Arnold Kling  

Greg Mankiw on Fiscal Policy

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Mish Bet Redux... Congress Messes Up...

He writes,


One of the classic hypothetical questions economists ask when referring to healthcare costs is, "Would you rather go back to 1950s medical care and 1950s prices?" If that option were offered at your place of work, my guess is that you would not take it. What that means is, in some real sense, healthcare is cheaper today if you adjust prices properly to account for quality improvements. A dollar of healthcare today has more value than a dollar of healthcare in 1950.

The piece is a survey of issues regarding U.S. fiscal policy. It is a great read, strongly recommended for any undergraduate student of economics. Or for the many economists inside and outside the Administration who seem to have forgotten undergraduate economics.

Nonetheless, I suspect that the thought-experiment comparing 1950's health care to today's health care may be a bit of a swindle Suppose we posed a similar question: would you rather have 1950's college room and board at 1950's prices or today's college room and board at today's prices? We would say the latter because we can afford the latter, not because the real cost of room and board at college has necessarily gone down.

Put it this way: suppose the assumption was that you had a 1950's level of income. Then I think most parents would choose to send their kids to a college with 1950's room and board, rather than today's room and board. For health care, you might prefer today's open heart surgery, but health insurance would eat up most of your 1950's income. So it's not such an easy call.


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COMMENTS (7 to date)
John writes:

Just when I thought economists couldn't have moved themselves to a planet farther from earth, one of them writes that because something has (probably) improved in sixty years, people shouldn't complain about its current price, and implies that this feature alone defines a functioning market. Cue passive-aggressive aside about health insurance, and this post is a perfect storm of unselfconscious irrelevance.

Matt C writes:

I bet a lot of working poor people would be willing to take the 1950s deal.

I think there are a whole lot of people, including me, who would take a deal like that if it was offered for 1990.

Joe Cushing writes:

Some parts of health care are pretty much the same as they were in 1950 but lack of price competition has driven prices up. Changing sheets for example. Asprin for another. In metro Detroit, I hear adds on the radio for a price competitive test lab. If we had more out of pocket costs, there would be more of these.

Colin K writes:

Matt C: It's called medical tourism.

Joe: I agree completely but the cost of aspirin argument has always irked me. It's no different than people asking why a bottle of beer costs $6 in a bar next to Fenway Park while in South Boston you can buy a 6-pack for that price.

That being said, I think it would be really interesting to have a bunch of people from, say, Carnival Cruises, design a hospital from scratch, just to see what they might do differently.

David C writes:

On fiscal policy, my guess is that the Obama administration has concluded that they shouldn't do anything more. Their jobs proposal consists of a series of bills that are unlikely to add up to more than $100 billion. These are token bills to curry political favor, not serious proposals.

Gary Rogers writes:

I need to dig it out, but when going through my parents things I came across the hospital bill from when I was born in 1948. It included five days in the hospital, anesthesia and baby care. If I remember correctly the total was $64.79. I know it was less than $70. I don't care how much healthcare has improved, this is a significant increase.

Douglass Holmes writes:

It is very difficult to compare. In the 1950s, I suspect that there were many cases of cancer that just went undiagnosed. Now, we can diagnose the cancer and in many cases, cure it. Today's healthcare may cost a lot, but I'll take it over 1950s healthcare.

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