June 28, 2014
Neil Irwin’s Upshot column rightly points to the fact that Obamacare may have an ambiguous effect on the economy over the next few years. The point is that we want to slow health care cost growth, but in a weak economy less spending on health care means lower GDP and fewer jobs.
This is true, but this is part of a larger story. Since the economy is operating well below its potential and millions of workers are unemployed or underemployed, anything that creates demand would boost GDP. This is the old pay people to dig holes and fill them up again story. We could do that and increase employment and output. Better yet, we could pay people to retrofit homes to make them more energy efficient, to educate our kids, or to provide child care. But that would mean larger budget deficits and policy is now controlled by a perverse religious cult that says budget deficits are the devil’s work. Anyhow, the health care story should be seen as part of the larger stimulus/deficit story.
The other point is that we have always had problems measuring health care. Suppose Pfizer develops a great new drug called “Placebo” that is supposed to cure depression. It sells $170 billion worth of this drug in 2014. This would be an addition to GDP of approximately 1.0 percentage point. Now suppose that a whistle-blower reveals Pfizer’s secret test results that show Placebo doesn’t do anything. Sales plunge to zero in 2015. GDP has just fallen by 1.0 percentage point.
Much of health care spending has this character. We value our health, but we measure what we pay for. If we are healthier because of better diet and more exercise, and therefore spend less on heart related drugs and procedures, this counts as a drop in GDP. And many procedures and drugs really don’t improve our health, just like Pfizer’s Placebo drug. So, there will be many issues associated with measuring the economic impact of Obamacare, but it is wrong to imagine that we didn’t previously have problems measuring the output of the health care sector.
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