Fishy

Not taking fish oil apparently costs Australia $4 billion per year.

The Deloitte study was commissioned by the Complementary Healthcare Council of Australia (CHC), a body which appears to be funded by the likes of Pfizer, Swisse Vitamins and Blackmores.
The press release which accompanied the research, and dutifully reported by the press, quoted CHC executive director, Dr Wendy Morrow, thus: "The report has found that the Australian community could be saving up to $4.19 billion, in terms of costs related to disease burden and premature life loss, through the preventive use of fish oils in Australians with heart disease. This research is of major significance to the industry, government and to the health and wellbeing of the Australian population."

Deloittes reckons that giving fish oil to every person with coronary heart disease would cost about $40 million per year. But a reasonable portion of the consequent benefits are in disability years avoided rather than costs avoided by the health system; it looks on a first cut that the measure passes cost-benefit on the basis of private benefits accruing to heart disease patients rather than from savings to the health system.

If the analysis hinges on benefits accruing to heart disease patients, then it's harder to make the case for that failure to take fish oil costs the country substantially. First, the people most likely to enjoy benefits from taking the supplement are likely already being advised to do so by their doctors; extending treatment to more people reduces the average efficacy of treatment. Second, while we can build a case for provision based on the private gains in monetized statistical life years, we also have to wonder why those who could benefit aren't already taking supplements. Is it because they can't afford it, or because doctors are less convinced than are Deloittes about the potential health benefits? If the former, don't we need to be sure that giving money to poor heart patients in form of subsidized fish oil does more good than giving money to other people in other forms?

I'm always a bit skeptical about studies claiming benefit to cost ratios of 39:1 - their base case result where net benefits are a billion dollars rather than the headlined $4 billion.

But if the Australian government had twenty seven million dollars to spend (the gross tallied cost in the baseline case), it probably does better buying fish oil on competitive markets and giving it to sick people rather than, purely hypothetically, throwing it at a company best known for making the kind of cars that increase Australia's need for a carbon tax.* So long as the fish is harvested sustainably I suppose.

* Update: It's actually unclear whether they do; cars that are more expensive to drive because they're worse on gas will emit more CO2 per mile but will be driven fewer miles. Net results then are ambiguous.

Anti-paternalism

Dr. Michael Keane writes in the IPA Review:

Consider a low-socioeconomic status individual who is smoking, drinking, gambling, eating junk, spending on frivolous retail purchases (a ‘shopping addict’) and having indiscriminate sex (‘sex addict’). Does she or he really employ sophisticated risk management equations and decide that the benefits outweigh the costs?

Arousing public anger at those deemed unworthy of the privilege to make choices is a dangerous tactic. However, it is probable that many of the more vocal public health academics do genuinely believe that they, the elite, have a paternalistic duty to control the incapable masses.

As every dysfunctional behaviour can, without many inferential steps, be related to health expenditure, appeals to such imperative have few logical limits. The folly of enforcing interventions against peoples’ will on the basis of economic analyses of the cost to the state is obvious, and educated health professionals should know better than to use such divisive and emotive arguments.

If the growth of the Nanny State is to be curtailed, policy makers must have the confidence to stand firm against the mutton of opinion even when it is dressed up as the lamb of science.

Hear hear.

Even worse, most numbers cast as representing social costs, which most folks interpret as costs to them via the state, consist almost entirely of costs borne by drinkers, smokers, and gamblers themselves. The healthist beancounters don't just assume that the addicts fail to employ cost-benefit analysis; they rather assume that such consumption has no associated benefits. That's how they get to count private costs as being social. Any evidence of potential market failure through imperfect information or irrationality is taken as sufficient reason for dismissing all potential consumption benefits. The argument of course proves too much.

Trans-Tasman

Heritage ranked New Zealand below Australia on economic freedom; I was a bit surprised. Now they have a nice graph letting us see why.



The subcomponents don't seem far out except in two cases.

Heritage ranks Australia slightly ahead of New Zealand in labour market freedom. I'm pretty sure that doesn't accurately reflect things. New Zealand likely had the world's most free labour market subsequent to the Employment Contracts Act; we slid back a bit with the Employment Relations Act but things here remain remarkably clean. Contrast with the Australia's Fair Pay Commission.

Here's Heritage:

The labor freedom component is a quantitative measure that looks into various aspects of the legal and regulatory framework of a country’s labor market. It provides cross-country data on regulations concerning minimum wages; laws inhibiting layoffs; severance requirements; and measurable regulatory burdens on hiring, hours, and so on.

I'm not sure that many NZ union leaders would reckon that New Zealand offers unions a more hospitable environment than Oz; Australian minimum wages are higher and more complicated; the general labour market approach seems far more prescriptive.

Heritage also puts Australia a bit ahead of New Zealand on trade freedom. Australia last year suffered a banana crisis when its banana-growing regions suffered crop failure and Australian "we'll pretend it's phytosanitary but it's really protectionism [see also apples]" regs bit hard; banana prices hit $13/kg.

NZ takes a deserved hit for having allowed the size of government to ratchet upwards substantially under Helen Clark, but we ought to have been credited for our rather better performance on these two measures.

Alco-pops and minimum pricing

The production technology for "alco-pops" isn't that complicated. Buy a 2L bottle of Coke, dump some out, pour in a bottle of cheap whisky. Share and enjoy. So when the Australians decided to impose disproportionately high taxes on mixed drinks, it would have been surprising if the kids targeted didn't revert to the methods used by their elders in the days before ready-mixed alcoholic canned drinks. The latest: the tax had no effect on binge drinking [HT: @TheIPA].

YOUNG binge drinkers have simply switched to cheaper booze to beat the Federal Government's controversial "alcopop" tax.

New research shows 15 to 29-year-olds have dodged the 70 per cent tax on popular pre-mixed drinks by changing their drink of choice.

The University of Queensland study found no significant reduction in binge drinking-related hospital admissions since the tax was introduced in 2008.

I can't believe anybody actually could have thought this would work.

Federal taxes on pre-mixed alcoholic drinks were increased in 2008 by the Rudd government to tackle binge-drinking among teens, particularly girls, and to fund a new preventative health program.

Maybe you could build a model in which credit constraints on teens are binding, their ability to pool funds across a group of friends is limited, and they have no capacity for saving up to buy a larger bottle of alcohol. And nobody sells the small "airplane bottles" of alcohol. In that world, high taxes on ready-mixed unit-sized drinks could reduce aggregate consumption.

In the real world, or at least the one I remember of a couple decades ago, folks either took turns buying a bottle or chipped in together.

The article says health groups now are lobbying for either volumetric taxation on alcohol or minimum pricing. It would be a fun intermediate micro exam question to have students compare the welfare implications of the two systems. Here are the crib notes for minimum pricing:

• Minimum pricing in Australia
• CEBR on minimum pricing in Scotland
• Minimum pricing and economic rents

I'd love to see work on whether there's substitution into more toxic intoxicants with substantive price hikes. I would be surprised if a substantial increase in the price of the cheapest available alcohol did not induce substitution into solvents or worse among some of the folks the health groups might be trying to help. Then, even if we count at zero the consumption losses incurred by moderate drinkers with a price hike, it's still ambiguous whether health effects in the target group are positive or negative.

The lucky country

New Zealand beats itself up a fair bit over its failure to keep up with Australia.

But we're not alone in it. Possum Comitatus over at Pollytics makes the case for Australian exceptionalism.

So let us take a hard look at our economic reality.

Over the medium term, our broader economic performance has been nothing short of astonishing. Before the resources boom was even a twinkle in the eye of Chinese poverty alleviation, our performance was world beating – that is worth keeping in your thought orbit. Big Dirt has a bad habit of propagandising about their own contributions and the Australian public has a bad habit of believing them when it comes to our own national development of late.

He does a great job showing just how well Australia has been performing. But, I don't think he demonstrates that it isn't largely the resource price boom. Showing growth figures pinned at a 1985 start date, when iron ore was going for $11.50 per metric ton (now $150, both figures nominal), and when the commodity metals price index that normalized to 100 in 2005 was at 50 (now 200) - I'm going to need some convincing that Australia's success is mostly due to policy rather than due to a massive resource boom feeding Chinese growth. As best I understand things, resource royalties accrue to state budgets; this site notes resource royalties in Queensland increased, in nominal terms, from $192 per capita in 2002/03 to $700 per capita in 2010/11. I'd love some numbers on the time path of resource royalties as percentage of all-level government revenues over the last twenty-five years.

Possum lauds Australian policy, which combined a slow push to market liberalization with maintenance of a pretty rigid labour market apparatus with high minimum wages (though a set of minimum wages which vary a lot by industry and by worker's experience). I'm pretty unconvinced that Australian success was underpinned by high minimum wages; the resource boom plus liberalization elsewhere more likely allowed it to happen despite labour market rigidities. I suppose some future resource price crash might provide information.

In the meantime, New Zealand can beat itself up a bit less over failures to keep up with Oz. Nobody's keeping up with Oz. We can do better, but even if we adopted the 2025 Taskforce recommendations in toto and they were effective, I'd be really surprised if it led to our catching Oz. That's not an argument against improving policy but rather for having realistic expectations.

Platypus economics

My introduction to the latest issue of ANU's Agenda owes a debt to my colleague and barracks co-resident, Andrea Menclova, who provided some of the opening analogy.

A good health economist is a bit like a platypus, or at least so-says a health economist colleague of mine.2 The friendly beast must combine a clinician’s medical knowledge with an economist’s techniques, both theoretical and empirical, and a bureaucrat’s understanding of the administrative structures within which policy operates. Perhaps the health economist’s empirical techniques are not as refined as the theoretical econometrician’s, just as the platypus’s fur is perhaps not quite as soft as that of a kitten, but it does a good job of combining a set of characteristics that are normally not found in one place.

But I'll take the blame for what follows:

Unfortunately, health policy instead seems set by a chimera that rather seems to have taken the design specifications for the platypus and decided that the kitten should in fact provide the beak and the duck provide the fur: we too often find combined the clinician’s goal of health care, as maximand; the economics undergraduate’s captivation by partial equilibrium and neglect of general equilibrium; and the bureaucrat’s inadequate respect for methodological individualism. The papers in this Agenda Special Issue on health economics work to bring more standard economic method back into health policy analysis.

The full issue is here. I especially enjoyed Harrison & Robson's critique of the Australian National Preventative Health Taskforce.

Mutant smoking statistics [updated]

TVNZ reports:

Australia's Cancer Council said the Senate should end the political delays and get on with passing the legislation, with authorities estimating smoking now kills 15,000 Australians each year and costs the health system $32 billion.

Oh please. What's the source on the $32 billion? Almost certainly Collins & Lapsley, who found that the total costs of smoking in Australia were $32 billion. How much of that $32 billion was health? $318.4 million. Is that much much less than the aggregate tobacco excise tax take? Certainly. I'm just going to copy Collins & Lapsley's tables here.

Here we have tangible costs divvied up by category (intangible costs of premature death and the like make up the bulk of the purported costs of tobacco and aren't in this table). Note that we've disputed the alcohol figures rather strongly. But what do we see? By C&L's figures, tobacco costs the Australian health system $318.4 million. That's somewhat less than the figure claimed by the Australian Cancer Council, assuming that they're quoted correctly [Update: see below]. Two orders of magnitude less. The costs to the health system are ONE PERCENT of the costs cited by TVNZ.

As for overall costs to the country, here's Collins and Lapsley again:

So tobacco leaves the Australian federal government up $2.7 billion and state governments up $833 million.

But the Australian Cancer Council gets to build support for beating on tobacco by helping to make folks think that smoking costs the health system $32 billion, again assuming that they've been correctly cited or that I've not missed their post clarifying that they'd been mis-cited. [Update: see below.]

And, this isn't the first time that the total C&L tobacco cost figure has been cited as a cost to the health care system; here's Chris Snowdon fisking a May story from The Age.

I wish TVNZ would check its sources from time to time. But, they've provided my nomination for Stat of the Week.

Update: Paul Grogan of the Australian Cancer Council emails noting that they're not the source of the $32b figure: "I am not aware of any Cancer Council Australia document that claims tobacco costs $32b in annual healthcare costs." Excellent news. The TVNZ / Reuters story linked then either is misleading or misquotes and ought to be updated. I trust that the Cancer Council will soon be issuing notice to Reuters that the annual health care costs of smoking are one percent of the figure Reuters quoted. They might also note the billions in tobacco excise tax revenues that swamp any fiscal cost smokers impose on the health care system.

Leigh on Social Cost

Andrew Leigh weighs in on the Australian alcohol excise tax debates. The anti-alcohol folks have been citing the relatively recent $36 billion alcohol social cost figure; Leigh's comments follow below. But let's have first a quick look at the new cost figure.

At page 7 of the report, they invent, whole-cloth, a new requirement for internalization of intra-family effects: joint ownership of all family resources. Funny enough, I never noticed that part of Becker's Rotten Kid theorem. If Becker could generate intra-family internalization with no such assumption, it hardly seems a necessary condition for internalization of intra-family effects.

I've not gone over their cost estimates with anywhere near the detail I've taken in looking at Collins & Lapsley. Instead, I used my usual approach: find what looks to be one of the biggest cost components and see if it makes any sense. If it doesn't, that probably says something about the quality of the whole report.

And so at Table 9.13, they derive $6.4 billion in intangible harms to the quality of life of those who report knowing heavy drinkers whose drinking has harmed their quality of life. How? They get the average Quality Adjusted Life Year scores for those who report either not knowing a heavy drinker or knowing a drinker whose drinking hasn't negatively affected them, the average QALY score for those reporting knowing a drinker whose drinking has affected them "a little", and the average QALY score for those reporting that a drinker has affected them "a lot". They then monetize the difference under the assumption that knowing a heavy drinker is what's causing the differences in QALY scores.

The problem with this method is that it hopelessly confounds the effects of knowing a nasty drunk with the effects of being in the cohort of people most likely to know a nasty drunk.

Suppose, for argument's sake, that the average person who knows somebody whose heavy drinking has imposed costs on him differs from the average person who doesn't for reasons other than knowing somebody who's a nasty drunk. There are plenty of reasons to expect that such differences might exist. Off the top, I'd be willing to bet that people more likely to be adversely affected by a harmful drunk are also more likely to be unemployed, have lower education, have lower income, and so on. Yes, it's entirely a stereotype to say that these things don't happen in more privileged families - all kinds of bad outcomes happen there too. But it's the averages that matter here. And the kinds of things that give rise to having a social network more likely to include a nasty drunk also, on average, seem rather likely to give rise to other adverse outcomes independently of whether you wind up knowing a nasty drunk. But the report happily takes the whole $6.4 billion monetized difference as being due to alcohol. That's a sixth of the report's total.

Back to Andrew Leigh:

Mr Leigh, the member for Fraser in the ACT, said the consequence of introducing policies to protect people's future selves from their current selves “could actually be bigger than all the other social harms put together”.
“The one thing I'm still puzzled about and could use some assistance on is how much we should be concerned about an alcoholic's damage to their future selves” he told a national alcohol forum sponsored by the Australian Medical Association.
“If we go by standard rational economics, it isn't a social cost if I drink myself to an early death, but I think working through that rigorously, either empirically or theoretically, is useful.”

If we go by standard, rational economics, it isn't a social cost if someone drinks himself to death. Exactly right. Costs to the drinker are internal, not external.

Leigh's also right that setting policy to control internalities - costs individuals may impose on their future selves - could have very broad consequence. Glen Whitman outlined some of the problems here.

Leigh continues:

Mr Leigh, considered a rising talent in Labor ranks and who was representing the government's viewpoint at the conference, said he was frustrated there was not enough evidence to show whether a volumetric tax would work in cutting problem drinking.
And he said a volumetric tax on wine would have social equity consequences because it would hit low income earners the hardest.

This is a problem both for considering changes in the tax mix in Oz, and for discussions of minimum pricing regimes elsewhere. It isn't just the folks looking to get drunk as cheaply as possible who go for lower cost alcoholic beverages; plenty of poorer moderate drinkers go for cask wines too. Any gains from reducing the harms imposed by the drunks would need to be weighed against the consumer surplus losses accruing to moderate drinkers. Both of these need be evaluated at the margin; estimates of total costs aren't entirely helpful with that.

Medallion economics

Sam Morgan tweets (1, 2):

Sydney Taxi Economics: 2 drivers, 24hrs a day. Owner of $170,000 taxi license rents car for $1550 per week. Revenue ~$3500 per week. $1000 income per driver per week.

$1000/((24*7)/2) = 84 hours. $11.90 per hour. License owner yields $80,600 p.a. on $170,000 licence.

I'm not sure from where Sam sourced his figures, but if they're right, that's a very good annual return on investment. Sufficiently high that I wonder why more folks don't invest in medallions.

Let's work some of that back though. Suppose a car costs $60k and fully depreciates after three years if driven 24/7. So deduct $20k per annum from the revenue stream. Maybe another $7.5k in maintenance, vehicle registration fees, and car insurance [all of these are just guesses]. But even that still keeps us north of $50k p.a. on $170k licence. Add in a bit in management costs for the license-holder: ensuring the drivers aren't beating up the vehicle too much, replacing drivers if one leaves and so on. Is the rest regulatory uncertainty or have I missed some costs facing license-holders? Or, to put it another way, should I be trying to buy taxi licenses?

Alcohol minimum pricing

The Australians are considering imposing alcohol minimum price regulation to reduce alcohol's social costs. Here's The Australian:

...decision by federal Health Minister Nicola Roxon to ask the National Preventative Health Agency to examine the idea of a uniform national floor price for a standard unit of alcohol, whether it be contained in beer, wine or spirits. Roxon described the referral as a preliminary but important step.

I'd noted some of the problems with minimum alcohol pricing last year. Unless there's really good evidence that the kinds of drinkers Roxon wants to target are really disproportionately hitting the cheap alcohol, we have to worry a lot about that moderate drinkers are far more responsive to price changes than are heavy drinkers. If the policy shifts enough "glass of cask wine per day" drinkers to not drinking, it will do reasonable harm given the health benefits of moderate drinking.

And as for that $30+ billion dollar social cost figure they're citing, recall that about $6 billion of it comes from this dodgy move alone, which I'd also noted last year. From that post:

At page 133, they provide some estimates of the economic costs of intangible harms Australians suffer as a result of someone else's drinking. Their survey respondents answer questions that give them a health-related quality of life score. A one-point drop in that score, they say, costs the individual the equivalent of $50,000. Respondents are sorted between those who cannot identify a known drinker who has negatively affected them, those knowing a drinker whose drinking has affected them "a little", and those knowing a drinker whose drinking has affected them "a lot". They take the mean quality of life score for each group, multiply the differences from baseline by $50,000, extrapolate to population averages, and come up with about $6.4 billion in costs.

There are a couple of pretty obvious problems here, if I understand their method correctly. Which I may not, but I'd love to hear if I'm wrong on this count. It really looks like they're just comparing sample means. If so, and if there are any other differences - differences unrelated to alcohol - between folks who have a close relationship with a problem drinker and those who don't, then the mean comparison is hopelessly confounded. There are all kinds of bad social circumstances that are predictors of problem drinking. Those same circumstances would lead to lower quality of life scores regardless of whether there's any drinking. Regression analysis is needed, not comparison of means.

I hope that the Australian health folks have more substantial foundations for their current policy push.

Here's Luke Malpass in The Australian [update: or, at least the journo's rendition - see Luke's comment, below]:

But Malpass demurs, saying figures on the cost of alcohol to society invariably fail to offset the benefits of the industry, including the employment generated, the export dollars created and, on some views, the positive health effects of the odd glass of wine.

"Across the socio-economic spectrum people enjoy a drink. But the unspoken assumption is that alcohol and cigarettes must be priced out of the range that these nanny-staters, these healthists, consider problematic. They assume people don't make a conscious choice to drink and not exercise. It's incredibly infantilising."

He says the so-called alcopops tax on pre-mixed drinks brought in by the Rudd government didn't achieve any behavioural change when it came to the alcohol consumption of young drinkers.

"The girls who would drink one Breezer or two Breezers don't any more. The alcohol tax changes resulted in perfect substitution, the teenagers stopped buying alcopops and instead bought a bottle of Jim Beam and mixed it with Coke."

More political intervention in this policy space is potentially politically damaging, according to former Labor senator John Black, now a political analyst.

"[A minimum price] would effectively be another tax on lower income groups and they won't like it," Black says. "It will have a disproportionate impact on people in the lowest income quintile, and it won't affect behaviour for those who are dependent and who have the problem. It's economics 101, inelastic demand."

There could well be blowback politically on the Gillard government, he says, with electorates containing a higher than average proportion of the nation's poor the political flashpoints.

I'd disagree with Malpass's the journalist's counting of employment as a benefit; the primary benefit ignored is consumption benefits to drinkers. Employment is a cost (think of it this way: we'd be better off if a genie appeared and wished every day's alcohol production simply appear and folks employed got to shift to other sectors). But Malpass is dead right about the healthists' disdain for the lower orders' pleasures. And Black is also right about the likely incidence.

Oh Australia, what's happened to you?

Antipodean academic blogging

The Age covers the academic blogging scene in Australia. The Aussies enjoy a rather more vibrant academic blogging community than the Kiwis.

I read Core Economics - the team that blogs there is excellent. But I hadn't realised that Core's Stephen King is Dean of Economics at Monash. Here's King on the merits of Monash over Melbourne. I can't imagine Kiwi PVCs doing this; differences among programmes here seem more seen as a problem to be solved than an opportunity.

Once there's enough bloggers around, universities can start doing this sort of thing:

Most Victorian universities have created blogging sites on their home webpages for their opinionated academics and students. ... RMIT University created a site last month called "blog central" as a space for academics to blog, with 15 categories ranging from arts and community to social science and sustainability. Deakin Speaking is a blog page for that university's academics to publish opinions and comments.

I don't particularly like the format of either; they're dedicated platforms rather than syndicators of independently produced content. But it shows there's a critical mass within Aussie universities that doesn't exist in New Zealand. I don't think that any New Zealand university would have enough bloggers to make a go of it.

According to The Age, "thousands of Australian academics have personal blogs, including at least one vice-chancellor...". I don't believe the number's in the thousands unless you count grad students. But it's got to be more than in New Zealand. Here, we have the folks at SciBlogs and maybe a half dozen independents, of which I can only think of two off the top: Xavier Marquez and Bryce Edwards. I really don't know what accounts for the difference between NZ and Australia. Academics on both sides of the ditch face similar incentive structures. Maybe it's a combination of the more demure Kiwi personality and agglomeration effects.

Here's John Sides in PS on political science blogging.