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What excellent economics!

Jeremy Hunt, in his role as Chancellor, has apparently said that no additional pay offer to nurses may be made this year. He has also ruled out backdating the next year’s settlement. There is, apparently, no money available to meet this cost.

Ignore for a moment the total ignorance implicit in this comment, which ignores the fact that approximately 40% of any pay rise comes straight back to the Treasury in additional tax and national insurance contributions.

Ignore too the stimulus effect that this extra spending power for nurses will have in an economy deep in economic crisis.

Inflation’s over 10% – and he wants us to admire the stimulus?

This is also glorious:

Second, when it comes to the value of the spend, politicians share the view of the Office for National Statistics (the ONS) that the value created by nurses and other state sector workers is equivalent to their cost. Private sector workers do, of course, add value through profit extracted by others as a result of their effort, but apparently state sector workers benefit no one else but themselves by reason of their employment, or so it is assumed. So no patient gains from being well, and no student benefits from learning from a teacher, are accepted as existing, just as no police officer adds value for GDP purposes. No wonder public servants go undervalued.

Well, yes, GDP is “at market prices”. As there are no market prices for the output of much of government we’ve got to use something else as our measure. We use input costs therefore. Not perfect but generally agreed. Not something inventend by ONS but which goes all the way back to the invention of GDP itself by Kuznets.

Spuddo is trying to go further than that. To look at the value of what public servants produce. The consumer surplus that folk receive from those goods and services being available. Well, OK, legit thing to wonder.

But if we’re going to do that then we need to do two more things. The first being actually measure the value of that consumer surplus. What, for example, is the value of diversity advisers? Or even, tax funding of bad economists? If we’re to try to measure the value of the output of government then we’ve got to try to measure the value of the output of government, right?

The second being that we know there’s a consumer surplus for private sector goods and services too. The value that people gain but which isn’t reflected in market prices. It must be there – no one would buy anything at all if they didn’t think the value they gained was greater than the cost. As it happens we do have a rule of thumb here. The consumer surplus is 100% of GDP. Just a rule of thumb, not something proven in detail.

Spuddo seems to want to count that surplus for State produced goods and services and not for private. Nonsense, of course it is.

9 thoughts on “What excellent economics!”

  1. Don’t forget Tim that under all the bluster and nonsense which characterise his daily output he believes that the state is everything. He is a totalitarian who believes in total control of everything. When you realise that you understand his motivation. I’m particularly amused by his contention that if the nurses were a bank they’d be bailed out. When I pointed out that that is precisely why they shouldn’t have been bailed out in 2008 (prior to being banned from the site) he said that to let them go under would not be acceptable. A complete intellectual mountebank and the most ignorant commentator extant in Cyberspace today, bar none.

  2. Not this old trope of increased public spending pays for itself through the increased tax take. Is there any example anywhere at any time where this has happened? And anyway i thought that Spud believes taxes don’t pay for public spending and that taxation is used to control inflation caused by excessive use of the magic money tree?

  3. Genuine question: does a nurse or doctor working for BUPA produce a quantifiable contribution to GDP? Could we use that to estimate the same for NHS workers?

  4. There’s a price attached to BUPA services. Either the insurance premium or the billing for the procedure itself. So, yes, in GDP. And yes, that specific example, we could create shadow prices for parts of the NHS.

  5. Thanks, Tim. I guess one difference would be that BUPA patients are wealthier than NHS patients, and so will/can pay significantly more for services.

  6. The shadow prices derived from BUPA would need to reflect the difference between Waitrose and Tesco for substitutable goods – someone who uses BUPA has chosen to pay extra (in this case a lot extra) for a service of a superior quality. [When I go to Waitrose it’s a 2 hour walk each way as against 3 minutes each way to Tesco, and the food prices are a bit higher as well]

  7. “ Ignore for a moment the total ignorance implicit in this comment, which ignores the fact that approximately 40% of any pay rise comes straight back to the Treasury in additional tax and national insurance contributions.”

    Um. The tax and NI for NHS staff is paid by NHS Trusts. This is all well and good.

    Except that the Trusts are, almost universally, bust (with debts of some £13 billion across the sector: ). As one NHS IT bod said to me, “yes, we’re technically bust; but what is the government going to do — shut us down?”

    So, all that will happen is that Trysts will have to pay more money, and pay their tax to the Treasury — which will, at some point — have to bail them out to the tune of the above, plus all the other debts.


  8. Didn’t the ONS make a good stab at actually estimating the (absense of) public sector output during Lockdown where the state was paying most of the public sector to do nothing. It was completely obvious then that output=costs was completely idiotic as output was zero and costs were non-zero.

  9. Thinking on, I guess a similar GDP argument can be applied to state vs private school teachers, with the Waitrose/Tesco* caveat that’s been pointed out.

    * it’s more extreme than that, as state schools and the NHS are ‘free’, and so going private is like shopping at Waitrose and also paying for someone else’s shopping at Tesco.

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