Mr Medlock and the Classics: Part III

Robust state capacity

As lovely as the previous welfare support sounded, it represents a very limited part of what governments provide. There are quite a few areas where effective governance can make a difference and address some market failures. One is in healthcare, which represents a huge component of people’s concerns and spending. Healthcare faces two key issues. The first is of private insurers - insofar as they are unable to price risk due to not being allowed to charge those with pre-existing conditions more, their role becomes one of pooling risk. This makes employer-contingent pooling less useful, because risk-pooling is at its most effective when the pool is largest, and not arbitrarily segregated on the basis of occupational factors that may themselves influence health risks. The second is of skyrocketing medical and drug costs - where they haven’t, this has almost always been a result of government intervention, such as with the UK’s National Health Service having monopsony power in negotiating drug prices.

The result of these two problems is a great deal of messiness right now, where private insurers are bad both at pooling risk and negotiating prices. As such, they are left as glorified customer service representatives, which seems awfully inefficient given the actual plans aren’t great either. For one, the way in which deductibles reset means that we see very uneven costs for people who get sick just before versus just after the new year, making income smoothing rather difficult. And the patchwork of Medicare options are just as confusing.

The government can do several things in addressing healthcare issues. Firstly, even a simple matter of giving free rides to the doctor would save a lot of money, by ensuring people got preventative instead of emergency care. Secondly, liberalising the supply side and publicly funding research in lieu of relying on patents would reduce the physician shortage and high drug prices that pervade right now. Thirdly, the government could get involved in a provision of healthcare plans, whether that is a basic public plan or Medicare for All. Notably, existing publicly run Medicaid plans or Veterans Affairs hospitals already outperform their private sector counterparts, and a unified public plan would only provide more administrative cost savings.

Another big part of people’s lives is their families. One of the largest costs people will face is having a child - we can support families in that period with paid leave and a child allowance. On the former, we see that things like paid paternity leave can significantly improve maternal health and reduce the gender pay gap. A child allowance like the American Families Act would cut childhood poverty by more than 40%, and that’s just the tip of the iceberg. Baby boxes would similarly make having a child more affordable, as would public childcare, which also performs better than its private alternatives. And crucially, investments in children are efficient and pay for themselves, beating out any other welfare program in marginal value produced. Combined together, this could be packaged as a Family Fun Pack that makes parenthood accessible and affordable for all. Of course, children aren’t the only vulnerable parts of families - so are the elderly. As such, subsidising and supporting at home care will go a long way towards improving end-of-life quality, as we’ve seen Finland do.

A third avenue for government involvement is the day-to-day activities people which engage in, such as areas like education, post office and prison. Schools and universities are one of the most important parts of social mobility, and define the first two decades of someone’s life. However, market-based options like charter schools have proven themselves to be of mixed quality, so we should instead be increasing public school funding, which has tangible benefits to child outcomes. As for university, sticker price shock means that we don’t just need more tuition aid, we need a way of making it more accessible at point of access. That is, via income-based repayment, which won’t put people into terrifying levels of debt immediately. The post office is yet another area where state provision of services can be built up, with a precedent in Finland for postal employees helping disabled and elderly individuals. Postal banking would be another way of making welfare provision easier, and would also increase access to financial services for low-income households. And as for prison, private prisons don’t work - if they did, prisons would be fine with prisoner’s picking their prison on the basis of its quality. And given the perverse incentive to reduce the quality of life for prisoners, it would be prudent to stick with state-run ones. Another way of improving the humaneness of prison would be to abolish life sentences and cap them at renewable 20-year sentences, giving people a chance to be released without eliminating the possibility of prolonged incarceration.

Finally, governments can help get us closer to some longer-term aspirational goals regarding leisure and the environment. The phrase dignity of work often gets thrown around - but it really refers to two different sorts of dignity: one from productive activity and one from sufficient personal income. Right now, lots of people are compelled by economic necessity to try and derive the latter from a job - often this means they cannot access the former. So governments should pursue a leisure agenda that empowers people to work less - and although there are many components to this that overlap with other reforms, one step forward might be a 6 hour workday. The other big picture goal we need to be focused on is the environment - here, government can make a meaningful difference. Not only in funding natural parks, but in ensuring that the necessary green transition as a response to climate change is an equitable one.