Bryan Caplan  

Krugman's Got a Point, But I've Got a Better One

Yes Donald, Beliefs About Econ... Give Me Your Tired, Your Young...

Arnold Kling remarks:

All I can think of is the public digesting Paul Krugman's argument that we spend more money on health care than countries with socialized medicine, we have the same longevity as those countries, therefore socialized medicine is more cost-effective.

In fact, we spend $2000 more per capita than other countries. Taking David Cutler's value of a life-year as $100,000, the critical value for whether that $2000 is cost-effective is whether it increases our longevity by one week. (UPDATE: see the comments for a valid criticism of this arithmetic) If you want to try to find that week by controlling for all the other factors that affect longevity (genetics, homicide rates, traffic fatality rates, etc.), go ahead. But I think it's like trying to call balls and strikes from a helicopter.

Then it sounds like Krugman makes a good point. We know we're spending $2000 more per year, and by your own admission, you have no confidence that we're getting anything for it.

I'd add, however, that if there is little evidence that health care improves life expectancy by much (or other measures of health, for that matter), then we have every reason to abolish Medicare and Medicaid.

Never mind whether the rich deserve better health. Either way, there is simply little evidence that these enormously expensive programs do much to improve the health of the poor. So why not pull the plug?

Comments and Sharing

TRACKBACKS (3 to date)
TrackBack URL:
The author at Order From Chaos in a related article titled And to add to the healthcare explanations... writes:
    I would also say that our lack of price controls--aside from not inducing other negative effects--forces us to shoulder the burden of innovation (we could do a better job at allowing innovation though), while these other countries see the benefits of... [Tracked on June 6, 2005 12:08 PM]
COMMENTS (23 to date)
monkyboy writes:

I'm sure Medicare and Medicaid do some good. If you want to eliminate useless government spending, let's get rid of the "Defense" department. An honest accounting would show we spend over $600 billion a year on it and few people outside the White House think we are any safer because of it.

richard writes:

if there is little evidence that health care improves life expectancy by much

Where did this assumption come from? I have little doubt that good health care improves life expectancy, probably significantly. The issue is that other countries have much more efficient health care systems than we do.

spencer writes:

If your reasoning is correct shouln't we go all the way and destroy all hospitals and force all healthcare providers to find other work?

Why just Medicare and Medicaid?

LowcountryJoe writes:

The funny thing in all of this talk of health care socialization is the fact that in 2003, government spending on health was $627,900,000,000.

If you doubt this then you can see for yourself at this Department of Commerce (Bureau of Economic Analysis) web site in table 3.16, line #28.

I suspect a lot of medical expense goes towards making life comfortable rather than simply increase its longetivity. How can a person like Krugman assert that US system is inefficient simply because it does not increase longetivity of life? Without data on how much expenses are targeted to life-saving procedures and medicines, it is difficult to assert that.

El Presidente writes:

A very important piece of this puzzle is the distinction between acute care and preventive care. Acute care is very expensive; preventive care is very cheap. Our system has an abundance of acute care and a deficit of preventive care. The part of health care that really doesn't help all that much is the part that gets you the extra week on a ventilator before you kick the bucket but that's where we dump our cash. If we changed the primary focus of health care delivery from profit (capitalist system) to health care (socialist system) then perhaps you would receive more appropriate and more cost effective treatment because you'd receive it before you acquired a fatal or debilitating condition. Until then we will continue to develop treatments that nobody could afford on their own for problems that can't actually be solved (i.e. the inevitability of death). The focus should be quality of life first, then length of life. The focus sets priorities and dictates the economics. That's why it's important. A correlation should exist between the amount of resources we pour into R&D/delivery and the overall health of the population but you'll notice many chronic illnesses creeping into our society (obesity, diabetes, cardio-vascular ailments) despite enormous R&D expenditures by pharmaceutical manufacturers. This is either because we're living long enough now to recognize these problems or because we're not producing health care for the sake of health; we're producing health care for the sake of profit (Viagra for America vs. clean water for Africa). Take your pick. You might not consider clean running water a health care issue but go without it for a few days and see how healthy you feel. Profit is fine as long as we aren't playing a zero sum game. That’s our choice though.

spencer writes:

Before you jump on Krugman too badly maybe you ought to read what Hennry McKinnell, the Chariman and chief executive of Pfizer says in his new book, "A Call to Action".

One quote, "we really do not have any efficiency in the system, ......administrative costs in health care are 30%. Most businesses run on 4 to 6 percent."

Dave writes:

Probably bringing up old news here but the problem with health care is that no one "pays" for it themself. Health care is tied to employment or to being poor. People don't purchase a plan for themselves but instead are offered a choice of plans by their employer. If people paid for their own insurance they would look for a better deal.

On a side note record keeping and administration in health care is terrible. One would think that they would be at the forefront of database technology.

One more point. To use life expectancy as a metric
in determining the quality of a health care system is not a effective way to determine the quality of the system. Shooting from the hip I would say that Americans spend more on health care because they have more disposable income and more choice in their health care options than their european counterparts. I doubt that their socialized system pays for nearly as many breast augmentations, plastic surgeries, or viagra prescriptions as our consumers do out of pocket. Those things won't make you live longer but they do (relatively) make life more enjoyable for the people that partake.

Rick Gaber writes:

Why fall into Krugman's trap of arguing only cost efficiency in the first place? I know you can smash him to smithereens once you make THE MORALITY of enslaving doctors and healthcare professionals to the dictates of politicians and bureaucrats the issue.


Jim Erlandson writes:

When Mr. Krugman's cateracts get bad, we won't let him have surgery because it won't extend his life. It would let him read and see the TV and his new grandkids, but that doesn't count.

When Mr. Krugman's arthritic knees get bad, we won't drain them or inject them with corticosteroid because it won't extend his life. He wouldn't need a wheelchair and it would delay replacement surgery but that doesn't count. And of course, knee (or hip) replacement are off limits too because ... neither will extend his life.

dsquared writes:

Bryan, if it could be shown (and Michael Marmot beleives that it can) that income inequality has a very significant effect indeed on life expectancy, what policies would you then suggest?

Mikael writes:

How much of the extra spending on health care in the US comes from more health care consumption and how much comes from the fact that doctors are a relatively more well paid group in the US than in many european countries? (not only in absolute numbers, but relatively higher within a country)?

Cross-country comparisons using this data are so full of loop-holes I hardly see the point in trying to say anything at all using this data. It's clearly impossible to state whether Krugman is right or wrong...

Sudha Shenoy writes:

El presidente says:"If you changed the primary focus of health care delivery from profit (capitalist system) to health care (socialist system)thenperhaps you'd receive more appropriate & cost effective treatment because you'd get it before you acquired a atal or debilitating condition". Like the British NHS, for example: vast amounts spent on prevention & no one dying as they wait for operations. Neither do they deny health care to the aged chronically sick.

James writes:


You ask a great question "Bryan, if it could be shown (and Michael Marmot beleives that it can) that income inequality has a very significant effect indeed on life expectancy, what policies would you then suggest?"

I can't speak for Bryan. I guess the party line is that some people should be allowed to use violence to take money from some and give it to others, keeping a portion for themselves. You'd probably agree with this but you'd replace words like "use violence" and "keeping a portion for themselves" with words like "social safety net," right?

As it happens, my "objective function" isn't too affected by short term longevity rates, but if it were I'd be the first to support reducing inequality, provided that Marmot or whoever could make their case.

But there's more than one way to reduce inequality. Suppose I said I'd support criminalization and punishment by stiff fines for engaging in the transactions that resulted in the inequality in the first place. As an added measure, I'd support a law making stealing legal, provided that after the theft, the perpetrator must still have less wealth than the victim. Based on your view (and let's pretend that Marmot is right) of the dangers of inequality and the positive effects of its reduction, would you support these policies?

JT writes:

dsquared: Does Michael Marmot respond to the idea that both higher status and better health are positively correlated with IQ and that in fact the proper causal driver of health is IQ? (The idea being that much health care is self-administered and that high IQ individuals are better able to self-administer this care.) I did some looking around and wasn't able to determine whether Marmot tackled this idea.

Bruce Cleaver writes:

Bryan -

In the original posting you quoted Arnold Kling - do you have a link for that? Thanks.

Bernard Yomtov writes:

There's a rather broad assumption hidden, not too well, in this post. That we are spending $2000 more than someone else on health care and not "getting anything for it," does not imply, as you claim, that there is "little evidence that health care improves life expectancy by much."

First of all, just because an extra $2000 doesn't help doesn't mean money is never any help. I seem to recall learning learning something about the difference between marginal and average benefits or something. Probably just leftist gibberish.

Along the same line, if the average extra per capita spending represents a lot of spending by people who are already getting good health care, then it probably has less benefit than if it were spent by those at the other end of the spectrum. It's that marginal business again. You really should look into it.

More fundamentally, who says the extra money is going for health care, as opposed to the administrative costs of health care? After all, one of the major complaints about the US system is its high administrative costs. The point is we spend more, but don't get more health care.

So what Bryan does here is use precisely the weaknesses of the American health care system to argue, so to speak, for abolishing Medicare and Medicaid.

"Appendicitis? Too bad. Teach you to save for emergencies."

dsquared writes:

JT: Yes he does, at length, in his book "The Status Syndrome". Also for measures of genetic fitness, education, paternal income and all manner of other things. The "social gradient" is still there.

James: I would agree with "Take by violence" because there is no other way to collect taxes, but disagree with "keeping a portion for themselves" because I don't think that this is a sensible way to describe the costs of tax collection, which are in any case small compared to the total effect.

Marmot, for what it's worth, doesn't believe that the gradient is caused by income inequality itself, but rather by the fact that low income relative to the median means that you are unable to take a full part in society and have little control over your life. This causes stress, which is known to have specific medical effects.

Mcwop writes:

Food for thought. I was not a believer in the argument that more spending did not somehow achieve a better result - that is until I compared this to the education situation. We spend more than most industrialized countries on education, but do not yield better test results. I am sure many that are right of center might agree there. Why not the same situation with health care?

JT writes:

dsquared: Thanks. That's very interesting.

Ted Craig writes:

The problem any time you compare statistics between the United States and other countries is we are not a homogeneous population. So a country like Sweden can't really be compared to the U.S. The more fair comparison would be to break out our various ethnic groups and compare them to countries with a majority of those populations. I have the feeling whites in the U.S. would compare well with any European nation, while blacks would be far ahead of any African nation.

Chris Bolts writes:

[quote]I'm sure Medicare and Medicaid do some good. If you want to eliminate useless government spending, let's get rid of the "Defense" department. An honest accounting would show we spend over $600 billion a year on it and few people outside the White House think we are any safer because of it.[/quote]

The thing is, defense is the one thing that government should be providing. It is far more efficient and prudent for the federal government to provide defense as opposed to having each 50 states and each individual city providing different forms of defense which are incongruent.

I'm not so sure that healthcare should become more social, but in fact it should become more capitalistic. I have yet to see any socialist system which has allocated resources as efficiently as a capitalist system. As someone else pointed out, we spend more money per capita in education but we only achieve average test results. The same can be said about healthcare. We spend more on our healthcare programs, yet the poor are still very sick and the old still suffer in old age. Our social programs are not achieving their results and that should give policymakers pause about the decisions they are making in regards to healthcare.

John T. Kennedy writes:

Suppose socialized medicine did increase aggregate longevity. Longevity is not the only thing I can sensibly value, is it? Suppose at some point I'd rather spend my money enhancing my life than extending it.

How would a projected increase in aggregate longevity entitle anyone to spend my money according to their preferences?

Comments for this entry have been closed
Return to top