Posted by: graemebird | May 27, 2007

Scientific Research And The Medical Industry: One Good Tax Cut Should Lead To Another


“For what it’s worth I am on Harry’s side on this at least theoretically…”


” – these spillover effects do exist and can be substantial and there may some overall social gains from having institutions which capture these spillover effects….”

But beneficial spillover effects are there with regards to virtually all economic activity.

I’m suggesting that this inability to see how technological progress is a natural part of a progressing economy is due to the one-eye-blind focus on the final product.

Whether that be consumer products or the output of research projects.
A functioning market industry is one in which the value for money of its services improves every year and noticeably.

But what creates this magic?

It always helps with analysing such things to fix nominal gross domestic revenue in ones mind and try and imagine what would be going on under that monetary scenario.

In that scenario the average business isn’t getting more revenues in a typical year. What they are trying to do is improve their internal business systems in order to provide a better quality product and at less cost to themselves to deliver.

So they invest in supplies and equipment that enable them to do that. Go to their suppliers and their suppliers are doing the same thing.

Their suppliers are obsessing with trying to invest in improved internal processes and improved supplies and capital equipment to drive their OWN costs down while their customers continually want more and more from them in terms of quality.

We see throughout this process continual upgrades in the various capital they use. And capital means any supplies that you are buying for the purposes of making extra revenue and not just sophisticated and large capital equipment.

It might be longer and skinnier plastic bags that are easier and quicker to tie up.

It might mean better forklifts that are more efficient in their use of gas.

In the context of research it might mean better lab equipment. Like a laser that gives you an instaneous read-out of the constiuents of whatever it is you are examining.

So you are driving your earnings back into the business to get gear of any level of durability that will make your recurring costs less.

If you subvert this market with stolen money you no longer have a functioning market that can deliver better value-for-money each year.

So if the research market is based around grants you need not necessarily have a situation where better and cheaper lab equipment is available every year.

You won’t have a situation where the lab equipment is better, cheaper to buy up-front, and cheaper to use each year.

And the guys who make that lab equipment might also not have access to better and cheaper supplies that they themselves consume in their efforts to deliver their supplies to you.

In practice we have found that even market-based medical-insurance dovetails with the mostly-socialised and highly-regulated medical-services-market to stop better value for money being produced every year in the market for medical services.

And if we go and ask our Physio or Dentist about this we find that the equipment he needs to do his job tends to be outrageously expensive. As are the services your Doctor has to farm out like blood and urine testing (whether the bills are picked up by the taxpayer or not).

…. And the excessive reliance on insurance is itself a function of the perversion of the economy via Keynesianism and monetary debauch….. Leading to less of peoples net wealth being held in the form of relatively liquid savings.

So the focus on research outcomes rather than on having a properly functioning market that produces better value for money each year is self-defeating and costly.

We have a two-sided argument between passive-Libertarian-piety and one-eyed interventionism.

My view of how a government ought to act is far more aggressive than libertarian passivity or interventionism would imply.

If we deregulate the medical profession and cut its funding we may need to bring a sunsetted pension for the already chronically sick over the top.

But most of all we may need to put in a 10 year, likely to be rolled over, tax-free status for providers of medical services.

That means a doctor or a nurse or a nurses-aid or an orderly no longer pays the income tax, a clinic no longer pays the company tax, a dentist and his staff no longer pay taxes and so forth.

But then this is a massive change. And we want to get very fast results or our leftist opposition will score some gains.

Plus the money liberated from cutting off the funds will likely get eaten up in further investments in taxeater-ego.

So the next step is to look back through the supply-chain.   Are there any businesses that tend to supply exclusively or near-exclusively to the medical industry? Or for that matter to research projects…Or any industry or industries that we have taken out of the tax system for a sunsetted period in order to ease the transition to a superior dispensation.

Which of these might be happy to split into stand-alone companies only dealing with those industries that for fast-adjustment-purposes are being taking out of the tax-industry? (for a sunsetted period)

We might find we can take out the suppliers of lab equipment, the agents who buy medical supplies… And so forth.

So we are expediting the situation where we have a functioning industy that produces better services at lower costs every year.

And politically too we don’t want the friction and fear and wait-and-see-approach of investors to leave a situation of unemployed medical staff, closing hospitals and unavailable beds.

We are moving from one social contract to another way of doing things entire….. and we want to smooth that move and make sure its not just pulling the rug from under people, leaving a whole series of horror stories with the Libertarian pietists getting more shrill and doctrinaire in the face of each new media story of authentic or perceived personal tragedy.

It might be true that if you just pull funding and deregulate everything……It might be true that things will wind up better in the long run and I think it IS true.

But it would be better to smooth it over with aggressive government depredation-cutting wherever possible.

Now the other thing a highly aggressive reforming government would do is they’d say…..

…”Well what other costs can we reduce to these industries that we have to make functioning-industries-of in a hurry?”

We see that whether you are a researcher or a doctor that used to work in the public sector planning to open up a clinic…

… We see that you have a need for investment funds and you have a need for working space.

… But than also a free-lance researcher might need to work casual while he’s waiting to be hired for this and that. And he probably cannot pay the bills if his rent is real high.

And the artist. We mustn’t forget the plight of the struggling artist working 2-12 hour shifts every 8 days in order to pay the bills so he can spend his time working on his art.

We cannot rely on these people finding a job that suits them in the Swiss patents office.

So in all these cases its pretty obvious that we need to bring the cost of working and living space down.

So the treasurer gets a call from the education minister, the minster for health and the science minister and they, being Austrian-economics-sophisticates one and all….

…..They know that the amount of living and working space is grossly undersupplied by zoning laws, height restrictions on buildings, inadequate prior knowledge of whether its OK with the local council if you start digging down into the ground to build multi-level basements and so forth.

And so the treasurer says to them something like…

…” Well we aren’t going to reduce land value tax, except in moratoriums when the real estate markets are crashing.

And in fact in the long run, after the next time land value appreciates we may well increase land value tax.

But what we can do is wipe out taxes on rental income. We can wipe out stamp duty.

We can wipe out capital gains. And we can wipe out taxes on interest earnings in order to provide more capital investment generally.”

You see these grants are taking the easy way out. They stop us from doing the hard yards to set things to rights. The require lots of overhead and almost no brain power.


Taking the easy way out with subsidies and research grants means we aren’t doing the difficult and crusading task of really getting to a situation where we have all these functioning markets improving the level of technology in an evolutionary and holistic way.

And ethically the idea of handing out grants prior to attempting a more sophisticated way of getting the job done via reducing the level of stealing…

… ethically thats a pretty shakey idea. But worse than that its unsophisticated in terms of economic science.

But after doing all these things and in the very hard to believe advent that you don’t see the economy increasing the rate of improvement in technological sophistication…

.. And not forgetting we’ve let all capital expenditure in non-tax-exempt businesses be depreciated for tax purposes in the year that the money is spent….

…. Well after doing all that if we still think there is a problem than we can talk about the resumption of this form of theivery at that later hypothetical date.


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