Should the government intervene in healthcare?

When appraising the economic debate regarding government intervention in healthcare, it is vital to consider three areas of impact: individuals, firms and the wider UK economy as a whole. These areas will be affected directly through potential new access to health care provision and related price changes, and also indirectly through impacts on wider incentive mechanisms and market structures.

Highlighting the main arguments, the anti-intervention position rests upon the supposed merits of the free-market’s ability to direct resources to those that value the services – via price signals. Additionally, the anti-intervention argument suggests that any government intercession in the sector will likely “crowd-out” more cost efficient private firms from the health care market, whilst spending public funds that could be more effectively used elsewhere.

The pro-intervention position highlights that because of the unique nature of health care, an efficient allocation of is far from certain. Therefore the government should intervene to guide the market to a correct level of demand and supply of health care services. Elsewise, in a free market, many individuals may not use health care even though it would be in their best interest due to imperfect knowledge of the long-term value of health care. Nor importantly, individuals may not potentially have access to vital services purely because of high health care costs. Moreover, as the government would not be solely reliant on market signals to guide its actions, its intervention can consider a wider range of factors than price when debating provision – e.g. the positive impact on the overall economy of having a uniformly healthy workforce on national productivity.

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Please Change Cash Here

Towards the end of 2016, India shocked their population by announcing the sudden withdrawal a majority of currency in circulation. On the 14th November, India announced they were scrapping their 500 and 1000 rupee notes – a move affecting +85% of all rupees in circulation.

This blog post will explain that the root for the move and will analyse whether the long run benefits of the moves will achieve their publicly proclaimed benefits.

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Arguments Against Government Surpluses

A government surplus represents the removal of funds from the private economy with uncompensated public sector productive value creation. It is a policy recommended by those that champion “austerity economics” – however logically, this pattern is liable for encouraging systemic weaknesses and therefore future economic crisis.

It should be noted that although this blog post critiques austerity government policies, it does not argue for uncontrolled government spending. Rather, the ultimate implication is that “a” level of government deficit is not a bad thing because it helps enables economic growth (or at least does not actively damage the ability to achieve for economic growth). But if this is not politically feasible, at least target balanced government books – because at least this is not actively harming the ability for economic growth and encouraging economic crisis.

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The Real Problem With Deflation

Deflation is negative inflation: a general decrease in the average price level and an increase in the purchasing power of money. Every school of economics considers deflation negative for economies. However the standard explanation of why deflation is terrible for economies is incorrect. The correct explanation is understanding the impact of deflation on the real rate of interest, and thus the ability for private firms and individuals to manage debt repayments.

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A role for gold?

Gold recently moved towards US$1400, a two-year high, having risen over 30% since January 2016.

This has been largely based on broad negative pressures in the global economy: ongoing economic troubles and terror attacks in the Eurozone; weakening demand in China; and domestic crises ending positive growth prospects for the BRICS. Not to mention political events Brexit and the growing uncertainty around November’s US presidential election too.

During pressures such as these, investors habitually “flee to gold”, assessing it as a safe bastion of value. However this tendency has been in direct contradiction to the most famous investor of the last 30 years, Warren Buffett, who famously dismissed gold as a “non-functioning”.

Still – from a historical central banking perspective – an oscillating value for gold was surprising. Historically, money in economies have been tied to gold – either using it physically for trade or symbolically under the Bretton Woods system. Then, when President Nixon ended the gold window in the August 1971 at $35, many economists predicted a collapse of the price of gold – because the core demand for gold as state reserves disappeared. Paper money was supposed to allow more direct control over economies through currency manipulation and gold would simply be used for jewellery. However, this has not been the case – with US$:oz values rocketing and gold becoming a consistent investment tool like no other.

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India’s Gold Monetisation Scheme

In India there is a government scheme to encourage the circulation of gold trapped in private hands to help encourage domestic economic growth. It creates a domestic source of capital that did not previously exist and reduces the reliance on temperamental foreign direct investment.

The theory is that the increased circulation of value will encourage capitalist forces to prompt and deepen private investment throughout the economy – instead of the country’s vast private golden wealth sitting idle in inactive private hands.

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Bail-ins and bail-outs

Since the start of 2016, there has been a rule in the EU that no bank can be “bailed out” by an EU state without first attempting a”bail-in”. That is EU regulations now ensure that those who own a bank’s capital (bond holders) and those that own the bank (shareholders) must first sacrifice before those who do not directly profit from the bank (taxpayers) can intervene.

This is different from 2008, when no such rules existed. During that time, state bailouts would rescue private investors at the cost of the public purse. Private investors were not responsible for being the first responders to protect their investments. Now however, EU rules dictate that bondholders must sacrifice first. These are individuals who are owed payment first. Then shareholders, who generally sacrifice from tangential collapsing share prices – and the loss of any dividends.

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