Insurance, the Market and those pesky wowsers (Doc Holliday) 3:19 AM

Now that my work has lightened up, I too will part a few shots at government and wowsers.

Health care puts forward a number of dilemmas for economists and policy makers. In this posting, I will consider the incentives and distortions that have arisen from government intervention in the provision of health insurance. I will also put forward a solution.

In any laissez faire insurance market, insurers charge insurance premiums that reflect the risk that people impose on the pool of insurance premiums. This is true for all insurance markets that I can think of - cars, houses, luxury boats, personal property. If you are 18 years old and park your Subaru WRX in Broadmeadows overnight, you pay the price!

Unfortunately, this doesn't occur in health. Instead, in every developed country that I can think of, everyone pays the average (pool) price - not the marginal cost. This is not because of a decision by health insurances but because of government regulation. The objective of community rating regulation as it is called, is to ensure that even the poorest can access affordable health care. Its effect is to smear insurance costs so that the rich and healthy subsidise the poor and the sick.

Community rating regulation appeared first in countries where private health insurance was the norm. But it also operates in the government-run single payer schemes (consider the National Health Service in the UK, Medicare in Australia and Canada). In these schemes, the costs of health insurance are smeared across tax-payers, not those seeking insurance. (The medicare levy surcharge is an exception, but this is only effective when we consider the role of Australia's Lifetime health cover rating system).

However, this has some rather unintended consequences (hello hello!). One is that it removes any incentive for individuals to adopt healthy life-styles. Why drink green tea and ride a bike to work if you know that someone else is paying for your healthcare?

In a laissez faire market, there would be a variety of insurance companies each offering slightly different products. Some might offer health-management organisation type contracts: you agree to change your behaviours (eg give up smoking) in return for discount insurance. (Funnily enough, the earliest health insurance schemes (organised by many religious and charitable organisations) at the turn of the 20th century did offer just that.)

But under community regulation, no one has an incentive to change their behaviour. This is a problem for both private health insurance schemes (as in US, Switzerland and Greece) and single-payer schemes (UK, Canada and Australia). In bid to protect the insurance pool against the threat of smoking and drinking geriatrics, wowsers step up to the plate to start issuing edicts: that shalt stop drinking, smoking, and growing old etc. The number of regulations that Roy posted are indeed scary. But in a dysfunctional market without marginal prices, the number of regulations can not but grow as bureaucrats scramble to change behaviour. Any market in which there are no prices will grow increasingly dysfunctional as successive layers of regulation are introduced to control it.

Is there a role for the market? I believe there is, and Australia already gives us an example. Some years ago (in 2000 I think), Australia introduced Lifetime health cover (LHC). It was introduced by the Howard Government in response to the adverse selection taking place as healthy people opted out of private health insurance to be covered by Medicare. LHC in effect penalises people incrementally the longer they remain privately uninsured. It acts like a second-best market price for private health insurance (PHI). The older and more likely you are to get sick, the more private health insurance will cost, so join up when

you're young. It doesn't give you the same incentive to change your lifestyles as an actuarially fair premium but its close. But it did influence PHI membership dramatically. It also demonstrates that people are sensitive to market prices - even for health insurance.

Back to my dilemmas for economists and policy makers. How do we get a healthcare system that is offers all the economic efficiencies that is currently lacking yet addresses the equity concerns of providing care for the poorest in the community? The obvious response is to introduce a voucher-type system. Governments provide individuals a voucher (it may be means-tested) to be spent on health insurance. The amount given to the individual reflects their risk-rating (so high risk individuals get paid more). Individuals can get to keep some of that voucher if they can demonstrate a reduction in their risk-rating (credited back to a Medicare Savings Account for use on a rainy, sick day). Individuals can use that voucher money to purchase private health insurance from any number of competing health insurers on the market.

There is another dilemma in health care that needs addressing - market power of medical professionals (doctors and surgeons). But that is for another posting.

regards

Doc Holliday.

Re: Re: Wowser's worst nightmare (Lone Ranger) 9:04 PM

Just found another clip by Serge.

I should add that I hate smoking and will lock my daughters up if they ever try it....

Re: Wowser's worst nightmare (Lone Ranger) 8:59 PM

Not sure about Tom Waits, but the great Serge Gainsbourg was more than happy to smoke on stage.

Could not find a live performance on youtube that fitted the bill, but you get the picture from this one..........

Another argument against wowserism (Lone Ranger) 2:12 AM

In support of Roy's recent posts on wowserism, I came across this from Time magazine (I hasten to add, I do not read this magazine as a matter of course...). Apparently, non-drinkers are more anxious/depressed than those is us that imbibe.

Needless to say as the father of two small children, alcohol is now a necessity rather than a luxury (contrary to what the do-gooders say, alcohol DOES make things better). Those annoying ads on TV that claim drinking in front of kids is a bad example for them get up my nose - kids need to understand that they cannot always do what the adults do. For God's sake. I wish the wowsers would stop trying to control our lives. The trouble is, they seem to congregate in government....

Wowser's worst nightmare. 10:23 PM

The question --- Why are the wowsers wrong?

The answer --- Tom Waits

What do you get when you mix tom waits, 1/2 a bottle of scotch , a hand full of anonymous prescription drugs and packet of cigarettes on a stage with nothing but a microphone ... answer one of the greatest live performances of the last half century .

If not the greatest ... you have to admit the coolest. I'm a middle aged economist with a bad haircut. I don't smoke and like any true libertarian there is no way on earth i am going to allow my children to smoke... but i have to admit deep down that there is something cool about guy like tom puffing away while he belts out a tune.

The master at play

The positive value created by this one performance must equate to at least 50 disability adjusted life years.

Alcohol and other mood altering substances have a long and proud history, they are a a fundamental part of the human experience and its about time that the positive externalities associated with their consumption be factored into cost benefit analysis and more specifically preventative health studies.

Crime and punishment (Roy Rodgers) 2:29 AM

All this talk of wowsers and their wowsery ways inevitably leads to the topics of crime and punishment. These two are perhaps the hardest concepts for anyone who takes liberty seriously to come to terms with. They provide an obvious conundrum. The libertarian has to somehow come to a position on the potential legitimacy of the state's use of coercive powers that range from simple fines, to incarceration, in some cases torture and in some countries all the way through to death.

Some laws where made to be broken...

Since the end of the second world war most developed economies in the west have seen an amazing boom in legislation. God knows what the page count is currently, there are laws and regulations for nearly everything.

I got fined $170 just last week for parking my car for longer than one hour in my residential street just outside my house during the day when the street was half empty .... apart from the fiscal pain this caused me, the law the I've broken or the crime that I've committed is obviously absurd. I got fined for simply parking my car ... there was no congestion issue, no one got hurt in any way. I was simply utilising a public asset (the road) in exactly the manner is which it is intended to be utilised.

And how about the guy in Port Melbourne who recently got fined $50,000 for demolishing his house which he paid for with his cash but which unfortunately had inestimable heritage value as an example of post war public housing. Yes that's right this guy got in the shit because he was rude enough to demolish the crappy public house that was standing on his $1million dollar block of land. ABSURD.

So the next time you've stepped out at 4am to get panadol for your loved one and you find your self sitting at a red light in a street that resembles the set of 28 days latter. Just ask yourself why the hell am i sitting here in my pjs like a big fat goose just because there's a red light. Ask yourself if i ran the light who would be to blame ... you or the idiot bureaucrat that forgot to turn the lights off when everyone went to bed. For god sake ... that light deserves to be run!

There is a legion of examples of laws and regulations that represent nothing short of state based abuse and should be canned immediately. Laws and regulations that have nothing to do with causing harm to others. Wouldn't it be good if someone had enough gumption to propose a libertarian day where it was the duty of every Australian to break some form of ridiculous law. A day where its your duty as an Australian to flip the bird to the cubicle dwelling bureaucrats. However, that person will not be me ... I'm sure it would be illegal to suggest such a thing.

the conundrum ...

Despite these seemingly pointless laws, it can not be denied that there are genuinely bad people out there .... or more correctly people out there who either want to, or are prepared to if the circumstances dictate, do serious harm to others. People whose utility functions include the disutility of others, who are totally indifferent to the utility of others, or those who take no heed of the reciprocity associated with doing harm to others.

The conundrum for the libertarian is that there are people who whether through circumstance, disease or stupidity represent a genuine risk to the rest of us. And the only way to effectively address this risk (at least in the short term) is to remove them ... to physically separate them from those to whom they wish to do harm. And as unfortunate as it sounds there is no institution better placed to do this than the state. The conundrum is that there may after all be a role for the state and it's not a very nice role. It's a role that involves using force and coercion, something any sane libertarian feels hesitant in allowing the state to use.

While there is a role for the state, it doesn't necessarily follow that it's doing a good job of it. In fact the state seems to be a bit confused about what its actually supposed to be doing. It would seem that the conventional approach to punishment and prisons is based on the notion that punishment is doled out to prisoners in the belief that it will reform them or rehabilitate them for their ultimate reintegration into society.

While noble, such a goal is not necessarily consistent with the idea of risk aversion. If you take the position that the state justice and prison system exist as a way of society managing the risks associated with it's criminal class, then you have to wonder how recidivists actually exist. If the system assessed their risk efficiently then they would not be released and they would not have the opportunity to keep perpetrating. In assessing the threat that a convict poses to society the authorities should reference the statistical probability that the prisoner will re-offend. Maybe they do?

It's worth recognising that rehabilitation itself is one way of addressing such risk. However, those that commit crimes that are highly recidivist in nature like pedophiles, serial rapists or serial murders are mostly likely highly probable to re-offend. So regardless of whether such individuals have found god and repent for their sins their actual release will also depend on the statistical likelihood of them re-offending. The point being that prisoners who have committed crimes or exhibited behaviour that indicate a probability of recidivism would not be released.

And I recognise that it doesn't sound anything like the rant of a libertarian and places a lot of power in the hands of the state .... when i said conundrum i meant it.

and now to the hangman ...

The following link takes you to an archive of the last words of executed inmates. The archive is maintained by the Texas Department of Criminal Justice. It's probably safe to assume its existence is due to a legislative obligation placed on the department.

Link to archive

As with the issues of crime and punishment, the archive presents libertarians with a conundrum. Included in the archive is the inmates rap sheet. I haven't gone through all of them but for the sample that i looked at based on their rap sheets and the horrible things they have done they can only be described as animals, nothing short of walking human excrement .... ... ... on the other hand when you read their last words you get the uneasy feeling that there is some humanity there. From the sample there was a universal profession of sorrow for the pain that they had caused others. Now I'm assuming that they are telling the truth and given that the statements are taken just before they get the needle there's no good reason for them to lie.

While in general crime and punishment is perplexing, one can form positions about some of the more extreme aspects, like capital punishment. Capital punishment is definitely something the world is better without. The primary reasons are:

1. there has never been any form of government in human history competent enough to impartially administer a program of capital punishment, nor has any had enough nous to avoid the odd case of judicial murder
2. I have a strong suspicion that given the appeals mechanism necessary in such systems and the opposition that such programs generate amongst your right for life types, the costs involved would far outweigh those of the alternative - long term incarceration.... and we pay enough tax as it is.

The economics of crime ...

One interesting thing worthy of note was that the last minute, seemingly contrite apologies, professions of sorrow and admissions of guilt were consistent with economic theories of crime and punishment.

One of the first economists to try and model crime and punishment was Gary Becker. Becker wrote a seminal paper imaginatively titled Crime and Punishment: An Economic Approach.

Link to full text copy of Becker's paper.

In his paper Becker argues that there is an optimal level of enforcement and punishment. More importantly Becker established quite convincingly the proposition that criminals are rational and that criminal behaviour follows rational decision making processes. The basic contention is that the criminals willingness to commit crime is a function of both the positive utility he/she derives from the crime (some of a pecuniary nature some of a non pecuniary nature) and the costs associated with the crime.

Under Becker's models the costs are a function of the probability of being caught and the value of the punishment. Sort of like analysis regarding contingent states of the world.

The paper is a good read. Becker proposes a framework similar to a classical one with the exception that its based on involuntary exchange. What would normally be the buyers are the victims and the sellers are the criminals.

It follows that (depending on the criminals level of risk aversion) the supply of criminal behaviour could be influenced by increasing the probability of being apprehended or alternatively by increasing the costs associated with penalties. Which is more effective depends on the criminals risk profile, for those with a risk affinity, increasing detection and apprehension is more effective than increasing penalty. Its less clear for the risk adverse, increasing either penalty or probability of apprehension would most likely do the job.

The interesting thing with the archive of last statements is that it would appear to represent a situation where the probability of apprehension and conviction is 100% and the cost associated with the penalty is as high as it could possibly be (assuming no one is suicidal). In these circumstances it would appear that all (or certainly all the ones i looked at) express regret and remorse. It would appear that when you reach the universal maximum for the cost of crime you may achieve some form of rehabilitation.

This universal expression of regret and remorse is dependent on the imminent penalty. We have no grounds for assuming that were the penalty to be removed or where we to introduce a probability that it would be removed, that we would get the same outcome.

wowser, wowser, wowser (Roy Rodgers) 12:25 AM

Lucky for us the good people over at the IPA have compiled a comprehensive list of all the new laws and regulations the task force put forward in its report.

As you can see quite a few!! enough to keep a whole armada of cubicles busy for the next 10 years.

All the economic consultants out there are going to start salivating the second they see this list ... wont be able to help themselves... just think of the revenue stream. But who am i to talk, the second i saw the list i decided to seriously consider the wife's contention that we just need that holiday shack on the beach.

New laws
1. Food and beverages classification
2. Junk food if self-regulation fails
3. Raise price of tobacco
4. Tobacco promotion ban
5. Tobacco out of sight in retail outlets
6. Plain packaging on cigarette packages
7. Ban smoking in public places "where children are likely to be exposed"
8. Ban smoking in cars
9. Second-hand smoke in workplaces, incl. outdoors
10. Second-hand smoke outside, "where people gather or move in close proximity"
11. Increase size of pack warnings
12. Tobacco brand names
13. further protections against sales to minors
14. Second-hand smoke outside, "where people gather or move in close proximity"
15. Ban vending machines sales, the internet, and at hospitality & other social venues
16. Nationally consistent liquor outlet opening times and density
17. Nationally consistent accreditation requirements for liquor licences
18. Nationally consistent late night outlet laws
19. Nationally consistent alcohol serving and training
20. Alcohol promotion regulation if voluntary regulation inadequate
21. Alcohol advertising during live sport broadcasts
22. Alcohol advertising during high adolescent/child viewing
23. Alcohol sponsorship of sport and cultural events
24. Alcohol promotion regulation
25. Alcohol availability restrictions, indigenous communities
26. Liquor licence hours restrictions in indigenous communities

New Programs and Frameworks
27. National Framework for Active Living
28. National Food and Nutrition Framework
29. National program to support Health and Physical Education in National Curriculum
30. Expand after-school health programs
31. Healthy and Active Families initiative
32. National Healthy Community Leadership and Education Program
33. Social Marketing Strategy
34. Multi-component community-based obesity programs in low SES communities
35. Multi-component community-based obesity programs in indigenous communities
36. National workplace health leadership program, and best practice guidelines
37. National accord for workplace programs and risk assessment
38. National program to alert pregnant and pre-pregnant women of dangers of excessive weight
39. National strategy to combat illicit tobacco trade
40. Multi-component community-based tobacco control projects
41. Develop further Framework Convention on Tobacco Control
42. Alcohol Diversion Programs, indigenous communities
43. Network of Alcohol-related programs
44. National Strategic Framework for preventative health research

New bureaucracies
45. Prime Ministers Council for Active Living
46. Healthy Food Compact
47. Regulatory body for required disclosure to government, communication to consumers and emissions
48. National Tobacco Strategy Steering Committee
49. National Prevention Agency
50. Preventative health strategic research fund
51. National preventative health research register

Recommendations
52. Research Program to inform National active living framework on economic issues
53. Commission review of economic policies and tax systems towards encouraging healthier food consumption
54. Work with industry towards food labelling
55. Voluntary industry scorecard
56. Nationally agreed accreditation standards for food labelling
57. Research: program to strengthen evidence of effective workplace health promotion
58. Research: legislative changes to encourage workplace health programs
59. Research: feasibility of grants and tax incentives for employees to encourage achievement of benchmarks
60. Health and PE in National Curriculum
61. Establish system to monitor policy of minimum 2 hours physical activity per week from K-10.
62. Research: How teachers promote health
63. Community Intervention Trials
64. Local Government Partnerships to encourage local councils to adopt health guidelines
65. Research: into effectiveness of the self-regulation of junk food
66. Expand allied health workforce
67. Clinical guidelines for allied health workforce
68. Carry out National Risk Factor Survey in 2010
69. National Children's Nutrition and Physical Activity Survey in 2012
70. Research: national research agenda for obesity
71. Research: ongoing research into obesity into indigenous communities
72. International agreements to combat illicit tobacco trade
73. Social marketing campaigns against tobacco use
74. Research into warning label effectiveness
75. Tobacco retailers licensing regime
76. Research: possibility of legal action by government and others against tobacco companies
77. All health services smoke-free, incl. Grounds
78. Patients quizzed about smoking status routinely
79. More money for: extra Quitline resources
80. Nicotine replacement therapy more affordable
81. Social marketing campaigns for indigenous smokers
82. Training in smoking cessation advice for indigenous health workers
83. Tobacco Control Workers in indigenous communities
84. Promotion to health professionals for Quitline
85. Poster advertising in disadvantaged communities
86. Increase efforts for anti-smoking for people with mental illness
87. Prisons and state-funded human services agencies smoke-free
88. Target parents to convey message to children to not smoke
89. Make smoking classifiable in movies
90. Constant alerts to public about dangers, and about new research findings
91. Tobacco surveillance system to assess whether anti-smoking targets are being met
92. Increase resources to develop and implement best practice for laws and regulations related to alcohol
93. Develop business case for COAG nation partnership on policing and enforcement
94. More money for: Drink-driving monitoring
95. More money for: Licence enforcement
96. More money for: Annual review of licences
97. Demerit points for licences
98. More money for: monitoring liquor laws
99. Social marketing strategy
100. Campaign to "build a national consensus on healthy alcohol consumption"
101. Campaign for awareness of alcohol guidelines
102. Campaign to de-normalise intoxication
103. Campaign to raise awareness of consequences of alcohol
104. Research: effectiveness of voluntary approach to alcohol promotion regulation
105. Research: alcohol modelling
106. Advocate: alcohol floor price
107. More money for: alcohol campaigns
108. More money for: healthcare providers, indigenous communities
109. More money for: staff training, indigenous communities
110. More money for: treatment programs, indigenous communities
111. More money for: coordinated case management, indigenous communities
112. More money for: responsible serving of alcohol provision
113. Community groups of indigenous to promote alcohol responsibility
114. Research: alcohol consumption, indigenous communities
115. More money for: health care for alcohol problems
116. More money for: health care for alcohol problems, disadvantaged groups
117. Nationally consistent principles regarding alcohol to minors without parental consent
118. Promotion of early drinking age discussion
119. Community support for parents and alcohol
120. Research: Alcohol use in families and with children
121. Research: nationally consistent collection and management of alcohol wholesale sales data
122. Research: National indicators on alcohol consumption

Link to IPA discussion

wowser, wowser, wowser (Roy Rodgers) 4:48 AM

Skull puff n chew .... sounds pathetically like a new kids tv show, but its not.

Alcohol, cigarettes and mcdonalds. These are the sins that the new generation of wowsers have dedicated their lives to saving us from. All those little salvation army soldiers are out there right now doing push ups and polishing their tambourines ready to save us from too much of a good thing.

Only this time they're a little smarter than previous generations. They know that prohibition doesn't work, they know that no matter how hard they shake their little tambourines, they just cant deny al capone and mr asia.

So this time round they're going to be a bit smarter, they are going to try and use economics .. they are going to get government to tax us into salvation.

The rant

The preventative health taskforce has just released another report. The taskforce has a mandate to address three main evils: tobacco, alcohol and obesity. And how do they suggest we address these supposed evils, well mainly through increasing taxation on durries, stubbies and big macs.

No doubt they are also going to suggest the community also be educated ie. ban product advertising, spend heaps of tax dollars on gross television campaigns which try to shock and awe but do little more than turn you off your dinner (its amazing how the only time these bastards force me to watch a doctor squeeze fatty deposits out of someones artery is right around dinner time).

They will also undoubtedly push for the mandatory display of diseased and rotting body bits on packaging. Don't laugh but in a couple of years time i wouldn't be surprised if your big mac came in a burger box covered by a glossy graphic of someones anus being eaten out by cancer.

Do they have a point?

God knows why they are still making such a kerfuffle over cigarettes. I'm starting to feel nothing but pity for that small handful of poor bastards who have been reduced to standing out the front of the office in the rain and snow puffing away. Surely they'll all be dead within the next 10 years either from cancer or exposure. Surely we've won the war on fags so why the fuss?

As to alcohol. Could the wowsers please just piss off and leave us alone.

And then to obesity, I'm less than convinced were drowning in a wave of fatties. And if there are more than there used to be I'm less than convinced its down to fast food as the candidate. We all saw that movie a couple of years ago where the guy ate nothing but maccas for a month and surprise surprise got sick. Well so what? if you dined at Vue De Monde every day for a month you would also get sick. If you ate nothing but lentils all day for a month you would also get sick ... so what. We've also sat through countless hours of jamie oliver craping on about fast food. This is the guy i once saw fry a sausage, a handfull of fatty bacon (cause the fats where the flavour is) and a tomato in nearly a whole stick of butter and then crack eggs into it .... this guy thinks fast food is unhealthy?

If the general public is statistically putting on weight then i suggest it has something to do with some pretty basic economics ... the overall price of all food being lower than it was in previous generations coupled with a general increase in the peoples disposable income. Its not that we're eating more fast food, its most likely that we are simply eating more food, in which case targeting fast food will be ineffectual. This contention is also supported by the differential taxation thats been placed on fast food since the implementation of GST. Fast food already gets treated differentially than fresh food and we're still all apparently fat (although in my case i definitely am fat, and it should be noted I don't eat mcdonalds).

The dodgy economics

Putting aside these general high level concerns. Any analysis produced by the task force must be heavily qualified. The thing is (and theres always a thing and in this case its a biggie) is that basic logic of the preventative health argument is largely an economic myth.

Their argument goes something like this.

The preventative health body produces an economic study that estimates the costs of disease. This cost is then spun into a benefit by means of a counter factual. They become the costs that could be avoided if the rates of disease were decreased. For example, the report may find that obesity costs the Australian economy $10 billion per annum (note ... i made this number up), the reports then go on to say if the proposed measure is successful and reduces rates of disease by say 10% per annum then we should see an approximate benefit a $1 billion per annum in avoided costs.

Without fail the avoided costs are going to be greater than the anticipated cost of the program or proposal. So it then becomes a no brainier ... everyone wins.

In this case skull puff n chew, its even more insidious as the programs themselves will most likely be self funding as they include new taxes. I suggest you would probably find that they produce massive windfall gains to government. If cigarettes are anything to go by, the latest studies have found that the revenue generated by excise taxation on durries exceeds the associated cost of health impacts by a factor of ten. You wont find this mentioned in any reports but don't kid yourself it will most definitely be taken into consideration in the hallowed halls of treasury.

These preventative health studies are seriously flawed and ultimately fallacious. Apart from the usual dodgy statistical assumptions, they all make the mistake of ignoring a couple of major considerations:

1. extending someones life isn't isn't all good.... old age is in and of itself a major driver of health related costs.
2. all these studies universally ignore the benefits associated with consuming these goods

By ignoring the health cost associated with extending peoples lives you seriously bias any cost benefit study. One of the primary drivers of health related costs and publicly funded health related costs is age, or to be more precise, old age. As a result, extending longevity tends to increase overall health spending. The costs associated with diseases such as Alzheimer's, dementia, cardiovascular disease, osteoarthritis and osteoporosis far outweighs those associated with durries, stubbies and big macs. The above may sound heartless, but its not, its just economics, to ignore it is bad science.

These studies also routinely ignore the value of the benefits associated with whatever substance abuse led to the disease in the first place. I like alcohol, I'm not an alcoholic but i do enjoy the odd drink and the odd incident of inebriation. These things provide a definite benefit for me. So much so that i have been known to fork out a couple of hundred on a good bottle of wine or heaven forbid a good bottle of scotch. Stated explicitly, I enjoy booze and if anyone taxes it such that my consumption decreases below a level i would ordinarily consume then there will be an associated loss of utility which should be included in any good economic study, this is also true for cigarettes and big macs (although to be honest I'm more partial to a souvlaki).

Apart from these two, such studies are also subject to a number of less obvious methodological problems. In particular the relationships between disease, labour and productivity are reliant on incredibly strong assumptions relating to such things as time away from labour markets, rate of replacement and effects of productivity levels at work... tweaking any of these assumptions will generally have material impacts on the final number.

The analysis also generally includes a number of statistical techniques which are somewhat questionable, such as the adoption of things like disability adjusted life years (Dalys to those in the know). These tools are supposed to place a value on your loss of ability due to disease. They generally rely on estimates of the statistical value of life.

Don't get me wrong, we shouldn't be squeamish about generating estimates of a statistical value for life. However, they have to be used correctly. In cost benefit analysis the value of life is used to allow for comparison of costs across different projects. In doing so the value will be constant thus the comparative analysis is really only picking up on the number of lives saved or lost. This is good economics.

However the use of an estimated statistical value of life to generate estimate of the aggregate costs of disease to the economy is questionable economics. Although there are a number of different approaches to generating the estimate, most will put the value somewhere between two to three million. And while I have met many economists who regularly use these values (including myself) I am yet to meet any that have total faith in the numbers, nor have I met any that would feel indifferent between a three million dollar payment and death.

I should also mention that the way these studies usually produce results is that you do all the productivity, employment and direct health cost stuff upfront, you leave the Qalys (quality adjusted life years, a concept as equally dodgy as the Dalys discussed above) and Dalys till last, and they are usually able to transform the mere millions you've been working on into billions .. wow ... great if your producing a report for a drug company or government department ... but at the end of the day not really compelling economics.

And now to the conspiracy theory

Here's a further bit of ranting madness. I have absolutely no evidence but i do have a theory, that I suppose could loosely be considered 'public choice'.

I reckon that they whole anti smoking movement has produced a set of skilled professional lobbyists. These lobbyists are now facing the undeniable truth that they have effectively won the war on smoking.

Despite the hype there are hardly any smokers left. They have been reduced to a sad socially ostracised group of people whom most of us automatically assume are just trailer trash or teenagers.

These lobbyists and professionals need gainful employment and its too much of a convenient coincidence that this latest round of wowserism presents them with the biggest opportunity to keep doing what they do best ... ie giving the rest of us the shits.