Child care subsidies and maternity Leave: New incentives and unintended consequences

The maternity leave debate was raised yesterday with an angle I had not thought about before, but being an economist, really should have. It suggests that maternity leave has the unintended consequence of encouraging women with young children to work rather than stay home with their children. Rather than bringing families together, it actually tears them apart. Let us examine this claim.

The article claims that more than 80% of children under 5 years of age attend formal day care in Sweden, where 12 months maternity leave is the norm. This figure must surely be closer to 100% of children aged 1-5, given that mothers (or fathers) are paid to stay home for the first year of their child’s life. In Australia, the number of children under 5 in formal day care is currently less than 40%, and much of that I would imagine is part time.

Both the pro and anti maternity leave debaters need to get straight the purpose of their policy. That way we can examine whether there are possible unintended consequences which can undermine the suggested outcomes.

For example, the pro-maternity side appear to want to reduce the cost of child rearing to working mothers. Fair enough. But the unintended outcome of a maternity leave is to decrease the costs of child rearing for working mothers, but not stay-at-home mums. The new incentive structure encourages mothers to choose work over staying home with youngsters.

Complementing maternity leave is the current child care benefit scheme. I have mentioned before how cheap child care can be after all the subsidies are considered – about $15/day/child. This policy increases the net benefits of working for mums, as the cost of working, in the form child care, is reduced. These subsidies provide incentives for mothers to return to work quickly after the birth of their children.

Sweden is the classic case study of the pro-maternity leave lobbyists, but I wonder if they have really examined the outcomes of Swedish policies in detail.

Consider this comment (all quotes from here): 

Policies such as childcare and parental leave have meant that the majority of Swedish women are employed in the labour market and remain there throughout their lives, with only minor interruptions after the birth of a child.

And: 

from 1990-1998 the percentage of women engaged in part-time work fluctuated between 43 and 47 percent, while since then it has decreased to between 33 and 36 percent.

It appears more kids in full time, rather than part time, child care is what you get.

The following graph is of the period following the introduction of 180 days parental leave, at 90% of previous salary, in 1974 in Sweden. This was extended to 9 months in 1978.

During the 1970s and 1980s, the state and the municipalities both covered approximately 45 per cent of the fees, leaving the remaining 10 per cent to be covered by parental fees.

Again, subsidising child care works, in that it increases the uptake of child care. Not subsidising it works too. Cost of childcare exploded in the 1990s, and

…by 1998, 17 per cent of the costs of childcare were being covered by parental fees

The graph above clearly shows this impact. But what of the 2000s boom? We have another policy change to explain that one.

In July 2001 the Swedish government expanded childcare to include children of parents who are unemployed and in January 2002 to include children of parents who are on parental leave looking after a sibling (Swedish National Agency for Education, 2003). In addition, in January 2003 all children aged 4-5 became entitled to 525 hours of free attendance in childcare per year.

It is time for the pro-maternity leave lobby to ask whether having almost all of our children aged 1-5 in full time child care is a desirable social outcome.

My gut instinct is no, but I have no reason for this position. My son is in family day care two days a week, and he started this at 18months of age. He enjoys it, and he learns to socialise with other kids. Since putting kids in child care is a voluntary action of parents, my inner economist says that it must be the best outcome in the circumstances. Of course, the circumstances are the direct result of government policy tweaking the incentive structure.

In the end, it appears maternity leave policies do not bring families closer together, but create a generation where parents and children become strangers.

What's with the news?

I thought some of you might be interested in the content you can find through the Courier Mail website’s front page:
• Sexy designs on Columbian catwalk – photo special
• Beauty and the beast – how Miss Universe narrowly escaped a captive crocodile
• The flying car is here!
• Get naked – best nude events, beaches and resorts
• Miranda Kerr caught topless again – photos inside
• Amazing animal escapes
• Beauty and the beast – picture special (bikini clad models holding exotic pets)
I just want to remind you that they also claim a readership of 620,000 each weekday. An economist will ask, is this degradation of news demand driven, or supply driven? Considering the vast flesh content of the internet, maybe it is demand driven. Anyway, I think I have now confirmed where not to go for news.

Insightful

I thought it might be time for a short break from the residential property market. Time, maybe, for a more philosophical glimpse at our world.

When election time comes around I often wonder what difference my vote will make. All the candidates seem to converge on the same policies 99% of the time, and often take advantage of irrelevant fringe issues to attract voters to their side. It appears then that much of the benefits from a democracy actually happen before votes are cast, as candidates seek to determine policies to satisfy the majority of people. Thus, we get the candidates and policies we deserve.

I will leave you with a quote from a very interesting piece.

... we also have to overcome our perception that elections are about the future course of our country. Actually, they are about picking managers who will oversee public policy as we move into the future...

UPDATE 2 - A chronic housing shortage: Myth or reality?

This is my final post on the housing shortage debate. After a little probing, I have isolated the single point that leads astray the data rich, but theory poor, residential property analysts. It is this. Housing shortage proponents believe that housing supply is not very responsive to price changes, or the jargon, supply in inelastic. As such, we can expect another house price spike as we wait for supply to catch up with expanding future housing demands.

I would like to think that today’s ABS release of building approvals data confirms my point, and makes a mockery of housing shortage predictions, such as those of Paul Braddick of ANZ. Braddick seems to acknowledge the housing shortage as some kind of inside joke when he writes:

If housing supply remains on its current trajectory, Australia will face a critical, and potentially intractable shortage of housing throughout the decade ahead that would force rents and house prices significantly higher and drive both rental and house purchase affordability/availability to extremely difficult levels. (my emphasis)

To look at the graph below, and make dire predictions based in extrapolating a one year trend in supply, in light of historical evidence, is probably one reason for the poor reputation of economists.

By the way, Braddick has claimed a shortage for some years, and in 2007 stated that buying a home was going to get much harder, and that we face supply constraints. Yet in the year following these claims prices dropped and affordability increased. I thought houses were like bananas. A supply constraint causes prices to rise, not fall. But if you make the same prediction for long enough it is bound to be right eventually.

Where is the theory in all these extrapolative forecasts? In Joye’s own words, his solution is to ‘elastify supply’, but how elastic is supply currently? And is there a problem with too much elasticity, which may accentuate the boom and bust cycle? Let’s not also forget the fact that supply is normally more elastic in the long run than in the short run anyway.

Why do we not see these types of conclusions from our top economists instead?

…the projections of demand, of supply and of the gap between them are simplistic and unlikely to be realised in the longer term. The housing market is dynamic, as is the economy as a whole, and the emergence of a major gap between effective demand and supply would stimulate market reactions affecting price (affordability) and aggregate supply.

There are my last thoughts before putting this debate to rest.

• Housing demand comprises rental and owner-occupier demand. Investor demand is simply a function of rental demand (income) and growth expectations, which may be partly driven by owner-occupier demand.
• The elasticity of supply of housing appears quite reasonable, but I have yet to find a good recent estimate for Australian housing. Even Joye and Co’s epic volume on home ownership, with a chapter on the elasticity of housing supply, fails to estimate the elasticity figure itself, and whether there has been some recent decline attributable to regulatory changes. In the UK it, the elasticity of supply of housing appears to be between 1 and 3. My own back of the envelope estimates using ABS weighted homes average price for capital cities (price), and dwelling units completed (quantity) result in a similar range of estimates (depending on whether monthly, yearly, or lagged).
• Although a Robertson/Keen type wager does not interest me so much, I am still prepared to offer a forecast. The growth in dwelling prices from July 2009 to July 2011 will be less than the growth in prices from July 2005 to July 2007. I know, it’s not particularly shocking, but it makes my point that the methods used to justify a housing shortage are flawed, and do feed into house prices.

UPDATE - A chronic housing shortage: Myth or reality?

I tried to contact Christopher Joye and Business Spectator to promote my previous post, which tried to unravel the mysterious reason for making dramatic claims of a chronic housing shortage.

I would like to think that today’s comment by Joye at Business Spectator is in some way connected with my own analysis, but doubt it. He does not address the concerns I raised of defining the term shortage, nor does he address why house prices declined during 2008, or why the rate of price growth is slowing. He does address a point that I have not made, about the large number of unoccupied dwellings in the census data, but I agree with his point about that data. Instead, I will have to take it as an expansion of his general argument.

To be clear, the argument is centred on the fact that building approvals are at all time lows, while population growth is at historical highs. Blind Freddy can see this.


In the long run population growth is the driver of underlying demand, but part of the cause of the recent burst in the population growth rate is the ‘baby bonus children’. They will not be a significant driver of demand for space for a couple of years yet. I also challenge the validity of simply extrapolation net migration trends, which would have missed the 1987 decline, and will miss any future declines. Maybe the shortage claim is that we currently do not have enough dwellings for future demand, and that there is some reason why we may not be able to supply these future dwellings. I’m sure we both agree that long run demand is a function of population, even after minor fluctuations in occupancy rates are considered. Population has grown in fits and starts before, and it will again - that surely is not the prime justification for claims of a shortage.

But we can first examine the obvious reason why building approvals, starts and completions are at a historical low. Joye’s own research shows that house prices declined through 2008, so there was little incentive for developers to bring stock to a falling market. Developers don’t count houses, they count profits. Could housing shortage proponents please explain to developers why they should have continued to build homes unprofitably when house prices were declining?

I understand Joye’s frustration in communicating his claim to the general populous, and I have no problems with being labelled neither an academic, economist or serious researcher; simply an independent pundit. My independence I feel is my strength. But neither does my independence imply a lack of academic rigour, seriousness of research or experience in property markets, for I like to think that is my forte.

But let me focus on the arguments at hand. The proponents of a housing shortage believe there is some kind of impediment to the future supply of housing, and in Joye’s own words they include: strict density restrictions; long building approval processes; a range of taxes and charges that stifle new development; insufficient infrastructure to liberate distant supply; and scarce new land in proximate urban areas.

Solution: elastify supply. Translation: build roads, rezone land for housing, decrease government fees to developers, and streamline the development and building approvals process – make it easier to build new homes.

But Joye’s own numbers show just how responsive the supply of residential property can be. Ignoring the GST induced slump in 2000, the graph below shows three previous periods where residential building activity slowed dramatically, only to bounce back within a couple of years. And these recoveries faced similar, if not worse, taxes, charges, and approvals processes.


The Queensland government has taken Joye’s ideas for elastifying supply on board with their SEQ Regional Plan. The plan complements the SEQ Infrastructure Plan, and together they achieve all of the solutions proposed by Joye. However, a Regional Plan delivering these same outcomes has been active in the State since 2005, and yet apparently, we still have a housing shortage.

There is a very good reason why this should be the case, and why Joye and Co.’s proposed solutions will not bring forward the construction of new dwellings. Let us examine each proposed solution in turn.

1. Density restrictions. If I understand this correctly, the claim is that if developers were allowed to build higher buildings, they would build more dwellings.

But through what mechanism is this claim achieved. Let us use an example to show how rezoning to increasing building height restrictions benefits only current land holders, and does not improve the supply of dwellings.

A great case study is near my own home, where former industrial land near the city is a target for gentrification by the local government. The land has been rezoned for residential, and the building height restriction has been increased periodically from 5 to 7 to 10 storeys in the past 5 years. Yet there remains just a trickle of new apartment buildings.

The reason is simple. As the height limit is raised, the land itself gains value. Any developer looking to enter into the area would have to now pay the current owner an even greater price for the land, leaving their rate of return on the development similar in every case (the 5, 7 and 10 storey cases). Rezoning, while in some instances is required to change uses, and to allow for natural growth to proceed, still remains a gift to the land owner.

2. Long building approvals process. The argument is that supply responses to price changes are delayed due to arduous approvals processes.

In general, I agree that the approvals process for residential dwellings is in some cases arduous and time consuming. However, the fact that planning and building approvals remain current for a period of time allows developers to speculate with early approvals, without committing to construction until prices appear stable enough.

Even if the cost and time taken for approvals is reduced though innovative management by local governments, the argument of benefits going to current owners of developable land, as in increase in value reflective of the reduction in development risk, applies.

3. Taxes and charges stifle new development.

This is the same argument for rezoning and the building approvals process. Reduced development costs are returned to land values.

4. Insufficient infrastructure to liberate distant supply; and scarce new land in proximate urban areas. These arguments assume that developable land is unavailable due to current planning restrictions.

This argument is one of the more popular ones in the property industry. If I just stated here that there is plenty of land currently zoned for residential development, both within existing suburban areas, and in new outer suburb developments, I would be hit with a request to show some evidence. So here it is for South East Queensland.

Springfield, to the west of Brisbane is only 13% developed. It has an area of 2,860Ha, and a target population of 86,000 people, with house and land packages available now. Coomera, north of the Gold Coast, has been rezoned for a new satellite city, and has very good highway access to both Brisbane and the Coast. Land is zoned for housing for an estimated 60,000 people. Sippy Downs, west of the Sunshine Coast has a new plan promoting development around the University of the Sunshine Coast. Not to mention infill projects such as Portside in Hamilton, and the ongoing transformation of Teneriffe, South Bank, and South Brisbane into dense residential areas.

Of course, I have repeatedly mentioned, the benefits from rezoning go to current land holders. For a development industry with large parcels of land bought for long term speculation, this is a simple gift.

At the end of all this reasoning we end up at the same point as before. We all agree that there has been a recent jump in population growth rates, which will lead to medium term stability in house prices, and a recovery in residential construction. However, some things remain uncertain, like why Australia’s leading expert on residential property markets can claim something as radical as a chronic housing shortage based on extrapolating trends in data without resorting to theoretical foundations; and why all levels of government are buying into ineffective solutions to a non-existent problem.

A chronic housing shortage: Myth or reality?

What I really want for me and my young family is a nice big house, well located, with a shed, in a quiet street, with shops close by, and parks all around. Damn the housing shortage!

But let us be serious for a minute. If you are going to claim a housing shortage, a chronic one at that, you will need some pretty solid economic justification.

This article is targeted squarely at the claims of protagonists Christopher Joye and Jason Anderson. I do this not to provoke, but to share ideas and present some theoretical arguments. I read Joye’s columns in Business Spectator, and am a fan of his general rigour and respect for evidence. But for some reason, he repeatedly claims that Australia suffers a chronic housing shortage. Maybe it is just his enthusiasm coming through, but surely to make such a claim he would need to define both chronic and shortage. Setting the definition of shortage aside for a moment, I think we can first ignore the use of the term chronic, as it implies long-lasting and ongoing. Maybe this term is used to make the point that Joye foresees the scale of future housing shortages to be quite severe.

Anderson makes these same claims, and challenges those who deny a housing shortage to explain to me why it is that in the 2008 calendar year we had the strongest rental growth in nominal terms for more than 20 years and in real terms for more than 30 years. He further claims his analysis revealed a housing shortage in 2006, and proposed that this would result in large increases in rent. While the rent rises did in fact happen, Joye’s own RP Data-Rismark Hedonic Index shows that house prices in capital cities have only just recovered their losses to return to the levels of early 2008. Are we to believe that a chronic housing shortage resulted in a decline in prices of 4%? If we adjust this index into real terms, that is a significant reduction (although I’m not certain whether this is already factored into the index). In any case the house price index in the figure below has grown at an average rate of 5.6% pa since Jan 2007. Over the period, the weighted average inflation in capital cities was 3.4% for 2007/08 and 3.1% for 2008/09.



Joye also makes the following claims as he tries to make the case for a chronic housing shortage, and I quote:
1. House prices have only just recovered their 2008 losses.
2. The rate of house price growth is not accelerating – in fact, it is decelerating. 3. Australia has had very low rates of appreciation –currently and since 2003.
4. Indeed, Australian house price growth since the end of 2003 has been well below household disposable income growth and nominal GDP.

I still can’t see the chronic housing shortage.

This article is also aimed at the antagonist Kris Sayce, who wrote an interesting piece that attempted to challenge the claims of Joye, Anderson and others. One of his key foci is the research that quantifies the shortfall of dwellings, which to me misses the point entirely. Dwelling counting, like job counting, is meaningless to an economist without regard to the profile of demand and supply and subsequently the price. These figures, as far as I am concerned, are a communication tool for planners and politicians; for those who get lost in more abstract economic concepts.

But Sayce does finally focus on the issue at hand – supply, demand, and price. He makes the poignant point that house prices during a bubble (if you want to call it that, however mild) begin to carry a growth premium. People begin paying a premium on the price for the expected future capital growth. The elimination of this growth premium may explain the decline in prices observed over 2008.

But this article is not about discrediting the two main protagonists, nor is it about supporting Sayce and the pool of antagonists, of which Steve Keen is probably the most extreme. In the end, I think we all agree (apart from Steve) that an upswing in residential property prices is certain, but I think we disagree on the timing and the severity of the boom.

Let us turn then to the details, which I believe get lost or forgotten in discussions of this nature. First, we need to define shortage in some meaningful way. Second, we need to examine the reason for the disconnection between rents and prices to answer Anderson’s question. And third, we need to consider the role of expectations and behaviour in response to broader economic circumstances.

First, shortage, or scarcity, of resources is THE economic problem. Most economists believe that prices are the best way for resources to be rationed amongst competing demands. In the residential property market, prices really do reflect a point where the supply and demand curves meet at a given point in time. Either the term shortage is used as a proxy for high prices relative to some subjective normal price level, or there must be some barrier that is stopping the market from functioning; some barrier that makes buyers unable to participate even though they have the financial means.

I await a meaningful definition of housing shortage from Messrs Joye and Anderson.

Second, the response to Jason Anderson’s challenge of explaining the dramatic rental increases in 2008 is deceptively simply. Any individual, family or other residing group, face two options for housing: renting or buying. The trend observed over the past 7 years or so has been an early rise in house prices, with a less substantial increases in rent, and a late fall, or plateau, in house prices, and an increase in rents. Buying and renting each have their benefits. If on aggregate, people tended to see buying as preferable in the early part of the decade, having seen significant price increases, and factoring in this growth premium to their decision, we would get the pattern observed. If in recent years, that growth premium has been lost, and job uncertainty has increased, people may feel like renting is relatively more attractive. Hence, we have seen significant rental gains since the end of 2007, but flat or decreasing house prices. At some point, rents will increase to the point where buying seems an attractive option again.

To clarify, the demand for housing is the sum of the demand for rental accommodation and owner-occupied accommodation.

Third, there is plenty going on in the economy more broadly that will impact the housing situation; lingering uncertainty (about a W-shaped recovery), expected interest rate rises, and a new generation entering housing with different attitudes.

Uncertainty is, in my opinion, going to hold back price growth for residential dwellings for some time yet. While there is much media attention to those who claim the end of the recession, but there are still warnings about a W-shaped recovery. Too much exuberance too early in global stock markets could be a big mistake, and another big fall would postpone a sound recovery. While this may make residential property appear a more stable investment, I suspect the net effect will still be a reduction in demand from both investors and owner-occupiers.

More closely related to the residential property market, the likelihood of interest rate rises next year will be holding back many moves from the rental to the buying market. Coupling this with a potential W-shaped recovery, and the potential for greater job disruptions should that occur, I would hesitate to call a house price boom until after 2010.

Taking the focus back to the home seeking individual or family, how do these uncertainties change their accommodation decision? For starters, it delays the decision to go from renter to owner. It also delays the decision to even become a renter. Young adults will choose to stay much longer with their folks. Importantly, and this is often overlooked, it may increase the occupancy rates in an effort to consolidate space and increase savings. For example, Grandma may move in with her children’s family and rent her own house. Or families may take boarders in their spare rooms, and group households may decide that rents can be shared better by having someone occupy the spare room. All of these points describe my network of young professional friends – the next generation of home buyers.

This brings me to my final point. The next generation of home buyers have different values to the Baby Boomers, or even Generation X. Generation Y travels, they see a mortgage as a burden, and the opportunity costs of homeownership to be very high. In my own case, the difference in costs for me to own the house I currently occupy, or to rent, are about $20,000 per year. The Generation Y attitude is to see the choices as
a. Buy a house and commit to continuous work for a lengthy period of time with little opportunity for saving or an extravagant lifestyle, or
b. Rent, stay mobile, and use the $20,000 difference on a year long trip to South East Asia, or a spend 6 months motorcycling through South America, Che Guevera style. And do this year in, year out.

My own prediction is that the housing market, in terms of prices, will remain fairly stable for the next year, while rents may continue rising at a slower pace. Should a second economic slump occur next year, governments of all levels have incentive to prop up prices temporarily, prolonging the plateau. It is likely to be another year until increasing rents and prices combine to provide the incentive, and the certainty, for developers to bring housing stock to the market. The recent population growth also points to the fact that housing will remain a reliable investment in the medium term, as the current ‘baby bonus children’ grow out of their bassinets.

I often wonder where the incentives lie for making such dramatic claims about the housing market. The obvious reason is that making claims that hit the middle ground are not particularly newsworthy. A second obvious reason is that maintaining confidence in the market is very important, and claims such as this do dilute the uncertainties discussed above. But really, developers are savvy operators, and many have large financial and land reserves, leaving them ready to build and profit when the market is ready. There is no need for alarm.

In good company on a W-shaped recovery

These blog entries are my ideas. I have them, then I write them down. And when I find my ideas are being taken up by others (most likely independently), or my predictions prove accurate, I like to take some credit by posting a little reminder.

It seems my prediction of a second share market crash is now shared by a number of prominent economists. I'm not certain whether their predictions are based on oil supply considerations, but that is the fundamental basis for my own.

If we could get economic forecasting like this, where a two week range was proposed for a Chinese stock market crash, and was off the mark by only a week, economics would gain some serious social status.

Should

It’s weird word, and one that I hear much too often from the environmentalists in my social circle. We should care for the environment, we should turn off the lights, we should drive less, we should eat organic food, we should should should should. Where does it end?

And isn’t it amazing how many people are happy to should you without a solid principle upon which to base their assertion.

I had a guy once pull up next to me on his push-bike at traffic lights after he saw me roll through the previous red light. He told me I should obey the lights, and clothed his statement in the authority of his role as a bike shop attendant who hears drivers complain about cyclists flaunting road rules. “No worries” seemed like the most polite palm off I could manage, considering I felt like telling him to mind his own business and wishing he’d get knocked off his bike.

That afternoon, returning home along the same stretch of road, I followed another cyclist who happened to run a red light. I stopped, as there was traffic coming. But I caught up to him a couple of intersections later. I didn’t think there was anything to say, he was acting as I would expect a cyclist to act but it was the same guy who gave me an earful in the morning! Want a hypocritical bastard.

I wasn’t in the mood for confrontation (I rarely am) so I just said g’day, and rode on my way. I hope he felt like a tool, because it must have been fairly obvious I’d seen him run the light.

I thought originally his should proposition was that we should all obey road rules. But by evening, it looked like his should proposition is that we should look after our personal safety before road rules, but make sure everyone else is doing the 'right thing'.

But it brings me to my point about should. Where does the authority to should someone come from? Most of the greenies get their best information from the hippie papers, and unwashed websites, and very few would understand an academic journal should they ever learn how to find one. A loose translation of should is “let me tell you how to behave” – but that wouldn’t go down so well.

But the real problem is that the ‘should-ers’ generally have the best intentions. They genuinely believe what they say, and that they are on some kind of mission to rescue the world from the ‘unshould’; those who independently determine their behaviour.

I should resolve never to should anyone again. My wife would appreciate that.

Close the Gap

I’ve wanted to write about the Federal Government’s Close the Gap campaign for quite a while. But I am going to use this opportunity to raise a much bigger issue that underpins the campaign, and other calls for equality, such as women’s salaries, gay rights, and racial equality to name a few. That issue is fairness.

When I hear of calls for equality, I always ask, why would you expect equality? I never hear calls for more white guys in basketball or more black guys in swimming. I never hear cries of outrage when women in sport never seem to make the speeds, heights, of distances of the men; or even fury over gay fellows being far more fashionable than the rest of us straight guys. It is just plain UNFAIR!

So why do we suddenly decide that equal outcomes are important when it comes to other things?

For a start, we can only observe outcomes, not opportunities. What most of use really want are equal opportunities. But how can we know? When we look at nationwide data we can’t know how many women chose to work less, chose not to continue their education, or chose to do more housework?

Let’s take a closer look at the Close the Gap campaign. For starters, why would we expect life expectancy of a single race, to be the same as the average life expectancy of all other race in our society combined? And what about mixed race people? Are they an average of the racial heritage in their bloodline?

I’m pretty sure the data is out there for a real comparison which would isolate race from a number of other factors that are likely to have a large impact on life expectancy, such as alcohol and tobacco consumption, hours of exercise per week, occupation, family history of illness, location and so on. Somehow my instinct tells me that it’s highly unlikely that after all these factors are considered, that race has any impact on life expectancy.

“Why, but of course not!”

That’s the response I would expect from Close the Gap advocates.

“Of course it’s not race exactly that is the cause of shorter life expectancies (because if it is, there’s not much anyone can do about it), it’s all those other factors that are more prevalent amongst Aboriginal people.”

So? They also prevail to varying degrees in people from all races. This campaign is ONLY about improving conditions for Aboriginal people. Closing the gap gets a lot more difficult if you are helping the other races as well. How is that fair? If we were really to be fair we would ignore race altogether. Not one single policy should require the identification of race. Our new campaign would be called Let's Live Longer, but I don't think it would appeal to our emotions so much.

But when it comes to government social programs, fairness appears all the rage. Those people who oppose markets in human organs probably epitomise misdirected notions of fairness. They imagine for example, that a world in which kidneys must be donated, and where 1,000 people (these are arbitrary figures) die each year awaiting a donor organ, is better that a world where kidneys are bought from willing donors and where only 100 people die waiting for a kidney - based on the notion of fairness. They cry that rich people will have an advantage over poor people for access to kidneys. True. But that's no different from the markets for food, clothing or housing. The point is that donors will be able to accept rewards, thus encouraging donations. And every extra kidney will go to someone, rich or poor. The fair scenario in this case treats people differently, while the unfair case treats them all the same. It's the kind of backward logic that bugs me all too often.

But before I move on from the racist livespan campaign and unfair view of life saving surgery, I will reiterate that we can still only observe outcomes, not opportunities. If more Aboriginal people choose to live in shanty towns in the desert, choose not to seek medical attention, choose to abuse alcohol and smoke like a chimney, than who are we to intervene?

My gut instinct tells me that the remote location of many Aboriginal people is a key factor, which itself captures level education, access to health services, diet, exercise, and probably drug abuse. But does that mean that we should supply all the modern services available in the big smoke at every little tin-pot shanty town in the desert? No way.

Anyway, that’s enough about very popular but completely racist campaign; on to the ever-popular issue of equal pay for women. Again, we have an opportunity vs outcome problem here. Did you know that tall people earn more on average as well? I want equal pay for short people!

I won’t continue. I feel frustrated by the absurdity.

Health costs revisited

In July 2008 I wrote how preventative health care, such as screening and early treatments, actually increase the total cost to society for medical treatments.

Now, there is some more evidence in my corner. The US Congressional Budget Office is now on my side, with plenty of research to support the claim that preventative medicine adds cost to the health care system, rather than reducing costs.

Who would have thought that my original ideas (I had not read any of the studies that this letter refers to) would reflect reality!

I stated it like this:

What has happened is that improvements in medical treatments have enabled us to live longer lives, and because of much of the preventative treatments, we die less suddenly then ever, increasing these 'death postponing' medical costs. Because we can diagnose more problems, we can visit doctors more readily, and we treat more medical conditions then ever. Thus, it is because of the very efficiency and effectiveness of medical technology that our demand for it has grown, both during our lives, and in our ‘prolonged death’.

And the CBO summarise one study like this:

The researchers found that those steps would substantially reduce the projected number of heart attacks and strokes that occurred but would also increase total spending on medical care because the ultimate savings would offset only about 10 percent of the costs of the preventive services, on average.

Remember, we all die. If you prevent someone from having a heart attack, although you may prolong their life, they will die from something else, and most likely, they will need further medical treatment for that ailment.

And now the economics blogosphere has picked it up here.