Thursday, October 12, 2006

Is Health Care Spending Good for the Economy?

The trouble with the argument that health care spending is bouying the economyis that it's only true if people wouldn't be spending that money on something else more useful. That seems on the surface to be true only true in the case of marginal families that need to use creditto survive and have growing debt.
If health care spending is good for the economy, then the income spent on health care should produce more jobs.
Is more money flowing in the US economy because of this spending?
There is one solid argument for that: Health care expenses have a very big labor component and a very big domestic component compared to, say, buying a Honda--or almost anything at Target.
So even if Health Care is just a spending alternative, it may be an alternative that is more productive for the economy in terms of jobs and domestic production.
ON the other hand, the traditional argument against spending for spending's sake is that money spent on health care does not improve productivity. Instead of a company buying a new factory, they buy health insurance.
It's like tossing money down a hole. Some say that's what should happen and it's what Keynes would propose.
That's distilling down to a catch phrase. I think he would only agree that government spending (or wasteful spending in general) is good for the economy if there was an illiquidity crisis (in the case of The Great Depression, mostly driven by deflation and tightening money supply. No one buys something expensive or invests if they know the price will be lower in a week. No one spends money or invests if there's no money to be had!).
But in the current economy, there is no deflation and interest rates are low. No liquidity problem. That means there isn't some big pile of money sitting around in mattresses that has to be extracted (by higher health care expense). The money available for productive investment is well employed.
The counter-argument would ask What Is Productivity? Money spent on health care helps grow the health care infrastructure (there isn't a lot of evidence that the growing infrastructure reduces demand. How many industries have as their goal the reduction of demand? Nominally, hospitals and doctors are in the business of killing their own business and making everyone healthy and happy.) The money spent on health care in the US seems only to spawn more demand and more money being spent on health care. Why? That's debatable: inefficiency? hospitals catering to rich patients? Skimming by HMO management? Most people would say the whole fragmented system is horribly inefficient vs Europe or almost any developed country.
In any case, health care spending seems to create a bigger health care industry.
Is that unproductive if it isn't making people healthier?
If a person buys either a Chevy or a Cadillac, most would say buying the Cadillac is better for the economy. But in terms of investment or actually creating an asset that improves the economy, the Cadillac is not much better. The Cadillac may make its owner happier, but it produces no measurably superior investment (enhancement of the future economy) than the Chevy. Both get the owner to work on time. The spending will lead to more Cadillac production investment. Just as health care spending will lead to more health care infrastructure investment (which seems to do nothing for improving the health of the average US citizen, but does lead to more spending on health care.
So the difference between spending on the Cadillac and the Chevy is a sink hole in the same sense health care dollars that do not improve health care are a sink hole. Wasted.
Yet it seems like that is exactly the kind of spending that keeps the US economy going: People buying stuff they don't need--stuff that serves little productive function, but costs a lot of money. Status, branding, advertising... all keep the US economy going.
Health Care dollars that do not improve health care are more of the same! As American as an Escalade.


Blogger sharmin monee said...

1/19/2014 7:09 PM  

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