Spending a bit of time in Alice Springs has got me thinking about economics and unemployment. The unemployment rate amongst indigenous people is probably not as high as it feels, but it's still pretty high (19% for NT in 2006). There's an overwhelming sense of needing to shift the culture to make people more employable. Education needs to increase. English skills need to improve. People's work ethic needs to improve. We need to "skill people up" to cope with the challenges of a modern economy. There are some efforts to instead change the labour market, to reduce the burden of change placed on the community, but these efforts appear pretty minor. CDEP was probably the most ambitious (and successful?) example and that's being rolled back in favour of a conventional labour market. There is the idea that CDEP wasn't real employment, because it was subsidised and the wages weren't market wages.

So while no one really wants to label the indigenous communities as "failing" it feels like that's what everyone is thinking. That's sort of what the Intervention is about. The communities are supposedly so screwed up that the government needs to roll in and fix things up.

But it seems to me that the real failure in the Northern Territory is the labour market. We have backed it 100% but it hasn't delivered. The idea is that the labour market allocates work and incomes to the majority, and all those who benefit from it look after the people who get shafted by it. It's most fundamental promise is that it will find people jobs that are a better alternative than poverty. But here that hasn't really happened. For a lot of people in the Northern Territory, poverty is still a more appealing option than any of the available jobs. There are obviously different levels of poverty and if you removed welfare the incentives would change slightly, but not dramatically. I wonder if white onlookers are exaggerating the burden of income poverty and/or the appeal of the jobs there are. After all, for Quite a Long Period, indigenous people lived pretty merrily on consumption far lower than they do today and only worked a few hours each day.

So I don't perceive there is a problem with the work ethic of local communities or with indigenous people at all. I don't think work ethic is even a factor here. I really think it is more about the options available to people. And that is a failure not of the people but of the economy. It's a failure that I suspect is mostly the fault of relying on a market to distribute work. I think that most indigenous people value the resources and services that Europeans have introduced. But I don't think they value them as much as Europeans and I don't think they always value them enough to sign up for one of the jobs on offer.

People are already talking a lot about this sort of stuff, which is great. But I don't feel like they have stopped being exasperated with indigenous people, which is possiblly just as important. We still offer welfare begrudgingly, even though I think it's a necessary component of our preference for market solutions.

I reckon we need better jobs and a more deliberate effort to find jobs that people want. We need jobs that are a better option then welfare and/or income poverty. That definitely isn't easy. If it was then the market would probably have done it already. And it's probably a harder solution than just brainwashing kids through the schools. But I think it's a better solution.

I don't know much about the science of clean coal, but I've been rather skeptical of all the clean coal skeptics. It tends to be framed as an enormous waste of investment with no returns and all. It's possibility of "clean" coal is supposedly a total myth. But I tend to doubt that kind of black and white analysis. I don't think the government would put $500 million into something with no prospects at all. I'm a little cynical about the government, but not that cynical yet. Still, I have only skeptical friends but I wasn't fully convinced by them.

But I recently read an article about clean coal subsidies from government, and specifically government insurance of long-term storage facilities. So companies would have to insure their storage against accidental release for a decade or so, but if anything went wrong after that the government would step in and pay for it. Or at least the government would cover the costs of insuring against accidents. The argument for this subsidy is that the industry won't be viable with out government support. And we're not just talking about short-term viability - but viability over 50 years. Which is surely reason to be suspicious. The industry apparently cannot be profitable if it has to cover all the costs of long-term storage.

The Greens were asking in parliament why the government should subsidise the industry. The government responded that we need to have clean coal, and the subsidy is the only way we will get it. That is rather strange. I suspect the solar power industry would flourish, completely absent of any subsidies, if the government stopped covering the arses of coal power plants by allow them to pollute for free. They're talking about solar power that will be cost-competitive with coal power in 10 years and that's with a slow carbon tax phase in.

MP Dick Adams claims "we need to find ways to assist the industry to begin." I don't think that insuring a company forever, against any cost shortcuts and mistakes it makes now is really a reasonable way of doing that.

Another interesting comment from Dick Adams was that since a lot of the clean coal operators would cease to exist, the government would assume long-term liability by default. If he really thinks the free market works so poorly, that a company can't assume long-term responsibility for it's infrastructure, then he probably needs to reflect a little hard on why he's supporting private industry here to begin with. I'm inclined to agree that free markets are only functional in the short term, but I'd suggest that the government run or regulate anything that needs a longer-term perspective. Just absorbing the long-term costs while allowing the immediate benefits to accrue to the private sector strikes me as rather stupid.

Once again, I'm surprised to discover that the Greens have given the economics of an issue a lot more thought than the other guy.

I've written about Coase Theorem before. But I had another thought about it. The idea of the theorem is that it doesn't matter who gets the right to decide what happens to things (or who gets the property rights), the outcome should be the same. Theoretically, the two (or more parties) will negotiate and the optimal use of the resource will be figured out. The benefits of using the resource as well as it can be used mean that everyone can have a bit more stuff. There are plenty of issues with it - unequal incomes, difficulty monetising the "vibe" of things that people enjoy, and the fact that people don't really negotiate with each other that much. But even so it does have some sense to it and it is used a lot by governments to justify their decisions.

The government will use it to say that it doesn't matter if they give land rights to indigenous people or mining companies. If indigenous people get it the mining company will just pay them to leave. If the mining company gets it they will make people leave without paying them. The second option might not seem "fair", but of course, in economics there is No Such Thing as fair. And even though it isn't fair the economists are happy because the land really should be used for mining because that is clearly its most productive use. Or at least that is the reasoning.

I think that is all quite silly, however even if you think it's reasonable I don't think you can be indifferent between who gets the property rights in the first place. The government largely assigns property rights arbitrarily. There is really no way around this, which I suppose is one of the dumb things about property in the first place. When the government assigns rights to one party, it is effectively imposing costs on the other party. They're either going to have to forgo a whole lot of benefit or buy that benefit from the other party. Often those costs are enormous, as in the case of communities moving to make way for big developers.

I'd suggest that those costs (which should of the same magnitude for whichever party doesn't get the property rights) are more difficult to absorb for the less organised party. Even if you think they can both negotiate equally, the more organised party will be better able to insure themselves against large, uncertain costs. Mining companies do it by distributing shares amongst a large number of people. Indigenous communities have to just get up and move.

It's hard to imagine an aboriginal community insuring itself against the possibility of losing a court case which forces them to move to another town. It's very easy to imagine a mining company insuring itself against the possibility of losing a court case which prevents them from mining somewhere they hoped to mine.

The ease with which a mining company can adapt to change makes the cost of that uncertainty or the arbitrariness of the government's/court's decision far more manageable. It is also a purely monetary cost which is easier to distribute over time or amongst others.

So I would suggest that in a disagreement between two parties, the property rights should always be given to the party least able to protect itself from the costs of not having those rights. According to Coase, this shouldn't affect ease of development at all. The mining companies can still buy the right to mine from the little guy if it's really the most productive use of the land. But by biasing your decisions towards the weaker party society can benefit from better risk distribution which comes entirely for free.

I was reading the paper today and I found yet another article about how decreasing prices are putting more pressure on people's mortgages. Which seems to me very weird. As prices go down people possibly feel more stupid for paying so much, but it doesn't have any impact on their ability to pay the mortgage. Unless they're possibly doing some silly leveraging thing where the bank gets scared about equity and repossesses the house (or probably several). But the battlers these articles like talking about don't tend to own many leveraged properties, so I don't think this affects them.

If anything, dropping house prices reduce the burden on the average house owner. More people are able to buy houses with smaller mortgages. I don't understand how journalists think the price boom can be bad for home-buyers, and then the price crash is also bad.

There was an article in the Epoch Times called "Falling prices increase mortgage burden", which prompted this rant. But they definitely aren't the only ones saying this kind of thing.

Economists from across the political spectrum understand that one of the major factors driving health care costs is our third-party payment system that insulates consumers from the cost of their health care decisions.

More Than A Theory: Medical Savings Accounts at Work (CATO)

I'm not sure what CATO considers the full range of the "political spectrum" to be, but this statement is pretty much just wrong. There are plenty of economists who don't believe this, and if I count as an economist then I am one of them.

You could conceivably argue that the reason we have "high" health expenditures is because our system "insulates consumers from the cost of their health care decisions". But I can't understand how a system that has scarcely changed in 30 years accounts for the rapid increase in health care expenditures over that same period. The US system has probably became less socialist in that time, and yet health expenditures are increasing a lot. It seems to me that it's less a problem of overconsumption and more a "problem" with the income elasticity of demand for health care. As people get richer they look after themselves better and spend more on health.

But it's still a crisis the economists will say. Health expenditures can't grow faster than income forever. It's true, but isn't necessarily a problem for a long time yet. If our income increases by 5% each year, it's really no problem if our health expenditures increase by 10% each year. Obviously that can't happen for ever, but we don't have to worry about it just now.

Using that example, we have another 60 years before we have to be concerned. If health expenditures continue to grow by 10% and total income continues to grow by 5%, the amount of money we have left over after health care won't actually drop until 2070.

And if health expenditures grow by 15% a year (instead of 10%) then we still have 30 years before our residual income will drop. At that point we'd be spending 77% of our income on health care and we'd still have more money to spend on other stuff than we have now.

Alternatively, if income only grows at 2% (instead of 5%) and health care costs grow by 10%, we also have 30 years.

So I really feel like it's not a big deal. When they make scary claims like "health care costs are rising by 15% every year" you forget that we only spend 5% of our income on health right now.

My original point was mostly just that CATO are silly. And they are. But they're not the only ones. Every research paper or news article about health insurance or health system finance seems to include some spiel about the impending health funding crisis. Sometimes I wonder if economists and bureaucrats just love having crises to make themselves feel important.

In this world of extensive multilateral trade and investment, of what conceivable relevance is a measure of the volume of good and services trade between any two countries? America's "trade deficit" with China is as relevant as is your "trade deficit" with, say, your columnist Maureen Dowd. I'm sure that every year you buy more from her than she buys from you. I'm also sure that you're not bothered by this "deficit" - and for good reason: in a world of multilateral trade, no two entities are likely to have so-called "balanced" trade with each other.

Don Boudreaux in a letter to the New York Times

This is the kind of logic economists love to use. Although they recognise and spent a lot of time analysing scale effects in other areas, when it comes to making analogies it's popular to compare nations with households. Here Boudreaux baldly states that the US trade deficit is equally relevant to the deficit between one employer and employee. I think that is very unlikely. The US trade deficit has a far bigger impact on the world economy. Very small deficits between small players all tend to wash out. But in the the case of the US we're talking about an enormous temporal imbalance. Nations can spend decades without generating any net value, but individuals don't have that luxury or danger. For sure, it will wash out over time, but that's going to be a painful process. The government may be right in trying to bring forward some of that pain.

I think people do get too worked up about the trade deficit, because it does reflect the immediate preferences of the nation (whatever that means) and because it will eventually balance out on its own. But I don't think it's meaningful to glibly equate a national deficit with an "individual" deficit. Even though I dare say it is quite gratifying to believe the rest of the world is so much stupider than you.

I get a bit cross at all the folk to don't like Labor because they're mushy and don't understand economics. When Keating did exactly what every macroeconomics textbooks tells you to fight inflation and allowed the recession from 1993 to happen everyone yelled and him and told him he couldn't be prime minister anymore. And yet he's probably a fair bit responsible for the happy inflation of the last 14 years. At least the textbooks would say he was.

If you want to yell at Keating you should yell about things like being an arrogant pug and always doing what the economics professors wanted him to. You could yell at him about sacrificing the working class for the interests of the economy. And I sure would have a bit of a yell about those things. I just don't understand how you can yell at him for being mushy. He made tough, "economically responsible" decisions and told us he was making them. Which is what we say we want. Except we don't. We want mushiest economics our votes can buy and the right to yell at anyone we randomly decide is mushy about being too mushy.

I love Paul Keating. But not for his economic policies. Keating wasn't near mushy enough for me.

I'd never heard term "lucky ducky" before.

I find this a bit sad. It's definitely encouraging that women are getting better wages. But men are earning the same real wage they were back in 1979.

It's possible that, in the past, the wage bias against women actually resulted in a wage subsidy to men. They received some of the surplus value that women generated. In this picture then, what gains men achieved in productivity were shifted to women who were able to take home a larger proportion of the value they created.

Given that wage inequality has increased the way it has over this period, I suspect there is more to the story.

It's also possible there never was a wage bias and this is just capturing changes in the way and amount women work. But it's unlikely, and certainly isn't the kind of thing you should say in company.

I read a paper last week which attempted to find out what aspects of a visit to their GP were most important to them. It was a discrete choice experiment and one of the attributes related to the trustworthiness of the doctor. There were two possible levels of the attribute:

• doctor is trustworthy
• doctor is untrustworthy

The conclusion of the paper was that having a trustworthy doctor was the most important issue for people.

We did Martin's tax. He is going to get a $3 tax return. He is pretty angry and screaming a little bit.

When governments and health organisations make decisions about how to spend money on health there are a number of things they consider. One of the main ones is how much it costs to save a life. Others often include the age or wealth of the group affected or the type of disease.

Some people (maybe social conservatives) tend to consider HIV as one of those diseases it's better to do nothing about, because the more you "solve" the problem the worse it gets. I think this is a bollocks argument, but I mostly think so because it treats humans as statistics. However, that's exactly what most health interventions do - particularly in poor countries.

Perhaps we assume no one wants to spend enough money to help everyone (which seems reasonable). We could, but we won't. So then if you're someone deciding how to spend that money, do you take into consideration the secondary impact of adding a year of life to a person with HIV. Assume you can spend $100 to add one year of life. In doing that, you might also create a 2% chance of that person infecting someone else with HIV and taking 20 years (or 30 or 40 years) from their life.

$100 = (12 months - 2% * 20 years) = 7 months of additional life

If you look at people as individuals this is obscene. Imagine the conversation in the clinic: "We would give you medicine to keep you alive sir, but we just don't trust you to use a condom." However, if you're considering people in aggregate and are willing to accept probabilistic relationships (such as the likelihood of additional infections) is it something you might do. I think the assumptions I've made about the numbers are sensible, and it's the kind of reasoning that people already use in health. The very fact that you have an epidemic from a disease with a five year life expectancy suggests that the average annual infection rate is probably higher than 2%.

You could take it further. If you treat people based on their statistical likelihood of surviving do you treat people based on their statistical likelihood of having unprotected sex? We already use statistics to decide who gets heart transplants for instance.

I have to read about a whole lot of stuff like this that makes me feel uncomfortable. I'm not sure, though, that I'm willing to abandon the idea of identifying trade-offs in health care spending. You'd think that an ad hoc system must result in a worse outcome than a system where the trade-offs are made explicit. Although since the whole issue is trying to work out what a "worse outcome" actually means, perhaps you can't even say that much.

If a respondent answers in a way that is inconsistent with utility theory, we call this a preference error.

RELIABILITY OF STATED PREFERENCES FOR CHOLERA AND TYPHOID VACCINES WITH TIME TO THINK IN HUE, VIETNAM

Some people can't even be trusted to get the simplest things right. Surely ensuring your preferences are consistent with utility theory is not that difficult. I guess that's what happens when you try to do research on peasants.

Becker and Posner are completely bamboozled as to why college faculty staff still seem be more left-wing than everyone else. Why are college professors so opposed to capitalism, when it has been fully proved that capitalism is awesome and communism is lame?

They end up both concluding that intellectuals are opposed to capitalism because they don't get as much power and prestige in a capitalist system as a socialist system. That's why there has been this battle between capitalists and communists for all these decades. When you think about it, it's actually totally obvious.

There isn't very much sadder than an economist bumbling around, determined to find an economic solution to non-economic problem.

Update: On reflection it struck me that this isn't so much a problem of naivety as cynicism about humanity. So perhaps it's depressing more than it is sad. Particularly since we seem to systematically give power to those people who are most cynical about humans. Perhaps the cynical ones will get burnt less often, but I also think they're contributing to the creation of a society that rewards further cynicism. Ideas create as well as reflect reality - even the grumpy theories of grumpy, old economists.

Stephen Levitt spends a lot of his time emphasising how important incentives are in pretty much everything we do. He maintains his freshness by continuing to apply this assumption to areas that people have tended not to.

So I think it's quite amusing that his most famous paper of all, the one linking the increased number of abortions to a drop in crime, actually debunks many of the previous theories that crime was related to incentive structures. It would be extremely hard to argue that not being aborted as a fetus is an incentive to commit crime when you grow up. The left rather despises him, so it's interesting that this particular paper supports the idea that social context dominates individual incentives in determining crime. I actually find it rather refreshing to hear clever economists (even ones I often disagree with), blaming our society's woes on something other than individual selfishness.

Did you know what about 2,000 people a year die from carbon monoxide poisoning in Italy? As a comparison, about 7,400 die in car crashes. I didn't know you could actually pin specific deaths on carbon monoxide.

And 15,000 die from exposure to contaminated waste. Golly.

The overall design exclusive of follow-up prices can be described as a 2⁷ factorial. All profiles include cough with phlegm and most include one or more of the three other symptoms.

Parental altruism and the value of avoiding acute illness: are kids worth more than parents?

This isn't the story you hear about China. They started their move to capitalism in the late 1970s. They didn't growth at all for eight whole years. There must have been some pretty nervous economic reformers hiding out during the 1980s.

By all means let us assist the poorer people as much as we can in their own efforts to build up their lives and to raise their standards of living. An international authority can be very just and contribute enormously to economic prosperity if it merely keeps order and creates conditions in which the people can develop their own life; but it is impossible to be just or to let people live their own life if the central authority doles out raw materials and allocates markets, if every spontaneous effort has to be "approved" and nothing can be done without the sanction of the central authority.

The Road to Serfdom

Hayek is far more reasonable than modern libertarians. I found bits of The Road quite appealing. Although it's possibly a little too easy to say that we should limit our involvement to "creating conditions" conducive to development. That's all most people would believe, they just differ on what conditions we should create. But then perhaps I don't understand how seriously communist people were back in the day, and the fact that almost no one is anymore is partly thanks to arse munchers like Hayek.

It is common knowledge that coffee prices have been rapidly depressing all over the world since the beginning of 1999, which adversely affects producers’ benefits.

Representative of the Vietnamese Coffee Industry

I imagine that would be rather depressing.

Some people have accused the IMF of managing a "conspiracy" of banks and wealthy nations, to prevent poor countries from declaring some of their debt as unfair and refusing to pay it back. The poor nations claim that the money was borrowed by dictators who mostly kept it for themselves or used it to kill their own citizens. It seems like a reasonable accusation because the IMF proudly takes the responsibility for creating creditor cartels and its mandate is to preserve financial stability around the whole world, not to help poor countries get less poor.

However, I've found an even more persuasive sign that there's a conspiracy. And it's the piss weak explanations that come out of the IMF attempting to explain why there's no conspiracy. The argument against letting countries not pay back unfair debt is essentially this. If a government is labelled as corrupt because it's stealing the money it borrows, then banks will stop lending money to it. And if banks stop lending money to it the government won't have any money with which to develop the nation.

Seriously. That is all they come up with. It strikes me that if you decide a government is corrupt and stealing development money, then you'd be happy that banks stopped lending to it.

The author sets up a couple of straw proposals so he can fluff out the article explaining what is wrong with them. But the actual model that is proposed by other academics, he only has one argument against. And it's total bollocks. He lays out this one-paragraph argument, and then smugly say there's obviously no need to resort to conspiracy theories - odious debt proposals are apparently going to stay in "cold storage". On the contrary, there seems to a real need for some other explanation. And if a conspiracy theory is the only explanation anyone can find, then why not run with it.

Besides it isn't much of a conspiracy theory. The IMF itself only offers one sensible reason for forcing poor countries to pay back their debt - that the rich countries can't afford for them not to.

I've been thinking about the things we do every day which we all assume are beneficial, but which we probably overdo. People rarely stop to consider the costs and benefits of their behaviour. Even when they think about it they often don't measure it in terms its real value - what the market is willing to pay. Many things we give away for free and overconsume because we misjudge the true costs and benefits.

A good example of this is breastfeeding. How often do you really stop to consider what the right amount of breastfeeding is? What are the costs and benefits of this common human behaviour? It is often assumed that breastfeeding costs society nothing, but is not strictly true. Neglecting to measure opportunity costs is one of the most frequent fallacies of economic reasoning. However, the true costs are fairly easy to measure. They are simply the opportunity cost of the mother's time, or what she would earn if she were to return to the workforce. So we can here see one reason why we may overproduce breast milk. Because breastfeeding infants do not face the true costs of production, they overconsume breast milk. We will examine below the extent of this overconsumption.

The benefits are slightly trickier, but measuring these is also fairly straightforward if you take a moment to consider it. The market for breast milk is overwhelmingly dominated by young children, who have lower than average incomes. So the demand curve for breast milk will look a little different to the demand curves you're used to seeing in economics textbooks. If we reasonably assume that the income for the majority of children demanding breast milk is approximately $0 and that they will spend virtually all their income on breast milk, constructing a demand curve is simple. And from this demand curve we can discover the socially optimal level of breastfeeding.

I've attempted below, to model what the market for breastfeeding might look like. The supply curve is upward sloping, reflecting normal labour market economics. The demand curve actually follows the horizontal axis for it's whole length, reflecting the lower purchasing power of young children. Just as with any market we want to equate costs and benefits which will minimise the deadweight loss. Society currently produces quite a large amount of breast milk (Q_current). However, as you can see, at this point the costs of production heavily outweigh the benefits. In an unfettered market, production will move away from this suboptimal level towards a socially efficient equilibrium. Perhaps surprising to some, it turns out that the optimal level is actually much lower (Q_optimal). As you can see, at this level of production the deadweight loss is zero. At a production level of zero, costs and benefits are also equalised at zero - you have a social optimum!

This is just one example of how economics can provide helpful and sometimes surprising solutions to the real world problems we face every day.

Having spent a few years studying economics now, I'm not nearly as impressed as I once was. I can't think of many ideas that I'd consider genuine, unambiguous contributions to the world. I thought I'd start a list of ideas I think qualify.

1. Supply and demand (and markets).
2. Opportunity cost.
3. Theories of inflation.
4. The meaning of money.

Even some of these have problematic aspects. Like application of supply and demand to labour markets. Some of the solutions to inflation are rather vague and a little too convenient for certain social classes. There are probably other ideas that are good too and you can argue that virtually of economics can be related to supply and demand, so listing it is kind of a cop out. But I'm kind of impressed by the pure theory as much as its application (although the theory can be applied really well to some real world markets).

The only radical alternative to the reality of scarcity caused by unsatisfiable needs would have to be based on a way of life that takes as starting point the reduction of individual needs. This is not a matter of academic analysis (and, for that matter, of wrong or right economic analysis), but rather one of individual choice and would take us into practices and religions of other cultures. The irony is that these cultures themselves have to a large extent succumbed to Western values of scarcity under conditions of abundance.

From a review of Gilbert Rist's The History of Development.

I started studying economics because I cared about scarcity, but now I wonder if scarcity is really our problem. This is potentially a rather glib idea, so I'm not entirely comfortable with it.

My second, by more concerted, attempt at working out the economics of the buses for our little Alice Springs Road Trip. It gets a lot more expensive when we don't all squash into the same bus.

By convention, irrational traders and non-traders (participants who always chose the no cost option) were excluded prior to analysis.

Discrete Choice Experiment to Derive Willingness To Pay for Methyl Aminolevulinate Photodynamic Therapy Versus Simple Excision Surgery in Basal Cell Carcinoma

This is the sort of that often happens in discrete choice experiments. People whose decisions don't fit in with their assumptions are not considered worth including. In this case, people who always prefer to save money in making health care decisions (for skin cancer) are totally ignored. Those people are probably also the poorest, who may seem irrational or stubborn to comfortably off researchers, but most likely reflect the reality of not having much money. I can imagine someone conducting research on health care preferences of the uninsured and ignoring everyone whose decisions are dominated by cost.

The researchers will argue that they aren't interested in the poor and that they just want to get a general idea of what's going on. But when ignoring certain results is this arbitrary it becomes very easy to remove stuff for the wrong reasons. And when certain social groups are systematically excluded like this it's a bit troubling.

I reckon that Slovenia has to be the quiet achiever of very small bunch of countries that used to be poor and now aren't. It has per capita GDP of US$23,000 which is way near the top. GINI index of 28. Yes. That's right. Only 28. 100% literacy. Life expectancy of 77 years. Infant mortality lower than Australia. And all of this with government expenditure at a hefty 43% of GDP. Who says that governments are evil and drag down the infant mortality stats with all that baby eating? Slovenia is living proof of how much fun a bloated bureaucracy can really be.

So good on you Slovenia. I'm usually a sucker for the heart-warming socialist story. But your capitalist rags to riches epic is a fine effort too. And really, with a GINI of 28 who the hell am I to question your methods.

In his little editorial today on what is wrong with (can you guess) Kevin Rudd, he spends most of his time talking about how bad the public health system is. This is the same public health system that Tony Abbott, as Health Minister, presumably takes some responsibility for. He is basically saying "Politicians are incompetent. I can't run these blasted hospitals and none of the other guys can either, so please fire us."

Abbott wears his free market crush on his sleave. Rich people will do a much better job of allocating scarce health resources than the government. It would certainly be an interesting experiment to find out if we could recreate the fantabulous bargain that is the US health care system¹. But as Abbott wisely says "Hospitals are too important to experiment with."

1. US spends 15% of GDP on health - more than anyone. They rank about 40th in the world for life expectancy and infant mortality - worse than anyone with two coins to rub together. Go privatization! Go the mind-blowing economies of scale from 300 million health consumers all in the one spot!

When it comes to do without reimbursement of drugs that help against minor complaints the Swiss population even seem to exhibit a small positive WTP for such a restriction. This can be interpreted as an instance of 'warm glow', i.e. the tendency of (at least some) respondents to choose alternatives they believe to be socially acclaimed (Andreoni, 1995).

This is what is wrong with economists. They've done an experiment with people, asking them what sort of health care system they want. The economists assume the only thing that matters to the participants is what they get out of it. So they ask these people how much less they would need to pay in order to accept only getting their insurance to pay for drugs treating serious ailments. When people say they would actually be willing to pay more for a health system where only drugs treating serious ailments, they attribute this to a 'warm glow' which is just people wanting to feel good about themselves.

Isn't it possible, that people want a good health care system, and not simply the system that most benefits them personally? It's not a particularly new or original idea. But the researchers seem a little confused by it. They are later reassured when they discover that it's only healthy people who feel that way. Sick people start to become more self-interested. So homo economicus is more like the sick person unable to afford to keep themselves alive, hoping that the people living around them will pay for them.

I read a bit more of that paper and they're arguing that you shouldn't regulate health insurance because everyone wants something different, and if you restrict everyone in the same way you get a bad outcome. One of their examples of this is that people who are sick or have been recently put more value on unrestricted choice than others. This isn't particularly remarkable, because these people are probably using far more health services than the average person. So they'll probably be more upset if you restrict what they use. That definitely isn't an argument against regulation. Regulation might be a bad idea if some people are willing to pay much more for some aspect of health care than other people are. But the sickest people are willing to pay slightly more in return for much better health care, much of the cost of which is borne by other people. I'm not suggesting that society shouldn't pay for sick people, just that differences in preferences between high users of health care and low users isn't sufficient to make regulation inefficient.

Silly neoliberal economists. They're just setting out to find evidence for their existing agenda. Like all economists of course, but it's worse when the neoliberal ones do it because they have the wrong existing agenda.

I had to do a reading on Third World politics for my development course. The reading was written in 1983 I think. At the beginning it made some statement along the lines of "Over the last few decades Third World nations have been unable to translate strong economic growth into the construction of strong political institutions."

The few decades the author was referring to were the dark ages of economic policy as far as most economists are concerned. Those countries were doing all the "wrong" things. At the time economists look at these countries and pointed out all the things they were failing at. In retrospect, that apparent failure looks remarkably like success. The idea that a large bulk of Third World countries could possibly grow strongly sounds totally foreign now. For those countries, I reckon we can put quite a lot of the last 20 years down to abundant lashings of politically correct economic diarrhea.

Charles Murray wrote a book called A Plan to Replace the Welfare State and in it he suggests that we replace the welfare state. Instead the government would make a no-strings-attached payment of US$10,000 a year to every citizen (who wasn't in prison). Then the government would essentially withdraw from all areas of social welfare. So no public health care or public education. You'd have to enforce a minimum level of expenditure on health insurance.

I reckon it is not a bad idea and I have been wondering about similar things of late. Although I suspect we'd rapidly find that governments are actually pretty spectacularly good at keeping our nations running smoothly, despite all their little foibles.