The psychology of tax and spend

Richard Cookson, 18 July 2014

Following my recent foray into “The Moral Maze”, I was invited to join a live public “phone in” debate about the NHS on the BBC Radio 4 programme, “You and Yours”, on 15 July 2014. This was a slightly less fulfilling experience, for two reasons. First, it meant being stuck in a cupboard in BBC Newcastle, without meeting any of the programme makers or participants. Second, the promised opportunity to make some final remarks never materialised. This was frustrating, as I wanted to challenge the naive “tax and spend” approach to the NHS advocated by some of the other participants in the programme. This blog is a slightly longer version of what I would have said.

It is sometimes claimed that the financial problems of the NHS can be solved simply by raising taxes and spending more on the NHS. No rationing. No charging. No market reform. Indeed, no reform at all. Just spend more on the NHS, and let doctors and nurses get on with it. That claim is naive. Raising taxes and spending more on the NHS may help in the short term – but it will not be enough to preserve the NHS in the long term.

Like all supporters of the NHS, I want to preserve a high quality “Volkswagen” NHS for everyone, rather than see us gradually shifting towards a private “Rolls-Royce” service for the rich and a “Donkey Cart” NHS for the poor. In the long run, this will require increases in taxes and spending on the NHS. But a strategy of “tax and spend” alone is doomed to fail.  As the economy grows and we get richer, we will want to spend an ever higher proportion of our national income on health care. Just possibly, we may also be willing to pay a higher proportion of our income in taxes. But only up to a point. There is a political limit to the “tax” part of “tax and spend”.

That clash between health economics and tax politics is the fundamental strategic problem the NHS must address if it is to survive. Something else is needed, as well as tax and spend – either rationing, or charging, or reform, or a combination. Sometimes you can have your cake and eat it. Sometimes you can’t. In this case, you can’t.

Why do some of my fellow NHS supporters resist that uncomfortable logic, and cling to naive “tax and spend” advocacy? I can think of three possible motivations. In his classic 1974 book, “Who Shall Live?”, Victor Fuchs memorably dubbed the first two as the romantic and the monotechnic points of view, respectively. The romantic point of view denies that public spending decisions have opportunity costs in terms of alternative beneficial uses of scarce resources. The romantic believes that resources can be found for their own favoured cause without impinging on other people’s favoured causes – for example, by making “efficiency savings”, by diverting resources from disfavoured causes (such as defence spending) or by clamping down on the high pay and tax avoidance behaviour of the super rich. Fuchs criticises this viewpoint, writing that: “Because some of the barriers to greater output and want satisfaction are clearly man-made, the romantic is misled into confusing the real world with the Garden of Eden.” He goes on: “Confronted with an obvious imbalance between people’s desires and the available resources, the romantic-authoritarian response may be to categorize some desires as ‘unnecessary’ or ‘inappropriate’, thus protecting the illusion that no scarcity exists”.

By contrast, the monotechnic point of view fails to recognise the legitimate plurality of individual and social objectives. The monotechnic fixates on a single objective and is unconcerned if allocating additional resources to this objective imposes opportunity costs in terms of other objectives. According to Fuchs, the monotechnic view is “frequently found among physicians, engineers, and others trained in the application of a particular technology”. He goes on to write: “The desire of the engineer to build the best bridge or the physician to practice in the best-equipped hospital is understandable. But to extent that the monotechnic person fails to recognize the claims of competing wants or the divergence of his priorities from those of other people, his advice is likely to be a poor guide to social policy”.

The third possible motivation for naive “tax and spend” advocacy, of course, is straightforward political lobbying. NHS staff may know perfectly well that tax and spend alone cannot solve the problems of the NHS. But they may nevertheless wish to lobby for additional NHS spending, in the same way that teachers may wish to fight their corner for additional public spending on education, soldiers for defence spending, BBC Radio 4 staff for BBC Radio 4 spending.

Luckily, academics like myself would never stoop to special interest lobbying of his kind. That’s why more research is needed, and taxes should be raised in order to spend more money on academic research.

 

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