July 28, 2007


Two Trillion Spent on Healthcare Each Year: A Sick Way to Prop Up an Ailing Economy (Joshua Holland, 7/28/07, AlterNet)

As Michael Mandel wrote in Businessweek last September, "Without [the health sector], the nation's labor market would be in a deep coma." Between 2001 and 2006, 1.7 million new jobs were added in the healthcare sector. Meanwhile, the rest of the private sector added exactly zero new jobs (net) during that period.

(The conventional wisdom is that the economy needs to add about 150,000 jobs per month to keep up with the growth of the working-age population.)

If current trends continue, 30 percent to 40 percent of all new jobs created in the United States over the next 25 years will be in the healthcare business. Mandel argued that this trend is partly responsible for the United States' low overall unemployment rate. "Take away healthcare hiring in the U.S.," he wrote, "and quicker than you can say cardiac bypass, the U.S. unemployment rate would be 1 to 2 percentage points higher."

One could argue that this is precisely how a vibrant economy should work. A dynamic industry takes off and compensates for weaknesses in other sectors. When it cools, another field will explode, perhaps one we can't even conceive of today.

What's more, healthcare jobs have increased at the same time as we've shed millions of relatively high-paying manufacturing jobs. Wages in the health sector vary widely, but the average is slightly higher than the average income in the private sector as a whole. Healthcare is labor-intensive, so a lot of the more than $2 trillion we'll spend this year in the Unites States will end up in healthcare workers' pockets. It's also an industry in which offshoring and outsourcing are uncommon; you might be able to schedule your colonoscopy with a guy at a call center in Mumbai, but ultimately your [butt] has to be in the same country as the personnel who do it.

So, is a healthcare economy a bad thing?

It is, and for three reasons in particular. The most obvious is that these jobs are coming at a cost that the United States can't continue to pay without facing severe consequences (especially as the baby boomers get into their Golden Years). According to government data (PDF), healthcare costs exploded between 2000 and 2005 -- increasing by a whopping 47 percent. Over a longer period, from 1995 to 2005, per capita healthcare spending increased by 77 percent. That's slowed a bit, but not by much; total costs are projected to reach $2.25 trillion dollars this year, up 14 percent just since 2005.

That kind of growth outpaces the overall growth in the economy by a mile -- the share of America's total economic output being sucked into healthcare has increased from just under 14 percent in 2000 to over 16 percent this year, and is expected to equal one fifth of the total economy in 10 years.

Mr. Holland, not atypically, fails to understand his own case. What this growth demonstrates is that health care is just another consumer good now, like tvs or waffle irons. A people with a massive surplus of disposable income and savings has chosen to spend much of the money on itself, the spending just happens to be in the form of healthcare.

Now, it is certainly the case that the Left has historically claimed that it knows better than ordinary citizens how money should be distributed, so it's perfectly consistent for the author to want to take that money and do with it what he wishes, rather than what 300 million other people want to do with it, but that's inconsistent with the basic principle of republican liberty.

As to his fretting about the jobs that the industry is creating, that's just one of the reasons that immigrants are going to have so much power vis-a-vis developed nations in the coming years. Aging populations are going to require many more nurses and caretakers and the failure to reproduce at a high enough rate means that the folks to fill those jobs will be imported. The contest for those imports will give them economic and political leverage, allowing them to pick and choose among destinations and perqs upon arrival.

Meanwhile, one notes Mr. Holland's anger that healthcare workers are pocketing too much of his money and wonders what ever became of the sensible Left. What he's observing is precisely the sort of redistribution of wealth that his ilk supposedly favor. Can there be any other source for his ire than the fact that this redistribution is happening without being consciously directed by the state--as his ideology requires--and that healthcare providers are generally private businesses?

There is, however, one valid point here. The rising costs of procedures, medicines, etc, within the sector is problematic. It is also, of course, a function of 70 years of trying to remove healthcare from the operating of normal market forces. The emphasis of healthcare reform efforts needs to be on returning what is really just another sector of the consumer economy to the same basis that the rest of that economy operates on: competition for the consumer dollar.

Posted by Orrin Judd at July 28, 2007 7:37 AM


Posted by: erp at July 28, 2007 8:40 AM

Josh forgot to mention his friends the trial lawyers. An estimate of defensive medicine plus direct costs of the malpractice insurance may add at a minimum some 10% to the total healthcare bill.
Quite honestly as a physician who deals with the aging population, a lot of what we spend our healthcare money on is "futile" care. Families who have no stake in paying for the care their loved one's recieve have no incentive to "pull the plug" when everyone knows that the ongoing treatment won't prolong life by more than a few weeks.

Posted by: morry at July 28, 2007 9:04 AM

OJ, unusually wordy...and spot-on -- VALUE ADDED! Your's is the kind of labor we want to keep on American shores.

Posted by: Palmcroft at July 28, 2007 12:34 PM

I might add, the exchange rate of the dollar from 2000 to 2006 declined noticeably, to a point where the cost of some goods, like oil, gas & transportion/services, floated higher (whether or not a result of it's decline - it's a different angle to look at it to be sure).

But healthcare costs don't decline when the dollar is strong, so this fact identifies healthcare is a) not governed by a pure market - it seems to be a guaranteed revenue generator for someone who passes costs directly to the consumer with a mark up for no value added service provided, b)is liken to a monopoly of scarce goods, with few distribution centers and c)it is always in demand.

Like OJ believes, introdcution of the market to this industry sector would likely bring us to one crazy but pure healthcare system - literally a worldwide healthsystem, where hospitals, insurance co., doctors, hmo's, ppo's, clinics would look for and entice customers from anywhere and everywhere. Granted it's hard to even understand what your insurance policy covers (is it like an auto or homeowner's policy and if not, should it be?) You'd see layoffs, hirings, increased air travel, hotel, spa, care home outsourcing, mobile nursing units, etc. it'd go on, and on - with again, new industries popping up overnite.

Posted by: KRS at July 28, 2007 5:04 PM