Let the healthcare debate continue…

There are plenty of worthwhile discussions amongst economists and policy-makers about the best way to fund health care. A debate that goes on largely outside the policy-makers’ domain, however, is whether increased health care spending actually improves health care at all. There is a sizable body of research which suggests that increased health care spending doesn’t improve outcomes one iota! If this is true then it makes the whole health care funding debate largely irrelevant.

The real problem with these rather counter-intuitive results is endogeneity bias: often large spending in a particular geographical area indicates that people with serious health problems live in the region. If this is the case then the cross-sectional sample is not randomly selected and the results will be biased. Thankfully, some brainy econometricians came up with a way to instrument for the endogeneity problem and they find that health care spending IS positively correlated with health care outcomes. So now we can all get back to arguing over our entrenched, ideological positions on health funding again. Phew!

New Zealand Currency in Free Fall

So the NZ currency is currently at $0.705US, implying that it has fallen $0.105US in two weeks. What the hell is going on?

As far as I can tell, investors in the US are nervous about some perceived economic contagion from the troubles in the sub-prime mortgage market. As a result of this economic uncertainty in the US, everyone has become significantly more risk averse in their investment behaviour, and in currency markets a ‘flight to quality’ has begun. The quality in this case is US dollars and the Yen.

So the economic situation in the US looks weak, and their dollar has appreciated against ours, messed up aye. Still, for that very reason I don’t think that this is sustainable. The fundamentals that drove our currency to $0.81US still remain in place, robust economic growth, strong world growth, awesome soft commodity prices, and comparatively high interest rates. I’m certain we will hit $0.76US again in the near future, and I wouldn’t be surprised if we hit $0.78US before September. $0.81US was a bit ridiculous, but I think we have fallen a bit past fair value.

Update: Now we are slipping under $0.69US, this reminds me of a famous Keynes quote “The market can stay irrational longer than you can stay solvent”. Damn those animal spirits.

Fair pay for the military?

This blog is all about the times that the market should give way to government intervention; however, I liked Stephen Levitt’s comment on military conscription too much not to post it up. It’s a great example of a case where an area traditionally managed by the government might be improved if we let the market have greater freedom. It’s also a classic Levitt-ism: where he applies economic reasoning to fields not usually studied by economists.

His idea is that, if military service was a job like any other, then soldiers would be paid commensurate to the dangers and hardships they endure. They would also be free to quit at anytime if they felt that they were not being paid a sufficient sum to compensate them for the risks they faced. This, in turn, would force the government to bear the true cost of waging a war: in war-time the troops wages would skyrocket along with the dangers they faced. In economic terms this must be considered far more efficient than the current situation.

The existence of mercenary troops and private security forces in Iraq is testimony to the fact that people are willing to work in that sort of environment if the wage is high enough. Of course, Levitt isn’t suggesting a privatised army, simply an army who can truly be called volunteers in wartime as well as in peacetime. Is that really as traitorous as the comments on his blog suggest?

Government intervention and the Right

The following article by Roger Kerr discusses New Zealand economic growth relative to the OECD. He complains that our economy is growing too slowly, and as a result we are actually falling further behind other developed countries.

As he is from the Business Round Table, he has to criticise government for this lack of economic growth. There are two ways he could do this that would imply government failure. He could:

  1. attack government spending and say that it is crowding out productive investment
  2. attack where government spending is going

In a sense, he chooses to attack where government spending is going in his article, but not directly. What I find interesting is that he complains that productivity growth is too low, and then blames the government for abandoning its goal of economic growth. So he is blaming government for a lack of action, rather than saying that some active government policy was a failure. This implies that he thinks government policy can increase productivity growth.

We also happen to believe that appropriate government policy can improve productivity and economic growth, it is nice to see that people on the right-hand side of the spectrum agree with us.

Subconscious nationalism

I hate nationalism, I agree with the idea of valuing your nation above other nations, it just seems like an arbitrary way of dividing people. However, I just had what I think was a nationalistic experience. I was reading this article about how a Trans-Tasman publisher had its first-half profits driven down by a poor performance in NZ. As I was reading I felt embarrassed, I could hear myself thinking “I’m sure New Zealand is as good a market as Australia (if not better 🙂 ), they just must not be trying to sell their product properly”. However, after hearing myself think that statement, a statement that made practically no economic sense, I realised I was just being defensive. I was being defensive about the performance of the New Zealand publishing market.

We are all boundedly rational, and so we all need to follow rules of thumb in order to make quick decisions, or quickly analyse things. As people we can’t comprehend a world made up of individuals, we have to put people into groups in order to interact with society, this is one of our rules of thumb. However, it is important to realise how ridiculous I sound standing up for the New Zealand publishing market in my head, as that is how ridiculous we all sound when we argue things on a nationalistic basis.

People want higher incomes

I was reading an interesting article by Roger Kerr. Now there were a lot of good points here which I plan to discuss at some point, however I’m not going to right now. One thing that did catch my eye was a poll he used as evidence that our incomes are too low. According to this poll 96% of New Zealander’s want higher incomes.

Now this poll is stupid, deep down 100% of people want higher incomes. All the poll is tell me is that 96% of people are honest about wanting more money, while 4% of people want to make themselves feel good by pretending to not value material things. It reminds me of when I was a student working at the Warehouse and hippies would come in complaining about capitalism and social inequality while happily buying goods that would have ‘exploited’ foreign labour.