The selection of Paul Ryan as the Republican vice presidential candidate for the upcoming US federal election has brought health care reform back into the spotlight. While the debate has been highly acrimonious, the one point that everyone seems to agree on is that the rate of increase in health care and in particular medicare spending is unsustainable. Health care is currently one sixth of the economy and it will take up an increasing share if the growth is not reduced. I think that a really expensive health care system may actually be a good thing. What people tend to forget is that there are two sides of a cost. When we pay for healthcare, that money goes to someone. Making something more efficient, means producing the same amount of stuff with fewer people.
The official unemployment rate is currently about 8% but the actual fraction number of people who don’t work or wish they had more work is much higher. Efficiency eliminates jobs. People like Tom Friedman of the New York Times thinks (e.g. see here) that this will just free us up to do “creative” jobs. However, what if you are a person that doesn’t want or is unable to do a “creative” job? My guess is that as we become more efficient, more and more people will be left with nothing to do. The solution is either to have a massive welfare system or we become less efficient.
However, not all inefficiencies are equal. We wouldn’t want monopolies where all the money flows to a small number of individuals. What we need is a highly stochastic form of inefficiency that involves lots of people. Healthcare may be just what we need. It’s something that is highly decentralized and affects everyone. It can’t be easily outsourced. I’ve argued before that having 80% of the economy be devoted to healthcare doesn’t seem that outlandish. After all, how many flat screen TVs do you need?