Lack of universal health care due to application of spurious ‘sound finance’

I have been reading several reports in the past week – ranging from studies using dodgy input-output tables to claim the regions that voted most enthusiastically for Brexit will suffer the most – part of the never ending ‘modelling’ of the alleged disaster – to reports by the historians tracking the impact of austerity on the rise of the Nazis in pre-war Germany. All interesting. I am particularly researching the way in which the Common Agricultural Policy impacted on Britain and why it will be good to be free of it. But one report struck me as fundamental to the way in which neoliberalism has led societies astray and damaged the most defenseless citizens of the world. On December 13, 2017, the World Bank and the World Health Organisation (WHO) published its latest – Tracking Universal Health Coverage: 2017 Global Monitoring Report. This is an audit report to keep track of the progress towards the UN’s 17 Sustainable Development Goals, which were agreed upon in September 2015. One of those goals is health and well-being and within that ambit comes, among other targets, universal health care provision. We learn that “at least half of the world’s population cannot obtain essential health services” and health care service deficiencies are chronic at the poorer end of the income and wealth distribution. The reason is not a lack of real resources to be deployed. Rather, these appalling results are persisting because governments apply neoliberal ‘sound finance’ principles to their spending choices (with the IMF bullying them to do so). So we find major cuts to health care service provision in nations because they claim they cannot raise enough revenue to pay for the provision. In currency-issuing nations, no matter how low the average income levels are, that sort of claim is always spurious.

I read it simultaneously with a Harvard Business Review report that came out this week (December 19, 2017) – How the New U.S. Tax Plan Will Affect Health Care – (published before the final Congress vote of approval) – which argued that Trump’s tax bill:

… will mean less health insurance for individuals; less coverage for elderly and poor Americans; less revenue for doctors, hospitals, and myriad health care businesses; and, quite possibly, a less-healthy, less-productive workforce.

The argument rests on two points:

1. The Tax changes eliminate “the penalties paid by people who fail to have health insurance as required by the so-called individual mandate” – which will mean “as many as 13 million fewer Americans having health insurance”.

2. “Increases in the federal deficit will prompt efforts to reduce federal spending. Because Medicare and Medicaid together accounted for about $1.25 trillion in federal spending in 2016, about 30% of the federal budget, they will be the major targets for deficit reduction.”

Same old really.

Transfer of largesse to the rich at the expense of the poor.

This is in a nation that is meant to be the richest of them all.

While the US health system is incredibly ‘gold-plated’ to benefit the rich, cuts at the bottom to Medicare and Medicaid will “not be the most promising places to start” in a quest for fiscal savings in the area of health care.

But outside the US (which doesn’t have Universal Health Care) the problems are also significant.

On September 25, 2015, the United Nations “adopted the 2030 Agenda for Sustainable Development that includes 17 Sustainable Development Goals (SDGs)” (Source).

The aim of this exercise was:

… to end poverty, protect the planet and ensure prosperity for all.

While many of the 17 goals relate to health outcomes, SDG3 – “Good Health and Well-being … focuses specifically on ensuring healthy lives and promoting well-being for all at all ages.”

Within 3 Good Health and Well-being – are 13 Targets, each of which describes an action that should be achieved by 2030.

Target 8 is:

Achieve universal health coverage, including financial risk protection, access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines and vaccines for all.

It is an ambitious target for an ambitious goal and clearly developments in the US do not inspire any confidence at all that the target has a chance of success.

The UN/WHO Universal Health Coverage Monitoring Report 2017 tells us, though, that the challenge is much bigger than bringing Universal health care (UHC) to the US.

What is Universal health care?

It is a straightforward idea:

UHC means that everyone – irrespective of their living standards – receives the health services they need, and that using health services does not cause financial hardship.

Progress towards UHC means that more people – especially the poor, who are currently at greatest risk of not receiving needed services – get the services they need.

Does it mean that health care should be free?

According to the UN/WHO Universal Health Coverage Monitoring Report 2017 it does not.

Their take is that:

UHC does not mean that health care is always free of charge, merely that out-of-pocket payments are not so high as to deter people from using services and causing financial hardship.

I would disagree.

Health care should, in essence, be considered a public good, which means that the use by one does not diminish the availability of the good to others. A private good is one where the consumption by one person reduces the amount available for others for current production levels.

John Kenneth Galbraith (JKG) wrote in his 1958 book – The Affluent Society – about private affluence amidst public squalor (page 98):

The family which takes its mauve and cerise, air-conditioned, power-steered and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, blighted buildings, billboards, and posts for wires that should long since have been put underground … They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. Just before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings

Neglected health care is an example of public squalor.

UHC means that the services should be provided through non-market means – collectively available and without a market price being used to ration the services to those who can pay.

Market-based provision systems will always exclude those who cannot pay. Even when they are supplemented with private insurance schemes, they fail to protect the poor and the vulnerable.

A system of UHC makes these services non-excludable and thus means health a public good.

Market-based systems will also undersupply essential health care – which then exposes all of us to negative outcomes – via contagious diseases etc. For example, the interdependence between nations is highlighted by diseases such as Ebola.

The provision of UHC leads to the elimination of contagious disease risk etc.

UHC also should mean that lower-income people have more income to spend on other essential items, which reduces the negative impacts of market-driven income inequality.

Which ties into our concepts of justice and equity. Health is one ‘thing’ that should not be excluded as a result of one’s individual status in the economy (income, wages, etc).

We cannot talk of an inclusive society where people have the capacity to reach their potential if health outcomes are mediated by capacity to pay.

So Target 8 UHC would be one of the central elements we would include when we talk – in the Modern Monetary Theory (MMT) literature – about public purpose or public well-being.

In his 1973 book – Economics and the Public Purpose – JKG considered that a nationalised health care system was an essential part of the public purpose of governments.

Further, as I will discuss below, governments around the world link the provision of health care to various ‘funding’ arrangements (for example, general taxation in UK, Australia, Canada) but these accounting arrangements are really smokescreens for currency-issuing governments.

They could clearly dispense with these voluntary ‘matching’ arrangements and still fund first-class health care for their citizens as long as the real resources (people, buildings, equipment) was available.

If we follow the principles of functional finance then the goals of health care in advancing public purpose become the focus not the government spending that is involved in ensuring the provision.

The UN/WHO Universal Health Coverage Monitoring Report 2017 notes that:

Target 3.8 has two indicators – 3.8.1 on coverage of essential health services and 3.8.2 on the proportion of a country’s population with catastrophic spending on health, defined as large household expenditure on health as a share of household total consumption or income. Both must be measured together to obtain a clear picture of those who are unable to access health care and those who face financial hardship due to spending on health care.

The Report tracks the progress towards achievement of this target via these indicators.

The first – levels of service coverage – “varies widely between countries”. The Table (Annex 1) is too detailed to reproduce here.

The lowest values of the index are recorded in Sub-Saharan Africa (value = 42) and Southern Asia (53).

Nations such as Australia, Canada, most Northern European nations, UK, US, Singapore, Korea, Japanare are above 80 index points by comparison. Out of interest Cuba is at 78.

The substantive conclusion relating to service coverage is that:

1. “At least half of the world’s population cannot obtain essential health services”.

2. “Considering selected health services, over 1 billion people have uncontrolled hypertension, more than 200 million women have inadequate coverage for family planning, and nearly 20 million infants fail to start or complete the primary series of diphtheria, tetanus, pertussis (DTP)- containing vaccine, with substantially more missing other recommended vaccines.”

In terms of Equity, the Report found that:

1. “For a set of seven basic services for maternal and child health, only 17% of mothers and infants in households in the poorest wealth quintile in low-income and lower-middle-income countries in 2005-2015 received at least six of the seven interventions, compared with 74% in the richest quintile.”

2. “Gaps in service coverage remain largest in the poorest quintile, which reinforces the importance of structuring health services so that no one is left behind.”

Which means that “efforts to attain UHC may lead to improvements in the national average of service coverage while inequalities worsen at the same time.”

In terms of the Target indicator 3.8.2, which relates to “catastrophic spending on health”, the Report found that:

2. “large numbers of households are being pushed into poverty because they must pay for health care out of their own pockets”.

3. More than “800 million people spend at least 10 percent of their household budgets on health expenses for themselves, a sick child or other family member. For almost 100 million people these expenses are high enough to push them into extreme poverty, forcing them to survive on just $1.90 or less a day.”

The financing issue

As I noted above, most governments set up accounting smokescreens which give the impression that they have to raise funds from one source or another before they can provide any sort of health care services to the public, whether it be on a universal basis or something more restricted.

They also impose user-pays systems to ‘cover the cost’.

In the case of nations, such as the 19 Eurozone Member States, these accounting arrangements are binding, given they use a foreign currency and have to source it through revenue-raising or borrowing.

But for the vast majority of nations, such as Australia, the US, the UK, Japan, Canada and a myriad of other countries, these voluntary accounting arrangements are non-binding – that is, they are unnecessary steps to the spending and provision process.

Organisations like the IMF become part of the problem by reinforcing the ‘funding’ myth.

It waxes lyrical about the need to improve health care but then places the topic within the made-up straitjacket it calls ‘fiscal space’.

For example, in this 2009 IMF Working Paper – Universal Health Care 101: Lessons for the Eastern Caribbean and Beyond – the authors claim that:

Health system reforms should be undertaken in the context of the government’s available and projected ‘fiscal space.’ In principle, the fiscal space in any country could increase through tax measures (tax increases or better tax administration); lower government spending; additional borrowing; and external financing (e.g., grants from donors).

Taxation should be the main source of financing. Given that health spending involves recurrent expenses, which would only rise with population aging and the shift towards chronic diseases, it is advisable that taxation be the main source of financing.

The paper then engages in a spurious discussion about demographic ageing and claims that this will increasingly impose intolerable financial burdens of governments and will require trade-offs between health care spending and other spending choices.

We learn, for example, that in 1999 (under IMF guidance):

Kazakhstan abandoned universal coverage … after disappointingly low revenue collections – only 40 percent of the expected revenue was actually collected.

Which tells us that the former-Soviet satellite nation was caught up in a neoliberal miasma and made very poorand unnecessary choices with respect to health care that damaged the well-being of its citizens.

The problem is that the IMF concept of fiscal space has no application to a modern monetary economy.

The IMF approach to – Fiscal Space – is the:

… room in a government´s budget that allows it to provide resources for a desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy. The idea is that fiscal space must exist or be created if extra resources are to be made available for worthwhile government spending. A government can create fiscal space by raising taxes, securing outside grants, cutting lower priority expenditure, borrowing resources (from citizens or foreign lenders), or borrowing from the banking system (and thereby expanding the money supply). But it must do this without compromising macroeconomic stability and fiscal sustainability – making sure that it has the capacity in the short term and the longer term to finance its desired expenditure programs as well as to service its debt.

That definition is not based on first principles, but is, rather, an ideological statement. It assumes that the government in question has the same constraints that restricted governments during the gold standard when currencies were convertible and exchange rates were fixed.

Or, it wrongly assumes a currency-issuing government is financial constrained like a household, which can never be the case.

Here are the relevant first principles that apply to a fiat monetary system:

  • A sovereign government is not revenue-constrained which means that fiscal space cannot be defined in financial terms.
  • The capacity of the sovereign government to mobilise resources depends only on the real resources available to the nation.
  • A currency-issuing government can always meet the liabilities it issues in its own currency.
  • Nations that have ceded their sovereignty by entering currency zones (such as the Eurozone); by dollarising their currencies; by running currency boards; and similar arrangements clearly are not sovereign and face the same constraints that a country suffered during the gold standard era.

Please read the following introductory suite of blogs – Fiscal sustainability 101 – Part 1Fiscal sustainability 101 – Part 2Fiscal sustainability 101 – Part 3 – to learn how Modern Monetary Theory (MMT) constructs the concept of fiscal sustainability.

The Modern Monetary Theory (MMT) concept is ground in the principles of Functional Finance developed by Abba Lerner.

Abba Lerner talked about fiscal policy being like a steering wheel, which stops the ‘vehicle’ from zigzagging across the road and should be applied for what he considered to be functional purposes.

JKG’s concept of ‘public purpose’ is aligned with ‘functional purpose’.

Laissez-faire (free market) approaches to macroeconomic policy are akin to letting the car zigzag all over the road. Lerner said that if you wanted the economy to develop in a stable way you had to control its movement.

Please read my blog – Functional finance and modern monetary theory – for more discussion on this point.

Lerner’s concept of functional finance stood in sharp contradistinction with what he called sound finance (which is the precursor of modern mainstream (neo-liberal) thinking).

Sound finance was all about fiscal rules – the type that you still read about every day in this modern era.

Rules such as ‘balance the budget over the course of the economic cycle’; ‘only increase the money supply in line with the real rate of output growth’; ‘debt thresholds of 60 per cent of GDP’; ‘maximum deficits of 3 per cent of GDP’, etc.

Lerner thought that these rules were based more in conservative morality than being well founded ways to achieve the goals of economic behaviour – full employment and price stability and other elements of public purpose – such as first-class health care and education.

He taught us that an understanding of the workings of the monetary system would always lead a policy maker to employ functional finance – that is, to use fiscal and monetary policy decisions for functional purposes and to eschew the moralising concepts that public deficits are profligate and dangerous.

In his 1943 article (page 39) we read:

The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance …

Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money,” etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability …

So you have to assess fiscal policy within a functional context – not in own terms – that is, not in terms of relatively meaningless financial ratios such as the deficit to GDP ratio.

Sometimes a fiscal surplus may be appropriate – for example, if net exports are very strong and fiscal policy has to contract spending to take the inflationary pressures out of the economy.

Other times, a continuous fiscal deficit will be required to advance public purpose.

Lerner outlined three fundamental rules of functional finance in his 1941 (and later 1951) works.

1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.

2. The government shall maintain that rate of interest that induces the optimum amount of investment.

3. If either of the first two rules conflicts with the principles of ‘sound finance’, balancing the ‘budget’, or limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2.

He also noted that taxes should only be collected to reduce the purchasing power of the non-government sector as a means of preventing inflation and giving the government sector the ‘real resource space’ in which to spend.


The UN/WHO Universal Health Coverage Monitoring Report 2017 is very worrying.

There are so many people being deprived of essential health care not because there are insufficient real resources available in the world but because governments, aided and abetted, or should I say, bullied by institutions such as the IMF into imposing ‘sound finance’ principles onto policy choices.

Progressive governments have to break the nexus between the provision of universal health care and these spurious ‘sound finance’ approaches.

It will only be through that sort of epistemological advance will the World get anywhere near the Sustainable Development Goals by 2030.

Holiday Period

The Weekend Quiz will appear tomorrow with analysis coming out on Saturday as usual.

My blog will then go on holidays until Wednesday, December 27, 2017 whereupon I will resume my attack on all things neoliberal and mainstream macroeconomics.

So happy holidays wherever you might be.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

This Post Has 9 Comments

  1. If the concept of a non inflationary fiscal space has traction than for me addressing
    public squalor is the best pursuit of fiscal stimulus and fiscal transfers whilst pursuing
    public purpose .
    Politics even if it recognizes monetary soveirgnty will still be about priorities and logistics.
    For me UBI’s JG’s while I can see they both could have their positive points are no magic
    bullets and all choices should be within the context of the government’s directing
    real resources for public purpose.Human resources are of course the real wealth and
    how better to repopulate the middle class than the government directly employing
    and training the brightest and the best to deliver high quality universal health care and
    life long education and training.

  2. Have a happy holiday yourself.

    Your presence as a beacon of sensible and coherent views of our world is much appreciated.

  3. It’s great to read something that makes sense and provides positive answers to our man/idiot made problems.
    I wish you all the best for the festive season and the new year.

  4. Dear Bill

    It is not only presumed revenue constraints that prevent some countries from providing universal health care, but also very real resource constraints. In some LDCs, the doctor/patient ratio is very low, in some cases under 20/100,000. When there isn’t a sufficient number of people with specialized medical knowledge, then it becomes impossible to insure universal access to health care. Of course, a government committed to providing health care to all its citizens would endeavor to train people to become doctors and nurses.

    Unfortunately, a severe problem faced by many poor countries is that so many of their doctors and nurses end up practicing in rich countries, mainly English-speaking ones. If, say, Ghana sends students to the US and the UK so that they can get a solid medical education and those students then stay there, this means only a brain drain from Ghana but no improvement in health care in Ghana.

    Another real problem is that many doctors don’t want to live in isolated rural areas. All over the world, the doctor/patient ratio is higher in urban centers than in rural areas.

    Regards. James

  5. More gibbering nonsense from a Bank of England Financial Policy Committee member -banging on about fiscal space and debt/GDP ratios and he even gets Barro and Ricardian Equivalence in. The speech reads like a tick box of myths-and could be used to play a good game of ‘bullshit bingo.’

    If you can stomach it:

  6. “so many of their doctors and nurses end up practicing in rich countries”

    The reason Cuba scored 78 is that they found, even if they didn’t have enough doctors, they were not short of people with talent for giving medical treatment. They trained those people, and are living quite well, given the country’s financial state.

  7. @Mel:

    We had a holiday in Cuba a year or so ago. The crumbling infrastructure was obvious, but…

    …my wife became ill (basically a mild food poisoning + dehydration). The owner of the guesthouse we stayed in took us to the local clinic which was a 5 minute or less walk. It was in what looked like a very run-down old school building. There was a bit of a queue, but we were seen relatively quickly by a smart looking young female doctor. She didn’t seem to have much in the way of equipment, but examined my wife carefully and thoroughly.
    Technically, we almost certainly were not eligible for treatment, but a blind eye was turned, and no request for payment was made. We were given a prescription which our guest-house owner got filled in for us, the rules being bent again.
    This was about 8pm on a Sunday evening in a small town in a rural area Try getting treatment like that on the NHS.

  8. Mike Ellwood,

    My friend got food poisoning before a college exam in Los Angeles a month ago.

    He just stayed home and endured the pain.

    Bootstraps, man.

    Happy holidays everyone.

    Thanks Bill for going into these things in more detail that one regular needs. It really doesn’t hurt to delve deeper in economics.

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