Government spending and inflation question

Economics Economics Questions
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1

If the government spends money on health care and education and bids up the price of the resources in these sectors, wouldn’t it create more health care and education because more demand(from the state) would induce more production of health care and education? So why do Austrians say health care and education sector will turn to garbage?

Note: I know about the subjective theory of value. I am not arguing that what the government is spending on is what the people want. I am asking why Austrians argue there would be less health care and education instead of more.

2

Does this accurately restate what you are saying: “If the government were to tax, borrow, and print money to pay for citizen’s healthcare and education so these specific citizens don’t have to pay for these things from their own resources, then, wouldn’t prices rise, drawing capital into these industries, providing more production of these services?” Is this what you are asking?

3

Are you suggesting that bidding up prices induces economic growth?

4

If the government buys education with taxes, then it is forcing people to accept an education they were not willing to pay for and running out of business institutions that did provide education people were willing to pay for.

Ipso facto, government education will be garbage.

5

Any government enterprise is calculational chaos. Publicly-owned “businesses” (in a gross misuse of the word) have no profit or loss mechanism by which to gauge how well they’re serving the consumers. Every business decision has to be made arbitrarily since they’re no longer judged on their expected return.

6

What I mean’t in the question is not government takeovers but government simply ordering private schools and hospitals to boost production by giving them money

7

Boosted production does not create demand. If a private hospital or business is producing a certain amount of product, it is based on how many sales are perceived. If they are given money and told to make more things, they could very well do this, but what you end up with is product sitting on shelves. Nevermind that the money for this over-production was taken from tax-payers. The time, materials, and costs of production are all losses if you cannot sell what you make. The only thing such a boost in funds from government can accomplish are mal-investments like the over-production you describe, and favoritism in business. Imagine, if you will, how it affects the private sector if the government is hand-picking which businesses get free money. How do you compete with the hospital or factory or fruit-stand that has that advantage?

8

Where does the government get the money? Does it matter where the money comes from?

9

It might be the case that we will have gold-plated education and medical care. No American could realistically fear a foreign invasion of US soil … this is what we get in return for the $2 trillion per year we spend on B2 stealth bombers, Nimitz-class aircraft carriers, Patriot missile batteries, Predator drones and NSA spy satellites. Nothing on this planet stirs without the awareness of the Pentagon. But is it worth the tradeoff? Is that marginal $1 trillion from $1 to $2 trillion worth the marginal increment in security versus the other goods and services which had to be given up? That money could be spent on business investment, better food, clothing, shelter, transportation or even entertainment. There is no way to know what Americans want when the government spends their money instead of spending it themselves. The allocation of spending is performed by bureaucrats, lawyers and pressure groups. Naturally, each is pursuing his own interests in how he argues for the allocation of spending. But since “nobody cares for the property of others as well as he cares for his own” (Milton Friedman), State revenues are not cared for like private capital. The end result is that the larger the state’s expenditures as a percentage of economic activity, the greater the rate of capital depreciation which occurs in the economy.

Central planning of expenditures has two immediately identifiable ill results: 1) the money isn’t spent on what individuals want (it’s spent on whatever furthers the private interests of those empowered to allocate the expenditures) and 2) capital depreciation is accelerated.

Clayton -

10

"Since 1980, government spending on education, adjusted for inflation, has nearly doubled. But test scores have been flat for decades. " [That should be enough for education, one would expect a dramatic difference][;)]

Today we spend a stunning $11,000 a year per student — more than $200,000 per classroom. It’s not working. So when will we permit competition and choice, which works great with everything else? I’ll explore those questions on my Fox Business program tomorrow night at 8 and 11 p.m. Eastern time (and again Friday at 10 p.m.). "

Written by Jhon Stossel

Here is a clip of what you find in some of the poorest regions in the world to for education. http://www.youtube.com/watch?v=nizY_N_e9B8

Consider that, if all this educational spending the US has done over the course of 45 or more years, to see if there was real long term success one would expect graduate rates to go up, the gap between high school dropouts & college graduates to have shrunk, and test scores would have improved substantially. I cant really tell you how this education spending will pan out but why should it be any different.

On health-care through the 1930’s to 1950’s while the dollar retained some of its value and when people payed out of pocket and the government was not involved, and church hospices and non profit hospitals existed, health care costs were not a problem except for since 1945 health insurance got an exemption and their the one of the industries I can think of people use in their daily lives that you cant get across state lines, or international but since the 1970 when inflation broke out and the government got in the business of price controls, and managed care. Many of Nixon benign price controls were later removed but managed care stuck with Lyndon Johnson’s medicare and medicaid. Were still waiting for the results from all that money spent, so were now forced to only consider managed or corporatist care or socialized care but market care, cant work? France and other nations spend less on health-care through there systems then we do, so whatever solution is talked about should require less spending not more as a % of gdp.

So that brings us too developing countries, ohh they wouldn’t have anything to learn from, there just stupid people, yet their the creditors of the world, ironic. If we can only consider Canada, or France system, or more managed care. If in politics today were not allowed to use the US own history in market care but the most modern example of of what can identify for market care would be Singapore, they make it law that you must pay out of pocket for a lot of things, and force saving individually. The money is attached to the individual in an account for his personal use and can give those savings to anyone he chooses too. I’m not saying this would work, I think the market could deliver something better but it is an interesting compromise for those that want healthcare and those who want more of a market based system. Honestly if both sides stick to their guns at this point will we get what we want?

One solution is health saving accounts, or HSAs, in which people spend their own money for routine treatment (HSAs provide insurance for catastrophic health problems). Since Whole Foods adopted that policy in 2003, costs haven’t risen – and employees say they are happy with their coverage.

The country of Singapore is another success story. Singaporeans have universal healthcare, but their system is unique in that it runs on, essentially, the HSA model.[Also private industry and citizens make the majority has percent of gdp for Singapore then then their government][Now I don’t like universal healthcare but HSA might be a compromise and through its success, maybe we could abolish government involvement completely]

The WHO says that 64 percent of all medical spending in Singapore comes from individuals spending their own money at the doctor’s office. In the US it’s 13 percent. In France, where the government pays for just about everything, it’s 7 percent.

The result? Economist Scott Sumner says:

  1. Singapore health care costs only half as much as European health care.

  2. Singapore has universal coverage.

  3. Singaporeans live much longer than Europeans.

Some of that may be because of differences in culture and crime rates. But Singapore also beats its Asian neighbors that have government-run health care: Singaporeans spend half as much as Japanese, yet have virtually the same life span.

If we do want universal care, more HSAs would be better than Congress’ 2,000 pages of micromanagement

HealthCare

http://www.youtube.com/watch?v=3WnS96NVlMI

Read more: http://stossel.blogs.foxbusiness.com/2009/12/23/the-singapore-alternative/#ixzz0gKHJyLBP

Health spending is rising faster than incomes in most developed countries, which raises questions about how these countries will pay for future health care needs. The issue may be particularly acute in the United States, which not only spends much more per capita on health care than any other country, but which also has had one of the fastest growth rates in health spending among developed countries. Despite this higher level of spending, the United States does not achieve better outcomes on many important health measures.

Allow individuals to opt out of employer provided heath insurance receiving the cost as tax free wages instead. They can then use the extra tax-free income to buy the health insurance they want, including high deductible plans, keeping the tax-free savings for themselves. By separating health insurance from employment, individuals will no longer have to worry about pre-existing conditions should they lose their jobs. This massive tax cut for working Americans will not add a penny to the deficit, as the loss of revenue is to insurance companies not the treasury.

End federal mandates that require insurance companies to provide coverage that many Americans do not want. Such mandates drive up premiums and deny individuals the ability to choose less expensive plans that better suit their needs. Lower Health Care Costs with Medical Malpractice & Tort Reform. Allow Interstate Health Care Competition to Lower Health Insurance Premiums

At any rate we are still waiting for results from previous healthcare system, there might be more doctors and such but think of it this way, The government is not involved in cosmetic surgery, where you make the choice to have someone cut on you and the anestesia involved is the same in any surgery, and you can die from just a bad reaction to the anestesia, yet prices come down and quality goes up. In Lasik eye surgery another area where third party payers don’t exist, we see the technology improve, and prices come down. Then take me too my last point think of veterinary care, how many vet clinics in driving distance? Probably a lot, How many hospitals within driving distance? Animals in the private market have the potential to better care then humans. Vets compete on price, reputation, quality? Go ask a vet for yourself, how they operate?

The importance of a profit motive for the health care industry to function adequately as that in Canada, private veterinary clinics provide health care for animals much more rapidly than the government-run system provides similar services for human patients. A dog can get a CT scan the next day? A week for human?

11

Wow! What a very informative post! Can you elaborate on Singapore having universal health care yet Singaporeans pay for health care privately? I do not understand how you can combine these two opposite systems. Or maybe you meant a Singaporean pays 64% of his health care himself while 26% is paid for by some other Singaporean? I’m confused about that point.

12

If you read about universal healthcare in Massachusetts you may get a better understanding of why attempting to create universal healthcare is fraught with danger. For one thing coercively increasing demand through government legislation using tax payer dollars without increasing the counterpoint of supply will only serve to unbalance the ratio of supply resources to the demand of services. Within the current heavily regulated healthcare industry there are very few new competitors entering the market therefore supply is extremely rigid and is in no way flexible enough to accommodate a rapid increase of patients. What happens if millions of new patients are forced upon the medical sector, especially considering the monopolistic traits of the current medical system due to government regulations which impede competition, is that demand increases while supply stays the same driving up the cost for the state government, federal government, businesses that supply workplace insurance and individual insurance just as if there were a bidding war for the services of the medical sector. The other result is that under-staffing and overcrowding of hospitals will occur do the fact that supply of medical services will not increase enough. Hospitals are also fairly efficient places other than some of the distorting effects of the current regulated healthcare providers and because this is the case the amount of staff they have is in good balance with the patients they receive but when many new patients are thrust on them the extra efficiency the hospitals can squeeze out will not be enough to accommodate all the new patients they will receive. This will generally have a deleterious effect on hospital efficiency in many ways a few of which are under staffing which lead to overworking staff which creates stress and lowers the morale of the healthcare service providers, all of which have a negative impact on motivation and therefore results which can easily become a self reinforcing cycle of worsening conditions for staff and patients. These consequences can lead to more mistakes than normal and high turnover rates of staff due to stress and burnout all of which would also contribute to worsening quality of care along with rising costs.

Government would need to remove all regulations on the the healthcare industry that discourage competition from entering the sector in order for the bill they are proposing to have even the slightest chance of working otherwise it will have a deteriorating effect on healthcare especially at a time when the baby boomers are entering their senior years and extra competition and efficiency is needed even without mandatory universal healthcare. Another traditional restriction which should be done away with is the nurse or doctor medical constraints. One way to increase efficiency would be to create new classes of health care providers who are delegated work and overseen by Doctors or through some other hierarchical structure emulating the role of interns in hospitals except in private practices and anywhere else it is possible to do so, such as nuring homes and even home care. This would serve to fill the professional blackhole the medical sector has between doctors and nurses while at the same time creating many other beneficial changes that would reverse the inefficient hierarchy that current regulations impose on the medical sector today.

Updating the division of labor in the medical system to the 21st century by taking advantage of the seamless ability for communication to delegate workloads and responsibly oversee subordinates whose training puts them in classes between doctors and nurses would increase the efficiency of the current medical system. The current organizational framework has for the most part stagnated since the 60’s, a time which is a much better fit for the current healthcare provider hierarchy than today, without any innovation to the structuring of health care providers, this is far too long to not have any real innovation. Changes like this would also create greater efficiency in medical schools allowing for more flexibility in the length it takes to become a professional in the medical field with a wider range of educational costs on the downside of a doctorate. This would help supply shortages in the medical field lowering costs especially as long as the educational system incorporated the ability to upgrade while taking real world experience into account as far as continuing a medical education goes. This would serve to allow those who would rather earn less now and enter the work force earlier to do so, with less of a debt load on their shoulders while at the same time lowering demand for an 8 year education to become a medical doctor. This would lower the costs to become a full doctor potentially incentivizing other individuals who would rather become full doctors to enroll. This type of dynamic change would continue on until economic homeostasis was reached but no matter what much more efficiency would be incorporated into the medical sector. Changes along these line likely would have occurred organically through competition if it where not for the governments interference and influence of medical schools and licensing of doctors according to rigid guidelines based on decades old tradition. Due to a lack of innovation or experimentation in the government sector, it’s influence on the educational system and the licensing of doctors according to strict rigid guidelines it is unlikely efficient changes like these or for that matter any efficient changes will occur.

Since we are stuck with government I sometimes think it would be better if government were to tender out experiments to the private sector to try different models in healthcare, construction, housing, energy efficiency, economics etc etc… with the help of volunteers using double blind methods and have the government pay according to results based on scientific measurements which compared the relative benefits, usefulness, and individual satisfaction of all experiments in one sector. Once this was done the best models could be scaled up and tried again to see if the results changed with a bigger group of volunteers, then the results could be published along with all the data with the intention being that some cities or states might attempt to utilize the model based on an initiative put forth by the state legislator and voted on by the citizens. Then if a state did utilize the model the citizens would decide to continue with it, go back to an old model, or try a new one. This would emulate what happens in a free market and if one model worked very well other states would also begin to use the model which would not be much different than how consumers generally popularize one product over another ,namely because many individuals find it more useful than the competitions vision and/or product. This could also help to change political arguments from being over dogma to being over more sane contentions such as pragmatism, prosperity, technological progress and individual satisfaction, contentment and happiness. For the same reasons though there is no way I ever expect something like that to be implemented. People love to argue about their personal dogma too much for pragmatism to ever enter the picture.

13

But some people want healthcare, or what people see as a gov’t promise of cheaper healthcare as the money is put into a larger pool to distribute from. What ends up happening is the gov’t now becomes the business. The gov’t needs to invest in the supply of increased demand that will end up emerging in gov’t healthcare. This intervention further entrenches the gov’t to take over other industries to make sure the gov’t healthcare is receiving all of what the gov’t deems to be “effective” to make the gov’t healthcare plan work. As competition decreases, then the accurate measurement of consumer demand via prices will also decrease. In time the gov’t healthcare system not being able to effectively measure consumer demand will evolve with ill-balances throughout it’s system and healthcare all in all will be increasingly broken.

imo.

14

I don’t see why you started your reply with a “but” - it seems we agree. I understand that people want free healthcare, free education, free ________, but as you well understand, for every “free” service the government produces, the costs of all other goods and services rise accordingly… so the real question is not whether X, Y or Z should or should not be free but, rather, whether the increases in the costs of all other unsubsidized goods and services are justified. The answer is that of course the cost increases in other goods and services are not justified, else consumers would already have been patronizing the subsidized services instead of the unsubsidized services. As always, coercive State intervention is necessary exactly because its policies are not what the people want.

Clayton -