The Marginal Cost Of Life

In case you didn't catch Glenn Reynolds' must-read piece on health care this weekend:

But there's another cost that isn't getting enough attention. That's the degree to which a bureaucratized healthcare system will squash medical innovation just as we reach a point where dramatic progress is possible. To see how important that is, I don't have to look any farther than my own family.
Perhaps our medical history is more involved than most, but probably not by a lot. And yet many members of my family are living better, happier lives -- or, heck, just living -- because of medical innovations made in recent decades, innovations that probably wouldn't have been made under a government-run health system. And as medical technology progresses by leaps and bounds, the next few decades are likely to see much greater progress, unless it's throttled by bureaucrats.

There's a sense in the political class that health care costs are spiraling out of control and Something Must Be Done. But as Megan McArdle notes, pet health care costs are rising at almost exactly the same rate as human health care costs. That argues strongly that the main driver is people's increasing ability and willingness to pay for new treatments to extend their lives and the lives of those they love, number of legs notwithstanding. What's really spiraling out of control is medical progress -- and that's all to the good.

Health care is a somewhat unique good, as without it the utility of everything else can decrease (in poor health), sometimes to zero (death), so until we achieve functional immortality there's really no limit on potential demand for products and treatments that make us live longer, healthier lives.

The notion we must limit health care in the long run because we can't afford it is somewhat flawed. Consider this: at 3% growth, GDP per capita will be around $175,000 by 2059 versus about $40,000 today (yes, even adjusted for inflation). There's no reason we couldn't spend up to 90% of that new $135,000 on health care, as opposed to other luxuries that only provide utility as long as you're healthy and alive; in fact, it would be entirely rational to do so.

posted by Dave on 07.15.09 at 11:27 AM


This is an excellent argument (since I've been making it myself.) I especially like the point you make about how we are deciding to spend our marginal GDP growth. The statistics then show an increasing PERCENTAGE of GDP going to health care. Would we prefer it when to video games instead?

In many earlier societies (and some current ones) any economic growth went into military (Wilhelmian Germany?) which meant problems for the neighbors. We have peace following the Cold War to blame partially.

Whitehall   ·  July 15, 2009 12:22 PM

When attacking Big Pharma was all the rage, I used to egg them on.

"Yeah, those bastids have had a large hand in increasing life expectancy from around 63 to around 70 over the last 30 years and for that, they can never be forgiven!"

But then, I'm kind of a jerk.

Veeshir   ·  July 15, 2009 12:48 PM

Let's do some math.

Say GDP per capita is growing at 3% per year and we spend 10% of current GDP one medical care. We decide as a society that we want to dedicate 1% of future growth to better health care and improved medical science. With enough years and enough growth, health care approaches 1/3 of GDP!

This is substainable! - so long as GDP/per capita grows and the allocation of new resources stands.

What the Democrats are trying to do is divert some of that desired public resource allocation to government purposes, including buying votes from those who don't contribute their share to medical care now.

Whitehall   ·  July 15, 2009 1:27 PM

If Americans ate better food and avoided obesity, they could cut $1 Trillion from their healthcare costs, as per point 8 here.

This is a rare issue where it is more the public's fault rather than the government's.

GK   ·  July 15, 2009 3:05 PM

Many of the arguments about Healthcare costs fail because people are making what in philosophy is called a category error. You donít go out and buy X units of healthcare, you buy an MRI scan or a certain drug. It would be like looking at the growing percent of GDP we spend on entertainment and conclude that entertainment spending is out of control.

The cost of almost any particular medical good has been falling over time, not rising. We are simply consuming more of them.

David Young   ·  July 15, 2009 7:59 PM

Chris Dodd...resign NOW

J. Galt   ·  July 15, 2009 9:56 PM

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