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December 29, 2004

A Letter to a Noble Friend on the U.S. Budget

You asked my opinion about Social Security, and about the long-run federal budget mess more general...

Well, the way I look at it (and this *is* what I do at my day job), we think that the promises and commitments the U.S. government has made and its standard operating procedures for setting spending amounts commit us to an average federal spending level of 25% of total production over the next two or so generations. We know that number will be off--it might be 23%, it might be 27%. But 25% is the number we should have in our minds when we plan.

Now taxes are currently set so that, if standard operating procedures for tax break extension, et cetera, are followed, the federal government will collect some 18% of total production in taxes. 18% is a lot less than 25%.

We as a society have two choices. We can either ignore the gap between 18 and 25 until the foreigners we borrow from lose confidence that we will ever solve it, and our economy and currency go smash in the way that Argentina's seems to every generation, that Mexico's did in 1994, that Germany's did in 1923, and so forth. Or we can take steps to close the gap between 18 and 25. And the sooner we start to take those steps, the easier things will be.

Let's assume that we decide not to let the economy and currency go smash, and that we take option 2. First, we wonder "Where did this gap come from?" Well, if we did not have the Bush tax cuts--or if we let the Bush tax cuts expire--we will be at 21 instead of 18 on the tax side, and face a long-run fiscal gap of not 7% but 4% of total production, a smaller problem.

In fact, if we hadn't done the Bush tax cuts, we would over thenext five years be (as we were in 2000; remember?) in surplus, with taxes at about 21 and current spending levels at about 20 percent of total production. But even though we would be in current surplus, we would not be in long-run surplus. The aging of the population and greater life expectancy is going to push Social Security spending up by about 2% of total production. Better and more costly medical technology coupled with the aging of the population and greater life expectancy is going to push Medicare and Medicaid spending up by about 4% of total production.

Taking care of the 2% of production rise in the long-term funding gap coming from Social Security is straightforward. Either cut benefits (by raising the retirement age by 3 years, by cutting everyone's benefits by about a quarter, by shifting some of the risk that the stock market will tank from the government to Social Security beneficiaries by turning some of their benefits into private investment accounts, or some combination), raise Social Security taxes (by either removing the current lid on Social Security taxes, by increasing the Social Security tax rate by a couple of percentage points, by using general revenues to pay future Social Security benefits,* or some combination).

The increase in the gap coming from the rise in Social Security spending is thus a serious, but a fixable problem. The system only goes smash if we take no steps over the next two generation to either cut benefits or raise taxes.

The increase in the fiscal gap coming from Medicare and Medicaid is a bigger--and harder--problem. All trends suggest that the next two generations will see extraordinary improvements in medical technology coupled with large increases in medical costs. We believe that people who are sick should be treated: we don't think that the poor should die in the street because they cannot pay their hospital bills. But somebody has to pay. So either we grit our teeth and accept very large tax increases to preserve an income-independent right to medical care, we keep our taxes where they are and begin to ration life-saving and life-extending medical care bigtime depending on the thickness of your wallet, or we think up some clever scheme to make the medical system work much much better so we can get better medical care at much lower cost. I vote for the "clever scheme" option myself, and there are bunches of people working for John Kerry who are trying to think of what the clever scheme should be (in contrast to the people working on health care for George Bush, who seem more interested in boosting the prices of drug companies and then jumping to drug-company jobs). But I'm not optimistic. I think we have a very hard social choice before us over the next couple of generations.

Although the choices are hard, we can make them. We do have options. Decide what to do about health care, decide how much in the way of benefit cuts and how much in the way of tax increases we want for Social Security, let the Bush tax cuts expire--and we have a functioning, solvent government with in all probability a healthy, rapidly-growing economy.

But if over the next generation or so we fail to make our social decisions about health care, fail to accept either benefit cuts or tax increases in Social Security, fail to let the Bush tax increases expire, continue to elect people like this pathetic bunch of modern Republicans.... Well, there is nobody outside to come and save us from the consequences of our own follies of governance.


*As we are currently scheduled to do: the general fund owes Social Security a considerable hunk of change.

Posted by DeLong at December 29, 2004 01:47 PM

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Comments

Great posts. Thank you for writing this. Along with your post on WWII combat, that's two great posts in 15 minutes;)

Posted by: roublen vesseau at December 29, 2004 02:32 PM


Your post pretty much boils down to the crux of the problem of governance by the Newt-Delay-Rove model. They only care about one thing and that is power. They truly care not a whit about the long term interests of the country. They only care about what will raise money today and what will get them elected. It all reminds me of when Bush had done for Texas what he's now doing for the U.S. and was leaving the governship with huge deficits. He was asked about his legacy of deficits and responded in that good ol' George way: "I sure am glad I won't be around to have to deal with them". To him it didn't matter, he didn't care, it was just kind of a joke and it served it's purpose. He was nominated to run for President by the Republican Party. He and Rove definately learned their lessons.

Posted by: Dick(no, not that one) at December 29, 2004 02:50 PM


Clever Scheme to control health care costs: institute single payer, and get the friggin insurance companies out of the health care systems:

1) administrative costs + insurance company profits account for about a third of the health care dollar. (much of this is administrative costs in complying with insurer demands rather than money paid directly to insurers; insurance companies are like cockroaches - it is not what they eat, but what they spoil.) Single payer nations tend to spend at most 15% of health care dollar on administration rather than the third we spend.


2) Drug costs; we pay 40% more than anyone else for the same medicines. Single payer leverage would let us pay the same as the rest of the world. And to heck with anyone who makes the "research" argument. U.S. Pharma spend more on marketing than research.


3) Preventative - Insured people tend to switch providers ever few years so. As a result insurers have an incentive to underprovide for prevenative care that is likely to have mainly long term effects - someone else will get the benefits. (Short prevention is something else again.) In addition, having a large uninsured population also contributes to a lack of preventative care.

This may or may not solve the problem. It will certainaly reduce it in is size - making any remaining problem more managable

And no, we do NOT have the best health care system in the world. We spend more per capita than any other nation on earth, more as percentage of GDP than any rich nation (and probably than any nation). We are 40th in lifespan, and 40th in infant mortality. We pay more to die sooner and have more of our babies die too.

Really it doesn't take genius; if what the other guys do works better than what you do, switch to what the other guys are doing.

Posted by: Gar Lipow at December 29, 2004 08:51 PM


[Be polite.]

Posted by: jerry at December 29, 2004 09:38 PM


As a beneficiary of the $87K cap, I'm all in favor of lifting it; I'd actually like to see FICA charge to all income. I think that would take care of Social Security for at least several generations.

It would probably be deemed a violation of freedom of speech to prohibit drug (and in the last week or so, knee replacement) companies from advertising their wares on national TV. One of my daughters, who had been living abroad for several years, when she first saw the ads saying "tell your doctor if you...", remarked that she thought it was the doctor's obligation to tell the patient.

Posted by: Brian Boru at December 29, 2004 09:46 PM


"Jerry" (or is it Adrien?)...If you are going to be point out mistakes others make, at least use the proper words. The word you used--"Legalize"--means to make something legal.

Why is it that you refuse to discuss substance and instead only disparage the people putting forward a thought that is different from what you believe? Does that have to do with some inadequacy you see in yourself? Or would you prefer that we simply go back to the Dark Ages, when new ideas were seen as the devil's tool and a sign of heresy? Contrary to what you imply, well-educated people are the model for the U.S. economy and what most parents want for their children. They not only usually have clothes, but they wear a better quality of them.

Posted by: policywonk at December 30, 2004 06:26 AM


I think it is entirely possible that we will go for the "die in the street" model, and we are already partly there. Except we are actually too proud to actually die in the street. We wil just be sick a long time and die at home. The average life span for a male in Russia is 59, in the US about 75. I think there is no question we can get that back down to 70 or below within ten years or so. Think what a help that will be for Social Security.

Posted by: pragmatic_realist at December 30, 2004 06:45 AM


The administration and a significant portion of the public still appear to believe that cutting taxes RAISES future revenue by "stimulating" economic growth. As long as this wishful thinking remains the conventional wisdom in policy and among the populace, we will stay on a path to the bad outcomes described above.

Posted by: moniker at December 30, 2004 06:57 AM


Brian Boru, the lifting of the cap is a nice, sensible idea from a policy standpoint, but I believe at this point in time we should not give one inch* on the payroll taxes.

All Democrats, Independents, and sane Republicans should turn every SS discussion into ann absolute rant on the Bush General Fund debt. It's an easy soundbite - "when the government pays off it's second mortgage then the first mortgage no longer becomes a strain."

People will understand that. Then you lead them into the fact that the "second mortgage" exists due primarily to tax-cuts for high income earners, and the R's will be sorry they every brought the subject up.

Damn I wish we had a real party rather than a group of battered housewifes still in the denial stage.

*Yes, let's pause to contemplate our shame that the US never went metric. Proof that Bush's Base has been around a long, long time.

Posted by: a different chris at December 30, 2004 07:11 AM


To the young and impressionable reading at home: That is NOT the proper use of "it's". It's is a contraction for It Is, not a posessive.

At least 600 million people in India are shaking their heads sadly at my error.

Posted by: a different chris at December 30, 2004 07:14 AM


Since the end of World War II the federal govt. has taken in as tax revenue, between 17-19% of GDP, almost every year. There are very few exceptions. Under a variety of tax codes. With top marginal income tax rates as high as 90% and as low as 28%.

17-19% is what you've got to work with. End of story. Read the scrivener today, and laugh or cry:

http://www.scrivener.net/2004/12/you-thought-2004-federal-deficit-was.html

Posted by: Patrick R. Sullivan at December 30, 2004 07:21 AM


Your review offers a fairly detailed list of options for Social Security, less so for Medicare, even though Medicare is the bigger problem. This makes sense, in a way, because it is Social Security that is high on the White House list of things to wreck. (When asked in his latest press conference what he intended to do about Medicare, Bush said he'd already taken care of that problem, apparently by driving the cost of the program up substantially. No reason to think he'll do anything responsible to take care of the Medicare problem.) However, any good beginnings among Kerry advisors in dealing with the Medicare problem will evaporate if those good beginnings aren't pursued.

Some parts of the problem are obvious – just as with Social Security, an aging population is a fact of life that must be accommodated in policy. However, the notion that recent trends in cost can reasonably be projected into the future seems naïve. Don't we assume that in most sectors, technological advancement will lower the cost of services, rather than raise it? Doesn't the assumption that the cost of medical care will continue to follow recent trends depend on somebody (the demand side of the cross) will keep demanding medical services at ever increasing prices? There should be at least two factors militating for a slower pace of gain in medical care costs, as long as we address structural problems that allow costs to continue rising.

Asymmetry in the market has been cemented by Bush and the Congress, in deciding that the massive new spending on drug coverage will not involve price negotiations between Medicare and drug companies. Let's fix that. Let's fix other asymmetries, as well (go Gar!). It matters whether medical costs are born publicly or privately, but what matters more is the share of national income that is taken up in providing medical services. If we can keep people just as healthy at lower cost, then those healthy people will have income left over to go to DisneyWorld.

Jerry, "total production" is words. GDP is an acronym. Preferring an acronym to words which express pretty much what the writer means seems odd, given the nature of your complaint. Most of the participants here are conversant in economic lingo. Such knowledge the price of a ticket. Odd, too, how you managed to figure out what "total production" meant, while complaining about the obscurity of the phrase.

Posted by: kharris at December 30, 2004 07:28 AM


Patrick,

Do you really not understand why government entities (which exist to provide services) use cash-basis accounting, while private corporations (which exist to turn a profit) use accrual-basis? If you don't, then I take back what I said before about you having mastered basic accounting principles.

Also, I'm still waiting for your description of the apocalypse.

Posted by: Julian Apostate at December 30, 2004 08:37 AM


No, I'm not Adrien, and I post here relatively often. I do get a whiff of "you're critiquing us, you must be on the other side!" That's something I usually hear from that other professor, the instaidiot.

I am a physicist, and one with a Haas MBA at that.

Yep, there is tons of economic jargon tossed about here that no one ever bothers to define as well as a wonder as to why we are ruled by these idiots or why the journalists are so dumb. When someone calls on Professor DeLong to clarify, or elaborate there is rarely an answer.

[How much time do you think I have to devote to this, anyway?]

I value greatly Professor DeLong's expertise, and time, and blog, but yeah, there's a lot of patronizing to the peons going on here.

Could it be our problem with the idiots that rules us, the idiots that write in our papers and the econ profession's (though my experience is only with Berkeley economists) desire to cloak themselves in jargon are related?

Policywonk, Jebus you tend to project a lot. If I understood what was being said, I would probably be able to make an argument about what was being said, but since it was being said only to fellow priests in the canon, I could only make an argument about how it was being said. Is it possible that you just don't like any sort of criticism?

Professor Feynman would say that if you can't explain yourself to a high school student, you don't really understand the concepts yourself.

Kharris, you seem to have excelled this morning in a total production of silliness. GDP is well defined.

Posted by: jerry at December 30, 2004 09:09 AM


Re-reading my post, I see that it sounds as if I'm suggesting that ALL governemnts use pure cash-accounting, which of course they do not (modified accrual is most common, and I think most government entities of any size are issuing their CAFRs to conform to GASB 34 standards).

Posted by: Julian Apostate at December 30, 2004 09:33 AM


Some thoughts on health care spending from a practicing MD:
Getting rid of private insurance for health care would save a lot of money, but it would be temporary. Costs would continue to rise because the main driver of increasing costs, far and away, is an aging population. Technological improvements contribute, but those improvements are mainly spent on the very young and the very old, and overwhelmingly the latter. This is not to suggest that public health insurance is a bad idea, but it will only buy a few years' savings.
Cutting reibursements to drug companies would also save some money, but again, those savings will be swamped by an aging population. Innovation could also suffer.
Preventive medicine is a popular cost-saving idea to many people not in medicine. The easy stuff (childhood immunizations, etc) has already been done. Most of the preventive activities we emphasize now (diabetes and cholesterol testing, prostate and colon cancer screening, flu shots and pnemonia vaccines for the elderly) do improve people's health, but they cost the society money in the long run. This is true because, once again, they primarily benefit the aged, keeping them healthy (or at least alive) long past their economically-productive years. If we really wanted to save money (and I'm not advocating this) we would encourage health habits that would kill people at about age 65.

One poster mentioned improving productivity in medical care. This would obviously require less doctor time to be spent per patient. So-called physician extenders such as nurse practitioners can and do help in this regard, with some savings. But there is a lot of medical care that only an MD can safely provide. Why not just pay doctors less and make them see more patients? This tactic would of course worsen the current and soon-to-be-critical physician shortage in family practice, general internal medicine and general surgery.
I wish I had the answer.

Posted by: JRossi at December 30, 2004 10:36 AM


JRossi,

In your professional opinion, why would a single payer system only buy a few years worth of savings? It seems to me that if we could permanently cut the marketing and excessive admin fees, this would mean huge savings on a permanent basis, and would cut significantly into the increases caused by an aging population.

Posted by: Julian Apostate at December 30, 2004 12:05 PM


Whoooooooo. All that jargon. Production. GDP. Costs. Prices. Spending. Taxes. Kind of funny, because Brad is known as a clear and insightful writer even to those of us who don't always agree with him.

Brad, here's an idea. Maybe some econ blogger with free time on his hands could come up with an econ tutorial, sort of like a mini-online textbook with a glossary of definitions and concepts. Just the basics. So people like Julian know that production and GDP are equivalent. And that costs equal purchases equal price times quantity. And that accrual accounting is only accurate when it reflects the present value of future cash flows. Etc, etc. This wouldn't substitute for a real class. In particular most of the concepts of economic reasoning can't be communicated this way.

Of course we'll all have to be careful not to call people idiots or otherwise go too far into political mode. In other words, Brad would have to curb his stereotypically Berkeley instincts. Economists and Berkeleyites in particular are a notoriously prickly bunch. I'd aim for a style no more political than Krugman in the mid-90s. Better to evangelize than to crusade, in my opinion.

Posted by: Chris R at December 30, 2004 12:10 PM


Jerry...If you want dumbed-down rhetoric, try the network news, which is written for an audience that has a 7th grade education. A policy blog written by an economics professor of a preeminent institution of higher learning whose audience primarily is economically astute readers should use language that is appropriate to those readers. That's not an attempt to confuse the discussion, just to allow it to be on a higher level. If it's too tough for you, try the Fox News Channel or Discovery.

Posted by: policywonk at December 30, 2004 12:18 PM


... or, we could decide that 25% is too much for the federal gov't to spend, and concentrate on reducing federal spending. How about 18%?

Posted by: Eric H at December 30, 2004 12:36 PM


Jerry
You can always try google. Use all the acronyms at once and you will get glossaries at the top of the list. I used gdp gnp cost accrual value curve and got a pretty good (if large) glossary. I also have the google task bar on my screen. That makes it quite easy.

Posted by: wkwillis at December 30, 2004 01:22 PM


Today, medical costs are 15% of GDP -- that would be 30% of 1968's GDP. But we are better off because we can spend 2 X 85% of 1968's GDP on everything else instead of 1 X 95%.

And so on for the future. 75 years out -- if population doubles and per capita output quadruples -- we may be spending three out of four dollars on medical care, should current trends continue. We will still be a little bit ahead of the game on spending money for everything else (while old people may be sprouting propellers under extant medical care). It would be nice to get health care down to two out of four dollars, though.

The ultimate question -- as always -- may be whether we are going to have 9% unions or 90% unions, then -- the latter the only way to make sure that decisions are made for the good of the majority.

Denis Drew
Chicago
ddrew2u@comast.net

Posted by: Denis Drew at December 30, 2004 01:26 PM


Uh, actually policywonk, so the alternative to the jargon of the canon is only dumbed down rhetoric ala the network news? So folks that would like a bit of a hand are consigned to Fox News and insults? So it's impossible to discuss economics without all of that?

Hmm, I no longer wonder why we are ruled by such economic illiterates, or why the journalists are such economic illiterates, I guess economics is just too hard for us. Continue on then.

Thank you,

Jerry

Posted by: jerry at December 30, 2004 02:53 PM


"the U.S. government has made and its standard operating procedures for setting spending amounts commit us to an average federal spending level of 25% of total production over the next two or so generations ... 25% is the number we should have in our minds when we plan "

Over the last 30 years Medicare spending per recipient has grown 3% faster than GDP. If this declines to 2.5%, CBO predicts federal health care spending will be 22% of GDP by itself in two generations. Plus, Social Security will be 6.2%. So we are at 28% of GDP right there.

Then we have to provide for an entire *federal government* in addition to that. Another 12% of GDP if it doesn't grow at all. So that's 40% of GDP.

(And we are ignoring state governments, which pick up a substantial portion of health care costs and will see their costs rise proportionately from today's 10% of GDP for them)

So "25% of production" may be a tad optimistic, it implies that all of health care spending will cost barely more than Social Security, which is implausible.

Think 30% to 40%, with 40% entirely plausible.
~~~~~~~~~~~~~~~~~

"We as a society have two choices. We can either ignore the gap between 18 and 25 ... confidence that we will ever solve it, and our economy and currency go smash ... Or we can take steps to close the gap between 18 and 25."

The gap between 18 and 30-to-40.
~~~~~~~~

"First, we wonder, 'Where did this gap come from?'"

From Congress creating big entitlements without creating any funding for them?

Because it likes to get votes by promising people things -- but doesn't like to *lose* votes by telling people how those things will be *paid for*?

Remember when the mob of seniors ran down Rostenkowski because Congress actually enacted a small premium they would have to pay for health care coverage? So Congress reacted by getting rid of the premium and expanding the coverage?

Or, more recently, the Bush prescription drug premium, which with zero financing added a cool $6 trillion current value liability in 2004 alone.

I mean, blaming the financing gap on the $200 billion cost of the Bush tax cuts in 2004 instead of *that* $6 trillion charge for 2004 is just plain silly.

Imagine this what-if ... what if *instead* of acting like that, when voters made it clear that they *didn't want to pay for something*, Congress said "well, if people don't value it enough to pay for it, then we won't legislate it".

So Congress only passed entitlements and benefits funded on an actuarially sound basis. Like it requires the private sector to do.

Then we wouldn't be having this conversation about how it is our fiscal duty to run taxes up to somewhere between 30% and 40% of GDP to cover entitlements that were enacted for *political
reasons* without being thought through at all --
other than in the Rostenkowski-premium/Bush-drug-benefit episodes sort of way.

The electorate would have and be paying for what they value, and wouldn't have or be paying for what they don't. With no fuding gap. What a thought!

Posted by: Jim Glass at December 30, 2004 02:54 PM


"... either we grit our teeth and accept very large tax increases to preserve an income-independent right to medical care, we keep our taxes where they are and begin to ration life-saving and life-extending medical care bigtime depending on the thickness of your wallet, or we think up some clever scheme to make the medical system work much much better so we can get better medical care at much lower cost. I vote for the 'clever scheme' option myself"

~~~~~~~~~~~

Congress surely has been very clever with health care so far. Just look at Medicare!

It covers routine predictable costs from the first dollar -- stoking over-demand due to lack of any price attached for service, and destroying market incentives for efficiency and innovation, replacing them instead with pricing by centralized bureaucrat, which has proved so effective in so many varied major applications so many times around the world in the last century.

Yet it leaves truly calamitous conditions that can wipe out people, and which are poorly handled by a market, handled entirely by the market! What, you're suddenly disabled and need nursing home care? You're on your own, Bub, now say goodbye to your house and life savings.

Exactly the opposite of dim non-clever market-based insurance schemes. Just imagine auto insurance that paid 100% of the cost of gas and oil and tires and even a new car every four years -- but *not* for auto crashes and injuries. What would the results of that be? Well, the same as we get from Medicare.

Of course, Congress *is* clever because everyone knows they will incur routine costs but nobody believes they will suffer calamity, so this is an effective way to draw votes, at the price of immense structural medical care inefficiencies.

Now shall we vote to put an additional 5 or 10 points of GDP under such clever management?

Sure, who wants to vote against more such cleverness? The alternative is so dumb.

Posted by: Jim Glass at December 30, 2004 03:21 PM


Julian Apostate... Suppose administrative fees make up roughly 30% of medical spending, but that spending on real care (think grandma in the ICU with heart failure) goes up by 5 to 10% per year. You can see that we're back to where we started in a few years. Same process occurred with the HMOs in the early 90s. Increased administrative efficiency buys us a few years, and IMHO is worth doing (although politcally impossible), but is not a long-term answer.

Posted by: JRossi at December 30, 2004 04:29 PM


JRossi wrote, "But there is a lot of medical care that only an MD can safely provide."

Ah...it's good to be a collector of economic rents!

Posted by: liberal at December 30, 2004 08:50 PM


... or, we could decide that 25% is too much for the federal gov't to spend, and concentrate on reducing federal spending. How about 18%?

Okay, but which are you going to eliminate in its entirety -- Social Security, Medicare, the Department of Defense, or the full faith and credit of the United States of America?

Posted by: Kimmitt at December 31, 2004 02:17 AM


Patrick R. Sullivan wrote, "Since the end of World War II the federal govt. has taken in as tax revenue, between 17-19% of GDP, almost every year. There are very few exceptions. Under a variety of tax codes. With top marginal income tax rates as high as 90% and as low as 28%."

More ignorant nonsense from Patrick R. Sullivan. Quoting a top marginal rate of 90% is meaningless without more complete information about the effective tax rate or the size of the tax base.

Posted by: liberal at December 31, 2004 07:06 AM


Jim Glass wrote, "...replacing them instead with pricing by centralized bureaucrat, which has proved so effective in so many varied major applications so many times around the world in the last century."

Actually, yes. Health care is delivered with far greater economic efficiency in other advanced nations, where health insurance has been nationalized.

Posted by: liberal at December 31, 2004 07:10 AM


Jim Glass wrote, "Imagine this what-if ... what if *instead* of acting like that, when voters made it clear that they *didn't want to pay for something*, Congress said 'well, if people don't value it enough to pay for it, then we won't legislate it'."

The most successful recent budgetary control mechanism at the federal level was the Budget Enforcement Act of 1990, a compromise between Bush I and the Democratic Congress, and ensuing amendments in the 1990s.

It expired a couple years ago.

Guess which political party is vehemently opposed to reinstituting it?

Posted by: liberal at December 31, 2004 07:17 AM


Jerry,

Not Adrian, but aspiring in that direction? So "jargon" is the problem, not because you aren't up to speed, but because the nefarious community of economists are hiding something behind that jargon. Oh, I see. Not your ignorance, but evil in the hearts of those you don't understand. Nobody need to look askance at such a suggestion, oh no! And you think I'm being silly.

Just for the record, "total production" is pretty well defined, too, so whether things are "well defined" seems rather beside the point in this case. This looks a bit like you demanding that the world adopt your prefered vocabulary - "GDP" always, "total production" never. You won't mind then, if economists drop in on your profession and dictate which lexical items may be used?

By the way, this bit --

"Professor Feynman would say that if you can't explain yourself to a high school student, you don't really understand the concepts yourself."

I was not aware that explaining things to a high school studen was the task at hand. And if it is not the task at hand, then what's the purpose of citing this particular standard, other than to insinuate that somebody here doesn't "really understand the concepts." Really raising the level of discourse.

Posted by: kharris at December 31, 2004 08:43 AM


"Actually, yes. Health care is delivered with far greater economic efficiency in other advanced nations, where health insurance has been nationalized."

Uh, no. If people have to wait in line for some procedure like a heart surgery, often for many months, that's pretty conclusive evidence against efficiency. Don't mistake the inefficiency of the present system for the efficiency of some other system.

Posted by: Chris R at December 31, 2004 09:35 AM


Chris R wrote, "Uh, no."

Uh, yes.

"If people have to wait in line for some procedure like a heart surgery, often for many months, that's pretty conclusive evidence against efficiency."

Uh, if you actually understood anything about health economics---which you clearly don't---you'd know that the proper measure is *health outcomes*. By which measure the US system is far less efficient (as measured by health care expenditures per GDP) than every other major industrialized economy in the world, from the stats I recall.

Posted by: liberal at December 31, 2004 12:34 PM


[Be polite.]

Posted by: at December 31, 2004 12:41 PM


(By which I mean that other systems have roughly the same health care outcomes, and spend far less on health care than we do when costs are measured as a percent of GDP.)

Posted by: liberal at December 31, 2004 12:42 PM


[notes on health care, from a previous discussion, edited in no particular order]

1. There is no financial incentive for the health insurance industry to improve health. The incentives, rather, encourage the creation of a large chronically-ill population. I don't mean that health insurance companies deliberately set out to make people ill. But they can hardly deliberately undertake policies against their financial interest and so they do not use their huge financial resources to improve general health. They often even omit basics--my insurance does not even pay for immunizations. And they paid for several years of expensive diabetes-management drugs, but not a penny for weight loss or diet improvements--I had to work that all out for myself. There is no doubt what was better for my health--but that, despite all I pay them, is not what they would provide. So I have come to believe that the explosion in health care costs is not a direct result of medical technology, but rather a result of widespread attitudes towards health and health-care finance policies.

2. Overcharging for medial equipment and medications is blatant and common in the USA. The problems of perscription drug pricing, of course, are widely known. I also know that CPAP machines and hearing aids are priced at something like 5-10 times similar non-medical equipment.

3. Part of the problem is widespread corruption and Kuttner gives that some coverage in *Everything For Sale*.

4. Another part is that socialized medicine really is more economical than the US system.

5. Ultimately, though, a big part of the problem in health care is that increases in wealth and technical abilities have brought us to terra incognito; we have health problems that no-one even dreamed of a century ago. I am under the impression that the explosion in medical costs are not actually due to the costs of medical technology, though that is vastly overpriced, but rather to the costs of providing supportive care for the chronically ill--people who would have died in times when medical knowlege was less advanced.

6. I'm not quite sure how to categorize hospital room and board in my very modest division of expenses. On the one hand, a big chunk of "room" probably goes to high-quality 24-hour nursing. On the other hand, hospitals are full of enormously expensive equipment and technology, and that shows up in "room", too. On the gripping hand, the economics of medical care encourages medical centers to become property developers, and bill those expenses as part of "room", too.

Posted by: Randolph Fritz at December 31, 2004 01:56 PM