It is always useful from time to time to reread Plato's dialogues with Socrates. For in such Gorgias and Meno, the good Socrates always gets the poor fellow on the other side to see that their argument collapses.
I read today a link from Mankiw's blog about the argument that we are not really spending too much on health care but possibly it is merely what we are demanding, namely economically we are in an open market and we are getting what we want.
Let me rephrase what I believe the argument is. Let us assume it is 1800 and we are looking at the cost of housing say in Boston. We see that instead of paying 5% of our income on housing and 50% on food, we are now spending 20% on housing and 25% on food. The argument could be that we are eating less and that housing prices are gouging the consumer. Yet, the truth is that the consumer now has their own town house, not a hovel above some warehouse in the North End and food production has become more efficient. Namely demand and supply are changing.
He then links to DeLong who states:
"In fact, the “we spend too much” argument makes little sense. There is no such thing as an amount that “should” be spent on healthcare, any more than there are pre-determined allocations that should go to housing, food, video games, or any other category of expenditure. The proper level of spending depends on the value derived from it, and in the end this level should be whatever results from the sum of consumer choices made in the light of the value received."
Which makes the argument. There is a bit of truth in what they are saying, namely the demand is increasing. We argued that well over a year ago, yet the demand has two elements, demand driven by wants and demand driven by needs. Thus the Type 2 Diabetes is a demand driven by "I want more food" and the need that "I need more insulin". Thus the economic demand argument is one which is highly complex when we talk of demand and I fell these economists are looking at this as say Gorgias did his rhetoric. Thus the need for Socrates.
Now to the second issue, the costs are increasing and they increased due to a simple equation, this I have used for thirty years in my many businesses:
Cost= Revenue Driver X Productivity Factor X Unit Cost
or
Cost of Health Care = Disease Incidence X Number Procedures Supplied X Unit Cost of Procedure
What does this mean? Well simply the driver is the incidence of the Type 2 Diabetes cases, it drives the revenue or in this case the cost of Type 2 Diabetes care. The Productivity factor is the types of procedures provided such as doctors visits per year per patient. The unit costs is what it costs to see a doctor. Thus costs is a bit complex, it is not just driven by the question of "I want more" The economists and pseud-economists are using their rhetorical terms to argue, they are the Gorgias of health care, successful and wealthy but wrong.
What drive the increase in costs;
1. Yes demand is a factor but it is a complex demand, demand which is pure classic consumer demand, "I want more", and demand driven by lifestyle. I will argue that based upon the analysis the latter dominates the former.
2. Yes there is cost inflation, namely beyond just more demand there is an internal process which is making what is delivered more costly. The classic examples are the still elusive defensive medicine and the fact that administrative overhead is so high for a system which is frankly in chaotic organization to deliver what it does.
Thus the observation that at any time in history the percent of what a nation spends on various things it uses, housing, food, health care, education, changes is a natural reflection of the evolution of the society. Yet it is also true that certain increase reflect not just the evolution but fundamental flaws in that section. Just look at the explosion of the costs of higher education. If one thinks health care is bad. look at the tuition and inefficiencies a Harvard! Yes MIT as well.
I read today a link from Mankiw's blog about the argument that we are not really spending too much on health care but possibly it is merely what we are demanding, namely economically we are in an open market and we are getting what we want.
Let me rephrase what I believe the argument is. Let us assume it is 1800 and we are looking at the cost of housing say in Boston. We see that instead of paying 5% of our income on housing and 50% on food, we are now spending 20% on housing and 25% on food. The argument could be that we are eating less and that housing prices are gouging the consumer. Yet, the truth is that the consumer now has their own town house, not a hovel above some warehouse in the North End and food production has become more efficient. Namely demand and supply are changing.
He then links to DeLong who states:
"In fact, the “we spend too much” argument makes little sense. There is no such thing as an amount that “should” be spent on healthcare, any more than there are pre-determined allocations that should go to housing, food, video games, or any other category of expenditure. The proper level of spending depends on the value derived from it, and in the end this level should be whatever results from the sum of consumer choices made in the light of the value received."
Which makes the argument. There is a bit of truth in what they are saying, namely the demand is increasing. We argued that well over a year ago, yet the demand has two elements, demand driven by wants and demand driven by needs. Thus the Type 2 Diabetes is a demand driven by "I want more food" and the need that "I need more insulin". Thus the economic demand argument is one which is highly complex when we talk of demand and I fell these economists are looking at this as say Gorgias did his rhetoric. Thus the need for Socrates.
Now to the second issue, the costs are increasing and they increased due to a simple equation, this I have used for thirty years in my many businesses:
Cost= Revenue Driver X Productivity Factor X Unit Cost
or
Cost of Health Care = Disease Incidence X Number Procedures Supplied X Unit Cost of Procedure
What does this mean? Well simply the driver is the incidence of the Type 2 Diabetes cases, it drives the revenue or in this case the cost of Type 2 Diabetes care. The Productivity factor is the types of procedures provided such as doctors visits per year per patient. The unit costs is what it costs to see a doctor. Thus costs is a bit complex, it is not just driven by the question of "I want more" The economists and pseud-economists are using their rhetorical terms to argue, they are the Gorgias of health care, successful and wealthy but wrong.
What drive the increase in costs;
1. Yes demand is a factor but it is a complex demand, demand which is pure classic consumer demand, "I want more", and demand driven by lifestyle. I will argue that based upon the analysis the latter dominates the former.
2. Yes there is cost inflation, namely beyond just more demand there is an internal process which is making what is delivered more costly. The classic examples are the still elusive defensive medicine and the fact that administrative overhead is so high for a system which is frankly in chaotic organization to deliver what it does.
Thus the observation that at any time in history the percent of what a nation spends on various things it uses, housing, food, health care, education, changes is a natural reflection of the evolution of the society. Yet it is also true that certain increase reflect not just the evolution but fundamental flaws in that section. Just look at the explosion of the costs of higher education. If one thinks health care is bad. look at the tuition and inefficiencies a Harvard! Yes MIT as well.
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