Health spending for young and old

28/11/2013 § 1 Comment

It was good to see the report of the Health Committee on improving child health outcomes. Dr Paul Hutchison, who heads the committee, was doing the media rounds to promote the idea that spending on children’s healthcare is a good investment:

The committee published its report last week on improving health outcomes and preventing child abuse, which makes more than 130 recommendations.

Broadly, the report calls for priority for future health funding to go towards early childhood, including pre-conception and pregnancy.

The report cites the economist Prof James Heckman, and even puts the Heckman graph on the front cover of Volume 1. The graph presents the rate of return on ‘investment in human capital’. It is a useful notional graph — and reflects my own findings on science funding in research I’ve recently been doing. The basic idea is ‘a stitch in time saves nine’ — if we invest in early childhood, pregnancy and even pre-conception, the returns are high:


The basic idea is a good guideline, but its application does seem to lack any sense of marginals. What is the decreasing marginal return from investment? I don’t believe we are anywhere near a BCR under 1.0 for this sort of spending, but it would be nice to have some idea of where we are. There is also a lack of discrimination — all spending on these age groups is equally good. That can’t be true, so some way of separating wheat from chaff  — or hard winter wheat from soft wheat? — would help.

However, the discussion did turn into an either-or: either fund the old people or the youngsters:

Investing more of New Zealand’s health dollar in young Kiwis will not result in shortcomings for the elderly, the head of a parliamentary committee into child health says.

And yes, Hutchison says that it won’t lead to trade-offs, that funding the kids won’t hurt the elderly. But George Lakoff would counter that raising the idea, even negatively, gives it credence.

I’m not, as a good economist, saying that there aren’t trade-offs. Obviously, there are. But Hutchison doesn’t get the framing right, and I’m here to help.

The ‘killer graph’ in the report is this one:


The report seems to be horrified that we are spending all this money on people who are going to die soon anyway. What it misses is that spending on young people has a large investment component, while spending on older people is consumption. The kind of early life spending that Hutchison is advocating is about spending efficiently to get maximum pay-off, and looking for the investment opportunities. Our health care spending at the end of life is about making us feel better, and keeping us alive a bit longer to enjoy family and friends and sunlight on our wrinkled faces. We pay for the consumption by having invested earlier.

The two types of spending shouldn’t be on the same graph. The are conceptually distinct. Comparing them only invites the kind of framing that Hutchison got pulled into rejecting.

The correct comparisons are:

  • the return on investment for early life interventions versus other kinds of public investments, and
  • the utility/satisfaction/value derived from late-life healthcare consumption versus other kinds of consumption, which is hard to describe because you get into a public-private spending comparison, but is still the right comparison
  • the balance between investment and consumption that we collectively want to make with public funding.

So that’s how I would have framed it. That might have avoided the media panic about throwing old people into the streets.

Hierarchy of funding sources

25/11/2013 § 3 Comments

I spent most of Friday talking about funding — where to get it, how to get it. As always, we researchers are trying to keep going. More accurately, we are trying to keep the research programmes alive. We already have the framework for understanding this situation: Maslow’s hierarchy of needs. Here it is, re-purposed to explain the funding environment:


I need a sugar daddy patron.

Keeping the tools sharp

20/11/2013 Comments Off on Keeping the tools sharp

Q: What statistics software do pirates use?

A: ‘We use R, me hearties!’

Turn away now, it doesn’t get any better….

I’ve spent the last two days in a workshop on R, run by the lovely people at the New Zealand Social Statistics Network. It was billed as ‘Intro to R’, and ended up being partly intro, partly intermediate, and also an intro to statistical packages generally, a refresher in statistics and lecture on good data visualisation. Something for everyone.

I went along because I’ve taught myself R from various online sources, and cobbled together analysis from bits of code pillaged from the Web and other people’s projects (’cause I’m down with OPP). I needed to see what I’d missed through my autodidacticism and pick up new tips and tricks. Keep the tools sharp, as it were. The course absolutely delivered — there are a few things I should do differently and lots I can do better.

The open-source approach — giving it away for free — creates different incentives. Several people asked me why I use R. It’s simple — R is free, and it gets the job done. But it isn’t the price itself that’s the issue. The issue is that I’ve moved around from job to job over the last 20 years, and everybody uses something different. I’ve used SPSS, SAS, Limdep, GAMS, Eviews, and probably others. I got quite good at SPSS, for example, and then went somewhere that didn’t have a licence. When I started my current job, I had the choice of retraining in Stata or improving my Eviews, or venturing out into the wilds of R. I chose R, because I figure that jobs will keep coming and going, and there’s no guarantee that the next place will use Stata or whatever.

In a world where data is largely accessible and files are in the cloud and people change jobs regularly, there is a lot less call for investing in site-specific resources. That includes training in software that ties you to a particular employer. Portable tools make sense, and open source is portable. It does raise the question of who should pay for training, the employer or the employee. Training will increase the employee’s potential contribution to the current workplace, but also raises her value on the job market. That suggests that open-source software might have more value in economies with greater agglomeration, where a number of employers essentially train a pooled workforce from which they all draw. It also may have more value where there is greater job entry and exit — if people don’t tend to change jobs, then having portable skills isn’t as valuable.

Now I’ll leave you with my earworm. On the first day of the course, in the first presentation, the presenter said about our data files, ‘They should be comma-separated.’ Since then, I’ve had that line going around my head, but sung by The Offspring:

Nice gig if you can get it

19/11/2013 Comments Off on Nice gig if you can get it

Paul Krugman points us over the weekend to a talk by Larry Summers, and comments on it. I haven’t watched the lecture — text really is much more my speed — so this is a reaction to Krugman’s comments. But basically, my reaction was, nice gig if you can get it. Yeah, and that’s heavy on the snark.


Okay, yeah, I’m not in a charitable mood — end of the year and all that. And Summers gets my goat, anyway. How do people keep failing upward? The whole Harvard episode was appalling. He’s apparently a social scientist (an economist), and yet has no sense of social construction of identity. I’m not asking him to be post-modern, but what about even being structuralist? My daughters have an amazing natural affinity with maths and science, and we have had to fight their entire schooling for them to get an education that would build on their abilities. We see — even in the coolest little capital in the world — that the boys’ high schools get more training, support and extension in maths than the girls’ schools. So who wins the competitions? Well: (training + apititude) > natural talent.

<climbs off hobby horse>

Apparently, Summers has discovered that the current economic set-up might be unsustainable. We might have an economy that is not just prone to bubbles, but actually need bubbles to keep the game going. We might also need to pay negative interest rates, or target higher rates of inflation in ‘normal’ times. And this has all been delivered as hard thinking, pushing the envelope, by someone who is willing to take currently findings to logical conclusions.

Not the first time I’ve heard any of this. Nope. I read fairly widely in economics — not deeply, I’ll admit, but widely. One of the things I liked about Steve Keen’s book Debunking Economics was that it summarised a bunch of heterodox thinking in one place. It didn’t get everything right, but it showed the diversity of thinking in economics. Other people have been saying these things for years: inflation needs to be high enough to allow adjustment; negative interest rates in medieval times encouraged investment in physical capital; bubbles have been driving the economy for three decades (no links, sorry — class starts in five). If you really want to follow it back, you cannot avoid Marx and the declining rate of return on capital.

(I can’t say whether these ideas are right or wrong. I haven’t worked through them enough and done my own analysis — my day job tends more towards microeconomics.)

What I can tell you is that other people — people other than Larry Summers — have been talking and writing and thinking about these ideas for a long time. For Summers to ride on in at this late date and skim a few notions off the top is galling. First, first, he needs to do penance. Because those writers and thinkers are found at the margins of economics. They don’t have the fancy offices and big salaries. They aren’t running the major universities or international monetary organisations. They could use a bit of dosh from Summers and his mates who control the journals and the hiring committees and the rest of the infrastructure of the profession.

Here’s an idea — maybe Summers, etc. could pay a royalty. Or invite the experts ’round for some paid consulting. Let’s see someone like Doug Henwood schooling the IMF. That’d be a laugh. And probably more informative.

We’re alright, actually

15/11/2013 § 7 Comments

There is much gnashing of teeth and rending of garments over New Zealand’s economic performance. It’s a staple of political and economic commentary. We have low per-capita incomes, we need to be in the top half of the OECD, we need to catch up to Australia, brain drain is killing the country, business owners need to focus on their businesses rather than buying motorboats, etc.

I’ve been looking recently at Legatum Prosperity Index. What it says is, we’re alright, actually:

  • 5th overall out of 142 countries
  • 1st in education
  • most efficient life satisfaction of the top ten countries (satisfaction / income).

Back to basics. The point of economic activity is utility/satisfaction/welfare. We aren’t playing with these little pieces of coloured paper to make them happy — it has already been conclusively established that they are fine. So what we really want to know is whether we are producing satisfaction.

Now, yes, GDP does correlate with a whole mess of other indicators. Money gives us the ability to pay for healthcare, to make environmental improvements, to pay for digital watches. But it doesn’t perfectly correlate, and there appear to be diminishing marginal returns to GDP gains (natch’). So if GDP doesn’t measure what we are really interested in, can we do better measurement?

That’s where the Legatum Index comes in. There are a number of these alternative indices — this just happens to be the one a colleague sent. It uses 89 variables to create 8 sub-indices, which are then combined into a single aggregate measure. The method is described in brief, and then in more detail (pdf). I’m still not sure that I could replicate it from the available information, but it’s reasonably clear what they’ve done. Instead of using one statistic — GDP — they’ve taken a whole lot of statistics measuring different things and run them through a blender. We can quibble over the weightings applied or the inclusion of this or that statistic — and sensitivity analysis would tell us how important those things are — but they are trying to get a better, more complete picture.

Is more data better? Well, it changes the story. Instead of performing poorly because of low incomes, New Zealand performs well because of the other 88 pieces of data. Our health performance suffers — a worrying 20th. Safety and security is 15th, again a bit of a concern. But overall, y’know, we’re alright. There are worse places to be. Which, of course, makes sense given the number of people here who are from elsewhere.

A composite index does something else: it allows people to make their own decisions based on their preferences. If healthcare is really, really important to you, then New Zealand probably isn’t where you should settle. If your preferences line up with Legatum’s, then life’s pretty sweet. If governance, social capital and education are your main concerns, then you really can’t do any better.

So when the next round of wailing and self-flagellation starts, take comfort that it ain’t all bad.


UPDATE: A reader pointed me to the University of Otago’s Public Health Expert blog, which (on the same day) described some of New Zealand’s successes (h/t Tony):

The good news is that according to the OECD “New Zealand performs exceptionally well in overall well-being, as shown by the fact that it ranks among the top countries in a large number of topics in the “Better Life Index” [1]. What follows are a list of some of the specifics – both good and not so good.

Social skills, social capital

12/11/2013 § 3 Comments

I had the pleasure of giving a seminar at Massey University last week. My host and I settled on the topic of ‘being a consultant’ (*.doc), especially as it compares to being a university researcher. The audience was lovely, and I had several good conversations about research and funding.

One topic I didn’t get into was social skills. In my list of Seven Skills of Consulting, I include social skills, and I’ve discussed them here and elsewhere. I’m bringing it up now because of Eric Crampton’s recent post on class etiquette. He rightly points to the signalling value of manners, how they signal whether or not you ‘belong’. And then he links to a fascinating post on the decisions people — specifically poor people — make about buying signals. As Eric points out,

Not knowing which signals need be sent and which are just purposelessly costly is costly.

I’ll put my hand up and admit that I have had it easy in this regard. My family has, in the main, been solidly middle class for more than a century, some branches for even longer. As a result, I was taught which socks to wear, which knife to use, how to write a thank-you note, etc. These lessons at home were reinforced at school, by teachers who taught us to speak correctly and peers who did. For example, I was utterly confused by the lesson that focused on the difference between ‘bought’ and ‘brought’. They are clearly two different words with different pronunciations and meanings — why the special focus? It was only when I was much older that I came across people who confused the two, and it seemed to me a class-based confusion.

I have also noticed, when shopping at Target in the US or at The Warehouse in New Zealand, the class signals from clothing. For the same money, you can buy working-class clothes or middle-class clothes. You have the choice what kind of image you want to portray, what kind of allegiance you want to demonstrate. As the above-linked posts discuss, part of making that choice is having the knowledge — the social capital — to know what to wear and how to wear it.

Relying on that social capital gives me a certain licence. It creates the space in which I can be a consultant, in which I can bowl on up to people and introduce myself or insert myself into discussions. It allows me to flit from meeting to meeting or client to client — it provides a basic level of trust, of membership.

As I told the seminar last week, what I’m really selling is me and my reputation. I could have taken it further: I’m selling an image of me. Social skills are part of that image. Having them or not can make all the difference.

Where Am I?

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