Mark A. R. Kleiman: I don't have to pay a lot for this medical care, but I want to.
Mark A. R. Kleiman: "David Cutler asks a perfectly reasonable question: What's wrong with paying a big chunk of your income for high-quality medical care? The idea of paying health-care providers for actually delivering high-quality care, and making that rather than cost control the central management idea of the nation's health care system, is intuitively appealing. "
One aspect of productivity growth is that all products and services become cheaper, just as all resources become more expensive. Productivity growth makes products and services we consume cheaper (in terms of the work-time it takes to earn them), but it makes all the resources used to make those products and services more expensive. Wages and incomes rise, rents and home prices rise, etc.
When productivity rises especially fast in a particular industry, the price of the goods and services it produces, falls. When productivity lags, the price of those goods rise, and the incentives to find ways to improve productivity increase.
When incomes rise, people want to consume more of the good things in life; goods for which demand rises with increases in income, are called, by economists "superior goods." Goods for which demand falls with an increase in income are called "inferior."
There's something to the proposition that as incomes rise, people will want to spend more on quality health care.
The elephant in the room is that demand is not driving the rise in health care costs. There's been a steady ratcheting up in health care costs. People are spending more on some aspects of health care, because they want to -- replacing hips, fixing noses, removing cataracts. But, mostly health care costs have been rising inexorably for decades, with little benefit for consumers.
Track the cost of mending a broken arm. Has it gone down or up? (I don't know, but I would not bet a penny on, "gone down." Would you?) There have been all sorts of innovations, which, in any other industry, would have been applied to improve productivity. I'm talking about everything from MRIs to clever bandages. In health care, every innovation appears to simply add to the cost.
One aspect of productivity growth is that all products and services become cheaper, just as all resources become more expensive. Productivity growth makes products and services we consume cheaper (in terms of the work-time it takes to earn them), but it makes all the resources used to make those products and services more expensive. Wages and incomes rise, rents and home prices rise, etc.
When productivity rises especially fast in a particular industry, the price of the goods and services it produces, falls. When productivity lags, the price of those goods rise, and the incentives to find ways to improve productivity increase.
When incomes rise, people want to consume more of the good things in life; goods for which demand rises with increases in income, are called, by economists "superior goods." Goods for which demand falls with an increase in income are called "inferior."
There's something to the proposition that as incomes rise, people will want to spend more on quality health care.
The elephant in the room is that demand is not driving the rise in health care costs. There's been a steady ratcheting up in health care costs. People are spending more on some aspects of health care, because they want to -- replacing hips, fixing noses, removing cataracts. But, mostly health care costs have been rising inexorably for decades, with little benefit for consumers.
Track the cost of mending a broken arm. Has it gone down or up? (I don't know, but I would not bet a penny on, "gone down." Would you?) There have been all sorts of innovations, which, in any other industry, would have been applied to improve productivity. I'm talking about everything from MRIs to clever bandages. In health care, every innovation appears to simply add to the cost.
posted by Bruce Wilder at 2:19 PM
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