Yes, this is why we must *also* reform the NHS Polly

Sick people queueing for admission on A&E trolleys will suddenly show that NHS ring-fencing was bogus, its inflation needs far higher than the tiny extra it was given.

Having a \”higher inflation rate\” is a synonym for saying that productivity isn\’t increasing there as fast as it is elsewhere in hte economy.

This is Baumol\’s Cost Disease all over again. Labour intensive services will tend to increase in price faster than manufactures: and thus have an inflation rate higher than that of the general economy.

OK, fine, we know that.

So, what, if anything, should we do about it?

Well, we only really know of one way to increase productivity. One economic system of organisation which encourages such increases.


The 20th century actually gave us that rarity in economics, the natural experiment. Here and here.

Karl Marx, you see, completely missed the utility of markets as devices for providing decision makers with proper incentives and for achieving allocative efficiency. (Why he missed this is, I think, a result of his crazy metaphysics of value, but I won\’t go there today.) He saw markets only as surplus extraction devices–ways to quickly and fully separate the powerless from the value that they had created and that ought to have been theirs.

So when the Communists took over, they followed Marx and said: \”we don\’t want no stinking markets in our economies.\”

This really is one of the major problems with the left in the UK. They simply don\’t understand that it\’s somewhere between extraordinarily difficult and impossible to increase productivity without the use of markets.

Think through this for a moment: accept that the NHS as is has a higher inflation rate than the rest of the economy (which it does). Now look to the long term. That higher inflation rate will mean that, without even our getting more health care out of it, the NHS will, over time, take an ever greater part of our economy. It will become, at the limit, the beast that eats everything else.

The only way out of this is to increase productivity….to lower that special inflation rate. Which is why we need to have markets in the NHS: to make the NHS sustainable.

2 thoughts on “Yes, this is why we must *also* reform the NHS Polly”

  1. from:

    It’s just that in large swathes of the public sector, the definition of ‘cuts’ differs somewhat differently to yours or mine. The NHS, for example, has its own measure of inflation – the “NHS inflation index“. While prices out on the high street might be rising at 3%, prices in the NHS can be running at wildly higher levels.

    For example, they have an artificial pay inflation as people ‘move up the grades’. Each grade represents a further step up the ‘salary scale’. When the ‘pay settlement’ comes, Grade D staff might get a 4% increase. And that same year, maybe 14% of staff will move from Grade E to Grade D, because it’s Buggins’ turn. Hence the wage inflation in terms of what we actually pay runs higher than the stated pay settlement.

    That principle extends across the public sector. Hence, even a large cash increase over 4 or 5 years is presented as a ‘cut’, based on these notional levels of internally calculated inflation.

  2. “we need to have markets in the NHS”

    I”m just a guy from Texas, but … that sounds a bit like a nonsequitur to me.

    How can you have markets in a system which uses money from a third party, collected through compulsion of force of law, to pay for the ‘transaction’?

    In our system (soon to change to yours, if I’m reading this Obamacare thing right), the ‘third party’ payer is a private insurance company. They are voluntarily a part of the transaction, trying to make a profit. That is a market.

    Government seizing money from those who earned it and using it to pay one party to provide services to another party is not a market. It is only barely disguised redistribution of wealth. Marxism.

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