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Weekend reflections

February 13th, 2009

It’s time once again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language.

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  1. Alanna
    February 19th, 2009 at 08:19 | #1

    Kevin#50
    you wrote “The self funded super system provided it is done appropriately can be applied to health care. I wrote an article on this in another context http://www.onlineopinion.com.au/view.asp?article=6741 but the principle of giving individuals control and choice still apply.”

    I have some grave concerns about how much choice individuals have really had over their super. Sure they can transfer from “balanced” to “aggressive” or “cash” but this isnt real choice when now we see that funds like Perpetual and Macquarie have been undertaking all sorts of highly leveraged actions within these funds that contradict the term “balanced.” What has been going on has been extremely risky – and individuals thought they had a choice? In most cases individuals have had no idea what goes on at fund management levels. They simply know they are forced to place super in a fund. If this is choice, it is an extremely limited choice for most wage earners. The opportunity costs of tracking down real comparisons between funds are simply too high – and the only information you can get is yearly or three yearly or five yearly performaces (but you can still cop a large capital gains tax bill). Then suddenly, returns are all negative, some funds are collapsing and its the new norm.

    The only real free choice arises from having direct individual control over super, not residual control after government taxes and management fees are first extracted and risky hidden fund management activities are engaged in.

  2. carbonsink
    February 19th, 2009 at 08:42 | #2

    The dam has broken on nationalisation:

    ”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”— Alan Greenspan

    FT: Greenspan backs bank nationalisation

    In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

    The high priest has given his approval. Its only a matter of time now…

  3. Socrates
    February 20th, 2009 at 13:13 | #3

    Kevin cox 50

    I also have concerns abotu comparing self funded super to self funded health care. They are different in type. One is a form of saving for a predictable event (retirement). The other is a form of insurance for an unpredictable event (major illness). I am not a doctor, but my understanding is that health costs are not uniform – a small proportion of people whose lives end with complex illnesses consume a disproportionate share of the total system costs. I thought it was roughly the case that most of us will consume 75% of our life time health costs in our last ten years. Of these, 20% of the people will chalk up most of the costs. If you die of a degenerative illness that is long term you will cost us a fortune. If you live in moderate health till odl age and then die of a heart attack you will cost very little. The trouble is, how do you know in early life which category you are in? If we do know, how acceptable will it be to have massive premium differentials for people with identified risk factors? I can’t see it working.

  4. Kevin Cox
    February 20th, 2009 at 17:47 | #4

    #51 and #55 I agree with you both. However I use the Austrian (Hayek) argument to defend my position:)

    The fact that the systems do not work as well as they should is not a fault of the idea – but a fault of the implementation. We have not constructed the super system “properly” and super depends too much on dysfunctional markets. We need to fix the underlying money market and stock markets so they function in predictable ways and not be afraid that some people will fail with their super.

    I am going to “start again” on this week’s J.Q. weekend reflections and hopefully show how Emissions Permits can be made to work:) – not that I am a fan of them but if a government has decided that is what they are going to do then let us at least get them to work so they will be effective.

    The ideas I am trying to promote are

    Markets are good at allocating resources.
    If a market fails it is almost always because it is built to fail because it has positive feedback loops.
    Markets are good at allocating resources – they are not good at deciding where we should allocate resources.
    Markets viewed as algorithms can be used to optimise multiple objective functions – not just “best value” but also best value for a reason.

  5. Kevin Cox
    February 20th, 2009 at 17:56 | #5

    #53 Health Care. Socrates the idea of MediSave is not to handle the unpredictable but to handle the predictable. We will still need to handle the difficult cases and that is where we can have “special cases” and insurance.

    With respect to the higher costs at increasing age then I suggest that people will be happy to pay more in early life if they can be assured that they do NOT lose their contributions for use in later life.

    I also believe that people are kept alive too long and unnecessarily so. I have written my living will and made my intention known. If I am in pain and suffering with only a chance (<30%) of living for another one or two or ten years then I want the plug pulled.

  6. nanks
    February 20th, 2009 at 18:43 | #6

    From memory of my days in medical research – proximity to death rather than age is the predictor of health costs. There was work showing that, on average, people were better off saving for potential health problems rather than using private health. However this really follows naturally/statistically from most people never having any great medical problems. But for those that do require substantial care at some stage and do not have adequate care the results are devestating for both themselves and their families, as the USA experience shows. A mixed model with universal coverage for major treatment and co-payment for minor treatment (to discourage going to the GP for paracetamol) seems most efficient and fair overall.

    re contrasting the idea and the implementation – the US novelist James Elroy was asked about being a crime novelist and said something to the effect – “I don’t write about crime, I write about public policy at the level of implementation.” Implementation is what we live with and ideas regarding public policy mainly have value with respect to the effectiveness of their translation into implementation.

  7. Kevin Cox
    February 21st, 2009 at 01:36 | #7

    #56 nanks – Very interesting. Following on the proximity to death idea we could say the economic benefit to society is measured by the length of time the person will be able to function effectively after treatment.

    This becomes a relatively straight forward equation. Spend very little public money on the old or those likely to die and spend little on the people who are unlikely to function effectively after treatment no matter what the age.

    If you now equate this to medisave where the money you have saved for your health can be inherited by those left behind then the private interests of those making the decision to pull the plug coincide with the community good.

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