Feeds

Those govt cuts - slasher horror or history-changing brilliance?

Computers, menus and ideologies: take your pick

Choosing a cloud hosting partner with confidence

Throughout its history the NHS has had an average 4 per cent increase above ordinary inflation, because medical and pharmaceutical costs rise faster.

Ah, now, we know what that is, that's Baumol's Cost Disease. Average wages are determined by the average productivity in an economy. It's a lot more difficult to increase productivity in labour-intensive services than it is in manufacturing: therefore we expect services to rise in price relative to manufactures over time. The NHS will have a higher inflation rate than the rest of the economy. Do note what happens eventually - we get to Douglas Adams' the Shoe Event: the NHS has swallowed the rest of the economy and we all make our living by taking in each others' hernias.

Marxist markets?

We therefore rather need to do something to try to increase this productivity. Specifically, we want to improve total factor productivity (TFP – the jargon way of saying we want to get more out for the same resources put in). We've only really found one consistent way of doing this: markets.

Serious economists suggest that the Soviet Union, in its entire history, did not manage to improve total factor productivity at all. The same point turns up in Mikhail Gorbachev's memoirs and other serious economists suggest it was the same for all of the planned, non-market economies.

It may even be true that the short-term result will be profits for buddies but as Bob Solow (yet another, serious, Nobel-winning economist) has pointed out, 80 per cent of the increase in production in the 20th century, in those market economies, came from increases in TFP.

The use of markets rather than planning might only crank out a 1 or 2 per cent per year increase in productivity, but think of what compounding over the decades does to that.

It's not necessary to have the “you're poor so you die” sort of markets either: Germany, France, innumerable countries, have the “the government will pay for most or all of it” markets, with different suppliers, charitable, non-profit, for-profit, all scrambling to get a slice of that cash. It's the scrambling that seems to do the trick after all.

So yes, this last bit is ideological, but that's because the British left has a very strange, Marxist almost, attitude towards markets. They're not just, as Brad DeLong points out, methods for the extraction of that surplus which rightfully belongs to the labourers: they are also information, incentive and asset-allocation devices.

But of course, what everyone really wants to know is, well, Tim, will the cuts work? Are we about to be ushered into the sunlit uplands of permanent economic growth, falling debt levels and a miraculous escape from a second Great Depression? Sorry to disappoint, but I haven't a clue: and nor, contrary to public statements, has anyone else, economist or not. While there's a lot of public spluttering going on, everyone recognises that it might work, also that it might not. The odds and probabilities change depending on who is talking, there cannot be an absolute insistence one way or the other.

Those Nobel Laureates will let us know, just like the politicians and us journalists, oooh, sometime in 2015. ®

Top 5 reasons to deploy VMware with Tegile

More from The Register

next story
Facebook pays INFINITELY MORE UK corp tax than in 2012
Thanks for the £3k, Zuck. Doh! you're IN CREDIT. Guess not
DOUBLE BONK: Testy fanbois catch Apple Pay picking pockets
Users wail as tapcash transactions are duplicated
Happiness economics is bollocks. Oh, UK.gov just adopted it? Er ...
Opportunity doesn't knock; it costs us instead
Google Glassholes are UNDATEABLE – HP exec
You need an emotional connection, says touchy-feely MD... We can do that
YARR! Pirates walk the plank: DMCA magnets sink in Google results
Spaffing copyrighted stuff over the web? No search ranking for you
In the next four weeks, 100 people will decide the future of the web
While America tucks into Thanksgiving turkey, the world will be taking over the net
prev story

Whitepapers

Why cloud backup?
Combining the latest advancements in disk-based backup with secure, integrated, cloud technologies offer organizations fast and assured recovery of their critical enterprise data.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
New hybrid storage solutions
Tackling data challenges through emerging hybrid storage solutions that enable optimum database performance whilst managing costs and increasingly large data stores.