The flipside of medicare efficiency

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?


7 thoughts on “The flipside of medicare efficiency

  1. i gather you’re at nih (which i am familiar with—i remember seeing a talk at NIH on choas theory and the brain—funded by philip morris co. ‘how to make cigarette Ceos safe’.) so 80% spemt on health care might benefit you.

    might benefit me too—-i just racked up 200G in hospital bills for pneomonia (and they cut it down to less than 10G due to my finances) so i was thinking i could stay there or maybe move to another hospital for 3 months. they have food. kinduh boring though—and the staff is underpaid likely.

    i possibly could do a ‘creative’ job (eg that fake who was at GMU on the ‘creative class’). problem is there’s no market for lots of creativity—whether math or music. its all lotto and walmart, and maybe nih (to study that).


  2. I’m skeptical. If all that increased cost went to orderlies, maybe. But a large amount goes to physicians, health insurance executives, pharma execs, pharma stockholders.

    Furthermore, I don’t really agree with the overall premise. If the concern is having something for people to do, I’d rather we pay people to dig holes and fill them back up, repeatedly. Inefficient health care actually kills people.


  3. Well, healthcare could be more expensive and safer. We could hire a caretaker for each elderly person for example. Rent seeking will be a problem and must be dealt with in some way. I’ll tell you right now that many of the physicians I know are not overpaid.


  4. my doctors were fine—i dont know their pay but likely lognormal.
    on the other hand, how does one distinguish between a so-called creative person (eg uncle tom freedman who writes a whole column for the nyt—‘the word is fat’) and say, someone like ramunajan (indian mathematician or porch n-r) who actually did something.
    i’m sure tom freedman would like to have a ramunajun giving him a shower in his old age. or, nih might like to do a study, on why some people refuse to work for Philip morris on chaos theory, so it can be sold safely to the 3rd world (eg hsu on low iqs).
    we could have 8 caregivers for each talking head or arxiv author—i think this follows (assuming no rent seeking/GMU/lucas/rbc/hayyek) from entropic gravity. .


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