Health Care Investment

As I sit here with my leg in a splint, I begin to ponder the Canadian health care system and the constant claims that health care spending constitutes an investment. {My leg is in a splint because I dislocated my kneecap (for about the 12th time). Its not bad, not even that painful any more, just annoying. But that’s a story for a different day.}

Creating a publicly funded health care system was probably one of the most intelligent things Canadian governments have ever done. The system provides coverage to the entire population and we end up spending a significantly smaller portion of GDP to get it done. (This is compared to the American private system). The current system is not perfect. There are a number of things that can be improved. The basis of the system, “universal” health care with public funding creates a problem that needs to be discussed. The basic stregnth of the system is also its greatest flaw. Health care is no longer treated as if it were scarce.

Providing health care is expensive. The expenditures for various procedures can easily run to the 10’s of thousands of dollars. If this expenditure is to be an investment, we must ask ourselves what the future benefit will be. If there is no future benefit, we’re talking about consumption, not investment.

There is one fact that brings the issue of consumption versus investment to the forefront. The average age of the Canadian population is getting older. The issue arises when we think about where health care spending goes. You tend to be the biggest user of health care when you’re very young and when you’re old. One expense can clearly be claimed to be an investment. Making sure people start out relatively healthy is a good investment. It tends to mean few medical costs in the future or at least delays those medical costs. The trick comes when we start to consider health care spending on people toward the end of their life.

Consider the following situation. A person is dying of some untreatable illness. This person is over 90 years old. They fall and break their hip, confining them to a wheelchair. Is it an investment to spend the 10 to 20 thousand dollars to give them a replacement hip? Or is it consumption? I think its consumption. I want to be clear. I’m not against this person getting a replacement hip. Heck, I’ll even chip in – granted I already do – what I’m objecting to is calling this expenditure an investment. There are ways we could think of this as an investment. The medical team gets to practise a procedure for use on other people. By creating a demand in consumption, we might be spurring some important research and development, but of course we could invest in research and development directly. The problem is that we aren’t doing it for these reasons. We’re doing because it makes us feel good. That’s consumption.

I guess the way to save the investment argument is really cynical. It is an investment from the point of view of politicians. By spending ever increasing amounts of our money on health care they earn a return of re-election.

I'm going to post something with a little more edge tomorrow. Tangentially related to the Virginia mess.

Ideally Organized University (IOU)

Let’s get one thing straight before we start. You’ll hear a lot of people talk about people having the right to education. Education is NOT a right. Access to education is a right. Education itself is an accomplishment. All should be allowed to try but not all will achieve an education. Saying education is a right is like saying everyone has the right to sing on a CD that goes platinum. We may as well say that everyone has the right to bowl a 300 game or get a hole in one. It’s easy to identify these things as accomplishments not rights. Let’s get it together and realize that education is something that a person accomplishes, not something somebody gives to another person. We tend to confuse education with a degree. A degree is supposed to be an indicator of accomplishment, nothing more, nothing less.

There’s another important point that a lot of people, particularly students, seem to forget. Universities are not just about teaching – research is also essential. It’s what makes university different from college or high school.

How is my ideal university structured?
1) Each university in the country would have a fixed maximum enrolment based on the potential number of students available – allowing for a maximum of 30% international students. Some smoothing would be required here. Potential students would then have to write a simple entrance exam guaranteeing that the student can read, write, and do basic arithmetic. The seats would be offered in sequence to students, with the highest scoring students selecting the university they wish to attend first. Once the seats at a university are full, on to the next one, or you can wait and re-write the entrance exam next year. This guarantees a basic skill set for incoming students and rewards bright or well prepared students. We clearly cannot depend on the public high school system to do this. This would also serve as a check on the public education system.
2) No distinct programs in first year. All university students will take a relatively common first year, consisting of some mathematics, English, a second language (in which they do not already have training), physical science, social science, and humanities. In all cases there should be at least 2 or 3 different levels offered. Students can challenge for credit in any of these courses with the exception of second language (they’re supposed to learn something new).
3) Classes would be large at the first and second year level (around 100) and much smaller (20 or so) at 3rd and 4th year levels.
4) Students not maintaining minimum standing would be "invited to reconsider their academic options". The basic idea would be you work or you leave.

The real trick will be figuring out how to pay for it. The ideal is to balance control between students and the academy itself. If left solely to students there is a strong likelihood of rapid swings in enrolment and program quality. So the funding would look a little different than what we see today.
1) Government (federal not provincial) would be directly responsible for the maintenance of buildings and grounds. That’s to say the fixed costs.
2) Government would also be responsible for library holdings and electronic journal access. Electronic access would be standardized across the country and institutions. Library acquisition budgets would be based on the formula $ = Base + b * students. The key to this system would be a vastly improved system of interlibrary loans.
3) Government would also be responsible for the 75% of the salary of faculty, but NOT administration. Faculty salaries would have the same base (with regional and discipline supplements).
4) The remaining operating revenue would be tuition driven. Tuition would cover 25% of faculty salaries plus any administration costs. It would thus be apparent to students and everybody else how much is being spent on administration. Any personnel not teaching a full course load will be classed as administration (if you only teach 2 courses – 50% admin).
5) Student loans would be available to any who have a seat at a university. These student loans will cover tuition, books, a room in residence, and a meal plan. Anything else is the student’s or the parent’s responsibility. The idea is loans will keep you alive and able to study but that’s it. No income testing or anything like that.
6) Student loans would be repaid through the income tax system. A portion (up to all) of the student loan maybe forgiven upon working in Canada or a specified region of the country. If we need more MD’s in PEI, the provincial government can buy and offer to forgive student loan debt for MD’s working in the province. Those leaving the country before paying off student loans must either continue to make payments or forfeit citizenship. International students would be required to pay the entire cost of their education.
7) The average employment outcomes of graduates will be publicly available to potential students. As student loans are being re-paid through the income tax system this data will be collected already.
8) Programs not maintaining minimum enrolments for extended periods of time(to be decided on a program by program basis) will closed. Programs with exceedingly heavy enrolments for an extended period of time will be first audited for quality and graduate satisfaction. If the audit is positive, resources may be transferred from closing programs. If the audit is negative no additional funds will be transferred.

That’s it. There’s still academic freedom. No service model- this isn't like going for pizza. The academy actually works as the difference incomes still shows. There are ways to make it better, but we’ve got to get over the idea that the system is fundamentally broken at the teaching end. The breakdown is at the administrative end. If graduate outcomes are known, students can vote with their feet. By fixing the number of seats we prevent the current race to the bottom. It’ll never happen this way, but that’s my dream.

Let's hear it for Good Ol' IOU!

"Investing" in Education

In my rantings on the provincial budget I said I’d talk about the “investments” in health care and education. I’m going to tackle education first. I’ll get to health care later this week and then I’ll attempt the state and future of the US economy (as requested).

Education has historically been one of the best investments a region could make. The return has been high and the risk low. This is starting to change for lower levels of education. There are a number of ways this can be explained. The most generous explanation to the public education system is to argue that as basic education becomes more available and open to people of all backgrounds, the skills associated with education become less scarce and thus can demand less of a return. This likely explains only a small portion of what we’re observing.

The other possibility is much more damning to the public education system. Even though the number of real dollars spent on public education has been increasing over time, the quality of education received by students has been falling. This is in fact a significant portion of the problem. The public education system in New Brunswick has lower expenditures per student than some other provinces but greater than others. Spending more may not be the only solution. Getting better value for the money we do spend might be a better way to go.

Consider the basic data. Approximately 86% of the population of New Brunswick has education of grade 9 or better. (gnb link) That’s a pretty good educational attainment. Less than 14% of the age 15+ population hasn’t finished the equivalent of junior high school. Less than 2% of the 15 to 24 age cohort has not completed grade 9. The New Brunswick school system is doing a good job of making sure people stay in school. This would tend to support the argument I first made about the return to high school education decreasing as more people achieve that level of education. If only it were the case.

The scary part happens when we consider the provincial literacy rates. Approximately 50% of the total population would have a hard time following written instructions. An even greater portion would have a hard time reading a newspaper article. People in this situation are described as functionally illiterate. 37% of the population aged 16 to 25 can’t follow written instructions remember less than 2% of this age group didn't finish grade 9. This is clear evidence of a problem. Combined with the PISA scores it’s evidence of a huge problem. The current system doesn’t work.

If we’re going to “invest” in education we should take steps to make sure we aren’t just throwing money away. It’s time to take a hard look at how education dollars are spent. We’ve got more and more teachers who are experts in teaching and fewer and fewer in who are experts in any subject matter. We’ve got more and more people working for the education system outside the classroom. I suspect it might be time to fire a number of teachers and a whole lot of administrators. It’s for time education spending to provide education not just jobs.

To Lean to the Left

I’ve always been uncomfortable with a number of sentiments presented by people who claim to lean to the left. I’ve never really understood why, but a number of the statements and ideas just don’t feel right to me. I consider myself to be something of a moderate (I think all political parties are very capable of being dumb and policy should decided on a case by case basis) and a little bit libertarian (I think the best government is the smallest one that meets the needs – not wants – of the people it serves).

I finally figured out part of what it was that didn’t feel right to me. A great number of the “left”‘s argument amount to society should adapt so that specific groups of people don’t have to. These groups are usually minorities of some description. This is really interesting to me. I’ve spent a lot of time in situations where it was up to me to adapt. I moved around a lot – the local culture certainly shouldn’t be expected to adapt to me – I had to adapt to it. Camping in fairly remote areas – the wilderness wasn’t going to adapt to me – I had to make sure I didn’t screw up too bad. If somebody drops the food in the river – we’re hungry. I realize now that I was never in very much danger in the bush, but it sure felt like it at the time. When a bear is looking at you like you might have something tasty to eat across a frozen river she sure isn’t going to embrace your right to exist – even if you explain it really well. You’d better have a coping strategy or a gun.

The interesting thing about most of arguments I hear from my leftist colleagues (remember I work in the “Academy”) are that the world should adapt to a particular point of view because it is somehow the correct point of view. There are 2 things that really intrigue me about this view point. One, most of the people making these statements have never really been able to adapt to anything. They seem to have convinced themselves that they’ve always had the moral high ground. I’d bet if you travelled back to when they were 15 they’d be making essentially the same arguments. Two, it is always their own point of view that the world has to adapt to. The statements boil down to – the world would be perfect if everybody thought the way I say they should think. (the speaker not me – if everybody thought the way I say they should think the world would be perfect J).

This is what we’re seeing with the proliferation of “Studies” disciplines. Women’s Studies prof’s are all women. A Black Studies prof certainly can’t be white, the same with Native Studies. I’d like to know what happened to the idea of objectivity.

The problem boils down to the problem I have always had with the NDP politically. They are totally unwilling to accept that most of the country does not support their views. This is why they cry for proportional representation. And when you point out that this will primarily benefit the NDP and take power away from the voting public (remember you don’t get say specifically who gets to go to Ottawa - Jack Layton will) there really isn’t a response. This is just another example of those on the “left” claiming that the world should adapt to them.

I know a kid about age 6 who thinks the same way. We’ll play games, and if he doesn’t win he claims the game is unfair and that we should change the rules. It never occurs to him that practising might be a good idea, or maybe he’s doing it wrong.

I’m going to end this with a line I fed to a friend of mine who’ll be running for the NDP in the next federal election. He might even use it. The NDP – so left it’s right! I wanted to add the tag line: Fascism - it covers the whole political spectrum! But it's too long.

Budget Bladerdash

The last two weeks have been a never ending stream of government noise. Here it started with the provincial budget. I always try and watch the budget coverage – professional penance. I actually had to turn it off it was making me so mad. Let me be clear. I do not support any particular political party - I think they’re all pretty stupid. But this time the provincial Liberals win the prize for all time dumbness. First and foremost, they present what they claim is a balanced budget, but in almost the next breath they admit that the provincial debt is increasing due to the budget. This is not balanced by definition. Oh well, chalk it up to creative accounting.

The non-deficit deficit doesn’t really bother me that much. What really pisses me off is the rhetoric about self-sufficiency. The idea seems to be that New Brunswick should work to become less dependent on federal transfers and equalization payments. Commendable. This means we need to make investments and attempt to improve the economy. The key planks of the budget do something entirely different. The standard “investments” in health care and the public education system are maintained (more on this later). But the real changes in the budget are increases in the personal income tax rate and the small business tax rate. Back the truck up Shawn! Increasing personal income tax tends to slow the economy down, not cause it to grow.

Across the country, small and medium enterprises are responsible for most of the economic growth. The logic seems to be we want to grow, so were going to make it harder for the key elements of economic growth to succeed. Granted NB still has one of the lowest small business tax rates in the country, but it is offset by a lot of red tape and government. It also sends a really scary signal. The Liberal government seems to be stuck in a model of government that we thankfully got rid of in the 90’s.

The truly scary thing comes from the census data. Between the two census measurement only two regions in New Brunswick grew. Moncton (ok – that’s an easy one to guess) and the other… No not Saint John. Fredericton. This one has be blamed on the PC party. Government continued to grow under the PC party’s leadership. While the province over all is shrinking, the government continues to grow – this sounds a lot like cancer. The Liberal government is continuing the trend. The only positive I can see is that the NDP isn’t running the provincial government here. We’re not talking the reasonably competent NDP of the prairies here. So I guess it could be a lot worse.But the people of New Brunswick are in extreme danger of being governed to death.

Confidence Games

This comes from the comment by Snailman – Thanks for the great comment.

Sorry it took so long to get to this, I’ve been out of town.

Consumer confidence is definitely a strong predictor of economic events. This is why you see the consumer confidence index reported in the news. We aren’t just talking about specialty news here, but your basic 6 o’clock news. An increasing portion of the public is aware of the importance of consumer confidence.

This can create a different problem. If the economics community makes the impacts of consumer confidence even more public (if we had that kind of sway over the media) the problem would likely get worse not better. Consider: a news broadcast reports that consumer confidence is falling rapidly. If all consumers know a drop in consumer confidence is likely to lead to a recession, there are two very different ways they are likely to respond. The ideal way (which I suspect Snailman had in mind) is go on spending as they were before and ignore the report. Essentially, if consumers all know the economy is under their control they can decide not to have a recession. This is a collective action problem, much like the voluntary provision of public goods. Ad campaigns in the US were quietly used to this effect in the US in 2001 and 2002 and at other times. The other way consumers might respond (which I think is more likely) is they can reduce their spending in anticipation of the hard times ahead. If you know that reductions in consumer confidence often lead to recessions, the individually optimal response is to save. If all consumers do this, we end up with a recession. In fact, if all consumers understand the economic theory (perhaps due to a public education campaign run by economists) the recession is likely to worse than otherwise. Public education on economics can be scary that way. It can be a very sharp double edged sword.

There are very few economists who could possibly generate the media attention required to effectively influence the situation. Ben Bernanke, head of the American Federal Reserve comes to mind. Alan Greenspan had the same kind of influence when he held that position. David Dodge (the Canadian equivalent) has much less power to manipulate expectations. Generally speaking, these prominent economists are very careful about what they say and how they say it for fear of unduly influencing expectations. The old line was, "If Greenspan sneezes the world economy gets a cold."

I shouldn’t leave you with sense that the “economics community” is acting in the best interest of society all the time. It isn’t. I honestly believe economics should be a required course for all university students, maybe even in high school. The problem is economics is often taught poorly. It can be incredibly dry. Thus most students don’t want to take it, or if they do they don't get the truly valuable lessons.

A final issue needs to be raised. A lot of people don’t like to hear what economists have to say. People tend to believe what they want, and not what theory (which is very flawed anyway) and evidence indicate.

There is another method of dealing changes in expectations that is already being used in virtually all developed countries, government spending. During a recession government spending tends to increase through increased transfer payments to individuals and by conscious act of government. This offsets some or all of the recessionary pressure and expectations aren’t often realized. The defence mechanism is already in place. The “economic warfare” aspect arises by forcing a government to spend on staving off a recession and not other goals.

I’d like to end on a quote from Alan Blinder. "Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently."

Weapons of Economic Warefare III

Consumer confidence is one of the better predictors of economic performance over the short run. Consumer confidence is essentially the expectations held by consumers about the future. It is also one of the more difficult things to predict and control. There a few ways in which consumer confidence might be manipulated into a weapon of economic warfare. When consumer confidence falls, consumer spending typically falls as well. A dramatic fall in consumer confidence, and thus consumer spending, can cause a recession or even a depression. A great deal of modern economic policy is centred on limiting the impact of a such a drop in consumer confidence. The most common and direct approach is to increase government expenditures to offset the impact. By decreasing consumer confidence an unfriendly power may be able cause a recession in a target country. During a recession the prices of real assets tend to fall making the acquisition of fundamental resources and assets less costly for the attacking power.

Consumers’ expectations of the future are the true target here. Economics has a less than ideal understanding of how expectations are formed, but there are a few simple ideas that might be exploited to this end. Continued bad news, or uncertainty is one way in which consumers expectations of the future may be manipulated. News stories covering closing of factories and failing businesses would be one method of decreasing consumer confidence. Proximity and accessibility are two keys in an individual’s assessment of risk. Proximity basically means did it happen to someone close to you or like you. If news stories or other methods of relating the unfortunate events relating to an “every man” are circulated, this will likely have a strong negative impact on consumer confidence. Accessibility refers to how easily an event like the one being assessed can be called to mind. Recently experienced events tend to receive higher assessed likelihoods than events further in the past. Thus increasing the frequency of these stories would increase the perceived likelihood of such an event. The result would again be a loss of consumer confidence.

There is another, more devious method of attacking consumer confidence. Very little shakes a person like disappointment. Thus, consumer confidence could be attacked not by trying to convince the populace of a country the future is going to be bleak, but by convincing them things were going to go phenomenally well.. By creating unrealistic expectations you set the populace up for a disappointment. The reaction to this disappointment would be a substantial contraction in consumer confidence and spending resulting in the desired economic hardship. The advantage of this approach is that people are more likely to believe what they want to hear, and good news is what most people want to hear.

Punch line: Beware of good news. It may not be what you think it is. J