for instance delayed more people will be entering hospital at an advanced stage of cancer with the likelihood of a reduced life span and a shorter period of expensive treatment. The private health care corporations that are poised to take over large parts of the health service will inevitably prioritise profit making over health care.

In countries such as the USA where health care is in the hands of private corporations there is an incentive for over treatment, that is advising surgery where treatment is straight forward and recovery certain, whether or not the patient needs it. Once such procedure is hysterectomy and health economists can always get a laugh at conferences by trotting the old joke about no woman in America over forty still possessed her own womb. Treatments that maximise profits will get priority over those that are costly and which yield little profit.

What our political leaders fail to realise that in a free market an approximation to equal power in the buyer and seller is needed to make the market work well for both buyers and sellers. When as in the example of the health care market the is an asymmetrical power relationship between the doctor and desperate patient the market cannot work well. In 1948 it was decided for that reason most people should be removed from the free market in health care, as they would never be able to get fair treatment in a market where the odds where stacked against them. The only exceptions were to be the rich and powerful, as they were not at a disadvantage when bargaining for health care, doctors desperate for money would ensure that they received the best possible treatment. Unfortunately the low income majority did not have that power, they were liable to exclusion from the health care market. Having known of the evidence of market abuse when doctors worked in practice with one or two partners now having GP’s contracted to a large private corporation can only lead to greater market abuse. The post code lottery will work with a vengeance in health care, there will be excellent health care for the rich citizens of Mayfair and poor health care for the Inhabitants of Newham in East London (England’s poorest borough).

While the National Health Service has been subject to unfair criticisms in parliament and the media, in which all blame for failure is attached to health care professionals and none to political mismanagement, commercial confidentiality will protect the new worse and privatised health care service from proper scrutiny. It must also be added that politicians knowledge of medical care is little better than that of the average citizen, which means they are not qualified to oversee these changes in health care.

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Blame must also be apportioned to economists who believe that any free universal service will be misused, as if it’s free they will over use it, as it costs them nothing. They believe in some principle of charging as it would compel people to make a rational decision about whether or not they really need medical care. What they ignore is that the NHS devised a much fairer system of rationing health care, in which front line practitioners, general practitioners acted as gatekeepers, only allowing those who needed intensive medical care access to hospital services. It did mean queues developed for some services, but better that than cash be the criteria by which access to health care is decided.