No-one in the UK can have failed to notice the seemingly never-ending torrent of wind and rain that has swept the country over the past couple of weeks. At the moment, there are 19 flood warnings in the UK and a further 58 areas are on flood watch, according to the Environmental Agency. Cockermouth in Cumbria has been the worse hit, with 12.4 inches of rain falling in just 24 hours, 6 bridges collapsing and over 200 people being rescued by emergency services, some having to break through their roof to get out. Thousands of people have been evacuated; PC Bill Barker lost his life trying to save others; and fears remain for a 21-year old women, who was washed away from a bridge. This has led to a safety review of all 1800 bridges in Cumbria.
Thousands of people have lost their homes and belongings and over 1000 claims to insurance companies have already been made. Flood victims are facing rapidly rising costs, as insurance premiums increase to cover the costs of flooding and this has led to these houses becoming increasingly difficult to sell. Some home-owners are even being forced to pay mandatory flood insurance. Without this in place, insurance companies are not willing to insure homeowners in some areas, or the premiums they’re charging are simply unaffordable. After all, if one household in an area hit by flooding claims for flood damage, the probability of all other houses in that area also claiming is pretty high, if not an almost certainty.
Care packages are arriving for those hit by the floods, as food is starting to run out, and estimates of the costs of flooding have already reached ‘tens of millions of pounds’. Gordon Brown has pledged £1 million to help the affected areas, but who knows where this money will come from; Barclays has also pledged help for the small businesses affected.
An independent inquiry needs to be launched into the causes of this flooding and whether better flood protection should have been in place. However, the extent of the flooding experienced is argued to only happen every 300 years, so is the cost of flood protection really worth the benefits it will bring? A number of issues have arisen from this freak weather, and some are considered in the articles below.
Residents returning to Cockermouth after flooding (including video) BBC News (23/11/09)
Insurers will be hit by £100 million flood bill City AM, Lora Coventry (23/11/09)
£100 million bill after Cumbria floods nightmare Metro, Kirststeen Patterson (23/11/09)
Floods claim in Cumbria could and Scotland could top £100 million (including video) BBC news (22/11/09)
Riverside residents, others may be forced to buy mandatory flood insurance The Times, Illinois, Steve Stout (21/11/09)
Funds for flooding victims set up BBC News (22/11/09)
Flood victims suffer as insurance costs rise Guardian, Jamie Elliott (8/11/09)
1 in 6 house insurance customers at risk of flooding UIA (20/11/09)
Papers focus on flood shortages BBC News (23/11/09)
Questions
- Why are insurance premiums high for flood protection and how will this affect house sales in the affected areas?
- Are the risks of flooding independent?
- Apart from those living in the areas hit by floods, who else will suffer from the flooding and how?
- The flooding experienced is said to be a phenomenon experienced every 300 years. Should better flood defences be put into place to stop the same thing happening in the future or should we use the necessary money elsewhere?
- What are the private and external costs and benefits of increased flood defences? What would a cost–benefit analysis need to establish in order for a decision to be made over whether more defences should be put in place?
- Millions of pounds will be needed to repair the damage caused by the flooding. Where will this money come from? Think about the opportunity cost.
- What do you think will be the likely impact on environmental policy and how will this affect you?
The National Institute for Health and Clinical Excellence (NICE) is the independent agency in the UK charged, amongst other things, with assessing the cost-effectiveness of new drugs. In a report published on 19 November 2009, NICE found that the drug sorafenib, branded as Nexavar by its manufacturer, the German pharmaceutical company, Bayer AG, was not cost-effective. The drug can extend the life of terminally ill patients with liver cancer. However, it is very expensive, costing about £3000 per month per patient.
The NICE press release (see link below) quotes Andrew Dillon, the Chief Executive of NICE, as saying: “We were disappointed not to have been able to recommend the use of sorafenib, but after carefully considering all the evidence, including the proposed ‘patient access scheme’ in which the manufacturer offered to provide every fourth pack free, sorafenib does not provide enough benefit to patients to justify its high cost.”
Not surprisingly people suffering from liver cancer, and also various patient groups, were highly critical of the decision. But with a limited budget for the National Health Service and the increasing pressure to save costs in order to reduce the public-sector debt, many difficult choices like this have to be made.
What NICE attempts to do is a cost–benefit analysis of new drugs. Whilst costs can be difficult to measure, especially over the longer term, the benefits are much more problematic as they have to take into account the effects on the quality of people’s lives – something that will vary enormously from one patient to another. And then there are the effects on family and friends and on the economy. The measure used in the NHS and elswhere is the QALY – ‘quality-adjusted life year’. In paragraph 4.8 of the full NICE report (see link below), it was noted that
“the base-case ICER [incremental cost-effectiveness ratio] presented by the manufacturer was originally £64,800 per QALY gained and when the patient access scheme was included [where every fourth pack is supplied free to the NHS by Bayer] this went down to £51,900 per QALY gained. Both ICERs were substantially higher than those normally considered to be an acceptable use of NHS resources.”
2009/069 NICE appraisal of sorafenib for advanced hepatocellular carcinoma NICE press release (19/11/09)
Final appraisal determination Sorafenib for the treatment of advanced hepatocellular carcinoma (Full document) NICE (19/11/09)
NHS denies drug to cancer patients (video) ITN (on YouTube) (18/11/09)
Liver cancer drug ‘too expensive’ (including videos) BBC News (19/11/09)
UK’s NICE says Bayer liver cancer drug too costly Reuters (18/11/09)
Nice’s decision not to approve the liver cancer drug Nexavar is painful but necessary and Drug for terminal liver cancer patients ‘too expensive’Telegraph, Rebecca Smith (19/11/09)
NHS says it’s too expensive to keep you alive Telegraph, Janet Daley (19/11/09)
Bayer’s patent case hearing in HC today Tines of India (18/11/09)
Questions
- What makes the choice of whether to provide a particular drug to a pateint an ‘economic’ one?
- Imagine you were a person suffering from liver cancer. What evidence would you wish to bring to the government to persuade it to ignore NICE’s recommendation?
- Is the use of QALYs the best means of assessing the benefits of a drug? Explain.
- What are the arguments for and againist the NHS providing expensive drugs free to people on low incomes but charging a price well above the current prescription fee to those who could afford to pay? If such as scheme were introduced, on what basis should such a price be determined and should it be on a sliding scale according to people’s income and/or wealth?
According to Sir Liam Donaldson, England’s Chief Medical Officer, swine flu is on its way back. However, vaccinations are now available to the most vulnerable people, including front-line medical staff, people with chronic health problems and pregnant women. But, what about every-day workers? Surely, these are people that need protecting too, as they are the ones who contribute to the economy. How do you prioritise?
A key question is how much swine flu has actually cost the UK economy. Here, we’re not just concerned with the cost of the vaccines, but also the opportunity cost of that money, the lost output from illness, the human suffering – both of the victims and of their relatives and friends – and, of course, the impact on business and the economy. Some of the countries worst hit by the outbreak of swine flu have faced particular problems, such as protectionist trade policies and a significant fall in business through tourism.
So, will the vaccine prove cost effective for the government, or is it more about the moral obligation to provide it? These articles look at some of the recent developments in the worst pandemic in years.
Mexico economy squeezed by swine flu BBC News (30/4/09)
Swine flu vaccine on its way to GPs Grimsby Telegraph (21/10/09)
Exclusive – WTO protectionism report to feature swine flu bans Reuters (12/6/09)
Flu bill ‘may hit fire plans’ Teletext (27/10/09)
Swine flu vaccination under way BBC News (21/10/09)
Swine flu costs have put dent in profits, Amerigroup says Pilot Online, Tom Shean (27/10/09)
Swine flu gives Pharmaceutical Companies a New Edge Top News, Tangaroa Snell (26/10/09)
Economic cost of swine flu could be around $3 trillion to $4.4 trillion Today’s Zaman (Turkey) (2/11/09)
Swine flu mass vaccination programme launched Guardian (21/10/09)
Full list of swine flu cases, country by country Guardian (updated daily)
Doctors plan mass swine flu jabs for under-18s Times Online (1/11/09)
Questions
- What is the opportunity cost of swine flu? How could you illustrate this on a diagram?
- Vaccines are going to those at risk first. Why is this particularly relevant in terms of the economic problem?
- What is protectionism and what are the main forms? Discuss the advantages and disadvantages of protectionist policies in the context of swine flu.
- If the government had to decide whether or not a swine flu vaccine was worth producing, how could they have done this? Outline the process by which costs and benefits can be weighed up. Are there any drawbacks to this method?
- How have businesses been affected by swine flu? Think about those who have benefited as well as those that have lost.
For some time now, education has been a top priority for the government. They have been tackling standards in schools and have a target of a 50% participation rate in higher education. Most people agree that school education should be free, but opinion is divided when it comes to higher education. Is the return to the individual greater than that to society or vice versa? Is it the same for all degrees? This is one of the questions that affects funding. Should the individual pay? Or the government? Or should there be a mixture of funding?
The question of university education has become even more of an issue in the current recession, with many seeing a university education as a way of avoiding, what could be, inevitable unemployment. With this increase in demand, there is increasing pressure on the funding: it is simply not fiscally feasible to fund everyone’s university education. As such, business leaders have advised a rise in tuition fees. Students could be charged thousands more and made to face a higher interest rate on any loans. This highly contentious issue is considered in the articles below.
Charge students more, say bosses BBC News (21/9/09)
Middle class university students ‘should pay more’ Telegraph (21/9/09)
Elite universities plan to cut UK student numbers amid funding drop Telegraph (20/9/09)
Fee rise must aid poor students BBC News (27/7/09)
Loans delay for 150,000 students continues Daily Mail (19/9/09)
‘No fee degrees’ university plan BBC News (8/7/09)
‘New market’ in education (podcast) BBC Today Programme (8/7/09)
Bring back tuition fees for middle class students Scotsman (11/9/09)
CBI advises raising university fees to £5,000 a year to tackle funding crisis Guardian (21/9/09)
University ‘way out of recession’ BBC News (8/9/09)
Schools secretary Ed Balls under fire over education cuts Mirror (21/9/09)
Students should pay more – CBI (video) BBC News (21/9/09)
Questions
- Why is education described as a merit good? Explain the characteristics and why it constitutes a market failure.
- Identify any externalities involved in higher education. Do they imply that the free market would led to a level of higher education that is above or below the social optimum?
- List the costs to society of a university education. (Think about opportunity cost).
- What are the arguments for (a) only the individual funding their university education (b) the government funding university education (c) a combination of both?
- Is it a reasonable policy to increase university fees? If so, should students receive loans to cover this increase? If not, what do you think is an alternative option to help this funding crisis?
Economic growth is normally seen as the most important long-term macroeconomic objective. Without economic growth, so it is argued, people will be unable to achieve rising living standards. But, according to Nicholas Stern, Professor of Economics and Government at the London School of Economics, former head of the Government Economic Service, former World Bank chief economist and author of the 2006 Stern Review on the Economics of Climate Change, countries will need to reconsider making growth the goal of their societies.
Speaking to students at the People’s University of Beijing, Lord Stern warned that unless substantial cuts were made in carbon emissions, the effects of global warming would have devastating effects on people’s lives. As the Stern report stated, “Climate change will affect the basic elements of life for people around the world – access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms.” The implications are that countries must making cutting carbon emissions a priority and must reconsider their growth strategies. In his speech he said that “Beijing should shift the economy away from heavy industry, manufacturing for exports and other high-emission activities. Instead, it should focus more on domestic consumption, service industries and low-carbon technology.”
So should countries rethink their economic objectives? Is economic growth either a necessary or sufficient condition for an increase in human welfare? Read the articles and then consider the questions below.
World must help China shift to clean growth-Stern Reuters (11/9/09)
Stern Truths: Some Parts of China Have Western-Style Emissions Wall Street Journal (11/9/09)
Stern: Rich nations will have to forget about growth to stop climate change Guardian (11/9/09)
Stern words in Beijing Hot Topic (New Zealand) (13/9/09)
Questions
- Are the objectives of economic growth and tackling gobal warming necessarily incompatible?
- What would a low carbon growth strategy look like?
- What would you include in the opportunity costs of maintaining a high growth strategy compared with switching to a lower carbon, lower growth one?
- Consider whether economic growth is (a) a necessary condition; (b) a sufficient condition for a growth in the wellbeing of the human race.