Costello again

The Final Report of the Queensland Commission of Audit, headed by Peter Costello, has been released. It largely abandons the claims made in the Interim Report, suggesting that the state’s fiscal problems are the result of irresponsibility on the part of the previous government. To its credit, the Commission identifies the real problem, namely, the long-term tendency for the share of expenditure going to human services such as health and education to rise over time. Since these services are largely provided or funded by governments, they can’t be provided, on the scale people would like, without increasing taxation.

Unfortunately, that’s where the credit stops. The core of the problem, identified by William Baumol in 1967, is that, for obvious technological reasons, productivity in these services tends to grow more slowly than in other sectors, most notably goods-producing sectors. The Commission’s proposed solution is breathtaking in its simplicity – if we could raise the rate of productivity growth in the human services sector, the problem would go away. Yes, and if wishes were horses, beggars would ride.

My response, which got a run in today’s Courier-Mail, is here.

33 thoughts on “Costello again

  1. @Nathan
    There’s a few revisions I’d add to what I wrote: Welfare for seniors, carers, disability is probably pensions so not a “service”, and pharma probably included in Hospitals and Primary care. Worth remembering that many of these service jobs have personal attention is a key part of the service; they’re not highly skilled and will always be low wage, which is a different problem. When I walk around the aged hostel where my mother lives with 80 others, hardly a piece of “equipment” to be seen other than the kitchen.

  2. tgs :

    Free trade economics works by the principle of an even playing field – ie. everyone playing by the same rules.

    The concept of comparative advantage never had this caveat when it was taught to me?

    Ok, fair enough. point taken. I’ll qualify my statement – I was referring to a playing field regarding state controlled influences that directly or covertly circumnavigate WTO rules and principles.
    Now what that exactly entails will always be ambiguous when it comes to things like environmental and human safety compliance and standards and the enforcement of such.

  3. I wish we (the wider Aust) would stop portraying the elderly like a dead weight on society. If they decided to stop doing all their unpaid work tonight the economy would fall over tomorrow .

    A general point; I think the primary problem is psycho-social not economic .

  4. Dear sunshine, #28
    I assume that you take the point of view of an older person..
    You mention – ‘not economic but psycho social’.
    And I would agree.

    We, me and my family, have lived on our plot for many years.
    The last few years we’ve been trying to work out why we are becoming somewhat crook.
    Only the last many months have we worked out that the industrial grade methamphetamine lab supplying the mining industry over the road might have something to do with our sickness.

    I have a lovely letter from our crackpot premier, Cando Newman, offering at the last line his sympathy.
    Funnily enough, we live in the electorate of our dweeby little police minister whose brother is into real-estate.
    We kind of get the impression that we should move out of our ancestral home and move under some bridge, somewhere.

    Death threats from drug fuelled crazies (allegedly responsible business-people) supported by police threats tend to make a person somewhat unsure about their status in modern society.

    But I guess that the death threats and the poisonous chemical effluent drifting through our windows is just something we have to live with.

    Gees. And I had reckoned the stuff we had to live with in the past labor regime was the pits!

    Anyone out there have any advice about how to fix those bastard’s wagon?

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  6. Ikonoclast :
    @Troy Prideaux
    So, what is the solution? Some would say protectionism. It has actually worked in the past. Germany, for example, became an industrial giant under protectionist policies in the 19th C.
    The USA and indeed much of the world, has gone down the free trade route and watched many industries and factories relocate the China. Meanwhile China pegs its currency to protect its fledgling industries and economy. The Chinese are completely outsmarting us. I admire them. They are pragmatic and flexible; not wedded to ideology but using whatever methods work.
    Meanwhile in the West we stick to neoclassical economics and austerity and wreck our economies and infrastructure; victims of our own self-inflicted sclerotic ideology.

    A year or 3 of reading this spot and that is I think the most understandable and coherent post I have read of yours Mr Ikonoclast.

  7. I agree that efforts to ‘increase productivity growth in the human services sector’ have had little success. But I don’t think that in health the majority of the problem is the Baumol effect. In the Australian data there is a large increase in the number of services delivered per case of disease. Nothing wrong with that if it can be shown that the increase in services leads to commensurate health improvements . The trouble is that the evidence is now indicating that most of the increase in services is leading to no or minor increases in health. So there is a problem which needs to be addressed. The issue then is working out incentives which will lead to better health for the increase in dollars.

  8. @John Goss ,
    John what is your data source for this, and who has published these conclusions? Is it possible that a higher service level reduces repeat presentations therefore is preventative?

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