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Problems With Measuring Health Care in GDP Didn't Begin With Obamacare

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Saturday, 28 June 2014 08:02

Neil Irwin's Upshot column rightly points to the fact that Obamacare may have an ambiguous effect on the economy over the next few years. The point is that we want to slow health care cost growth, but in a weak economy less spending on health care means lower GDP and fewer jobs.

This is true, but this is part of a larger story. Since the economy is operating well below its potential and millions of workers are unemployed or underemployed, anything that creates demand would boost GDP. This is the old pay people to dig holes and fill them up again story. We could do that and increase employment and output. Better yet, we could pay people to retrofit homes to make them more energy efficient, to educate our kids, or to provide child care. But that would mean larger budget deficits and policy is now controlled by a perverse religious cult that says budget deficits are the devil's work. Anyhow, the health care story should be seen as part of the larger stimulus/deficit story.

The other point is that we have always had problems measuring health care. Suppose Pfizer develops a great new drug called "Placebo" that is supposed to cure depression. It sells $170 billion worth of this drug in 2014. This would be an addition to GDP of approximately 1.0 percentage point. Now suppose that a whistle-blower reveals Pfizer's secret test results that show Placebo doesn't do anything. Sales plunge to zero in 2015. GDP has just fallen by 1.0 percentage point. 

Much of health care spending has this character. We value our health, but we measure what we pay for. If we are healthier because of better diet and more exercise, and therefore spend less on heart related drugs and procedures, this counts as a drop in GDP. And many procedures and drugs really don't improve our health, just like Pfizer's Placebo drug. So, there will be many issues associated with measuring the economic impact of Obamacare, but it is wrong to imagine that we didn't previously have problems measuring the output of the health care sector.

Comments (6)Add Comment
...
written by Last Mover, June 28, 2014 9:02

Thing is the medical industrial complex has been digging holes and filling them up again for decades, recession or no recession. It's called the production and collection of monopoly economic rent that adds no value.

Unlike the military industrial complex that inadvertantly pulled the economy out of the Deep Recession decades ago with aggregate demand needed anyway to conduct a just WWII, the medical industrial complex can never rise to such an occasion.

In fact if the medical industry experienced a tight demand pull economy as the result of a successful recovery, it would exploit it to raise prices even higher during the "shortage" conditions, you know, just to make sure markets clear like they are supposed to in "free markets".
The Point Is...
written by Larry Signor, June 28, 2014 9:42
"...measuring the output of the health care sector." is difficult, but stylistically the story is simple. The savings do not just disappear. The money finds a new home in corporate profits, increased consumer liquidity and decreased government insurance subsidies. There may exist economic rent and wealth transfer problems, but the story is simple.
It's insane
written by ifthethunderdontgetya™³²®©, June 28, 2014 12:55
.
Better yet, we could pay people to retrofit homes to make them more energy efficient, to educate our kids, or to provide child care. But that would mean larger budget deficits and policy is now controlled by a perverse religious cult that says budget deficits are the devil's work.

Exactly.

And that same cult supports direct corporate welfare in the form of wars and other measures. Because that's what their paychecks depend on.
~
Health coverage is not the same as health care . . . as the VA story should tell us
written by Rachel, June 29, 2014 8:12

Irwin claims that more health coverage will be a "huge win." But where people lack good choices, medical neglect and undertreatment can occur. The VA system is by no means unique in this respect. And good medical choices are definitely lacking in this country. For example, we have only 70% as many MDs per 1000 as the French do. And even now, hospitals are busily buying up medical practices, to create even more monopoly power.
A question
written by river, June 29, 2014 9:34
From my perspective, but doesn't the rents extracted by the medical sector basically starve every other sector in the economy of money. Every dollar of insurance premium increases and deductible-copayment-out of pocket maximum increase that I see means less money I have to spend on something else. Medical bills are the second biggest expense at the compAny I work at, behind salaries! I just don't see how the story goes that you can't lower healthcare spending without impacting demand and GDP when the bills that industry charges is basically a tax on the rest of the economy.
...
written by dax, June 30, 2014 6:41
I don't understand why health care is being singled out as difficult to measure. Spend money on a tank, that counts as GDP. Buy a Murdoch newspaper and read only things that make you dumber, that counts as GDP. GDP is obviously an imperfect measure, and it's not just an imperfect measure because of health care.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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