Posts Tagged ‘Gross domestic product


Have we learned anything from the recession?

In my last post I talked about the trade-off between committing personal and national financial resources to education of the up-and-coming generation versus the end-of-life expenses of the Baby Boom generation. When we Boomers entered the world after WWII it cost US society a lot to expand educational and other systems across the country to accommodate the Baby Boom. But it may cost even more to pay for the exit of this generation at the prices that the last years of life cost through Medicare and family supplements.

I quoted from $123,000,000,000,000*, a recent article by economist Robert Fogel in Foreign Policy. Fogel was drawing attention to the huge commitment to education that China is making. He estimates that as a result of education and other things, the country’s economy will soar to $123 trillion by 2040. The inference is that this will reduce the US and Europe to much lesser financial powers in the world; an outcome that is undesirable if not something to be feared. The implied message is that the US needs to make a similar commitment to education and other economic steps to enable it to compete and grow in the next three decades.

Fogel seems to be in awe of China’s coming achievement, and the article’s subtitle is: “China’s estimated economy by the year 2040. Be warned.” By contrast, Fogel seems rather contemptuous of Europe’s social situation: falling population and low economic libido. He states:

One-hundred fifty years ago, it was considered a sin to enjoy sex, the only legitimate purpose for which was procreation. But today, young [European] women believe that sex is mainly a recreational activity. Behind the fertility trend is a vast cultural shift from the generation that fought in World War II, which married early and produced the great baby boom of 1945 to 1965. The easy availability of birth control and the rise of sex as recreation mean that populations are likely to shrink in many European countries. […]

In another way, Europe’s culture confounds economists. Citizens of Europe’s wealthy countries are not working longer hours to make higher salaries and accumulate more goods. Rather, European culture continues to prize long vacations, early retirements, and shorter work weeks over acquiring more stuff, at least in comparison to many other developed countries, such as the United States. In my observation, those living in most Western European countries appear to be more content than Americans with the kind of commodities they already have, for example, not aspiring to own more TVs per household. Set aside whether that’s virtuous. A promenade in the Jardin du Luxembourg, as opposed to a trip to Walmart for a flat-screen TV, won’t help the European Union’s GDP growth.

Perhaps Fogel is being tongue-in-cheek in this implied criticism, but the inference is that poor Europe is a slacker culture that doesn’t want the benefits of ingesting more goods and boosting its GDP. Shame on them for not wanting a flat-screen in every room!

Let’s see: smaller population, lots of recreational sex, and a population that values taking time for life experiences rather than expending it to have more “stuff,” as Fogel puts it. Future Europe sounds to me like a great place to live. When I imagine 2040 China with  ~1.5 billion people on hamster wheel’s generating $123 trillion worth of “stuff” and activity annually, I can hardly imagine a less appealing place to live. Is an economy of that scale  supposed to be some form of Nirvana, a “worker’s paradise” perhaps?

As I recall, over the last 18 months the media have been telling stories about people in the US  who have learned that it isn’t the end of the world if they can’t afford a 50″ TV, or the latest pair of Nike collectible basketball shoes. When you remodel the kitchen is it really vital to your happiness to have granite counter tops and a professional gas range?Reportedly, some folks have even learned that a simple, less consumption-driven life could be happier than one haunted by debts to get stuff that provides thrills that expire much sooner than the bills.

I suspect that Fogel is tweaking our noses to make his point about China’s imminent ascendency. I’m with him that a nation’s wellbeing is deeply connected to it’s intellectual capital (i.e., ideas and well-educated citizens), but gross GDP is not, to my way of thinking, the best measure.

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Taking the measure of healthcare “elephant in the room”

I called this blog The Vortex because it seems to me we’re in the midst of some really big forces that’ll send us spinning. One of those — here in the US and elsewhere — is demographics. Specifically, the denoument of the Baby Boom generation — of which I am a member — is going to cause perhaps even more turbulence than our advent.

I seldom read George Will’s column in the WashPo because I almost never agree with his perspective on things, but the one he published yesterday brings up the issue of the cost of care of the elderly and its impact in the next couple of decades. I think the situation is of great concern even if I don’t agree with Will’s conclusions about what to do.

The column quotes data about the increase cost of care with age from “Forecasting the cost of US Healthcare” in  the American Enterprise Institute’s newsletter.  The author, Robert Fogel, cites what I think is pretty compelling data about the cost of the end-of-life and, by implication, the possible total cost of the expiration of my generation.

Figure 1

…In this figure, the burden of per capita healthcare costs, which is based on U.S. data, is standardized at 100 for ages 50–54. Figure 1 shows that the financial burden of healthcare per capita rises slowly in the 50s, accelerates in the 60s, accelerates again in the 70s, and accelerates even more rapidly after the mid-80s. The financial per capita burden at age 85 and older is nearly six times as high as the burden at ages 50–54. Notice that the financial burden of healthcare for ages 85 and older is over 75 percent higher per capita than at ages 75–79. However, the physiological prevalence rates (number of conditions per person) is roughly constant at ages 80 and over.

Costs rise, even though the number of conditions (comorbidities) per person remains constant, because the severity of the conditions increases or because the cost of preventing further deterioration (or even partially reversing deterioration) increases with age. It should be kept in mind that standard prevalence rates merely count the number of conditions, neglecting both the increasing physiological deterioration with age and the rising cost of treatment per condition.

Mr. Fogel goes on to discuss various ways the curve could play out over the next couple of decades and ends with what I think is an amazingly optimistic forecast that rising US incomes is going to inspire greater use of biotechnology that results in longer life, fewer chronic conditions and — by some calculus unclear to me — less than devastating total health care cost. In other words, not to worry about the hockey-stick graphs of huge long-term costs, and healthcare is a great business to be in. Read it for yourself and see what conclusion you reach.

This information is cited by George Will as part of a point I think is worth considering. The health care data sets up a contrast between the health care expenditures ahead for the US versus the very large expenditures being made for education in China as a stride toward having by the world’s largest economy by 2040. Will cites another article by Fogel in Foreign Policy titled: “$123,000,000,000,000*” — Fogel’s estimate of the total GDP of China in 2040. That’s a number intended to rock your world that will put China at 40% of world GDP while the US produces only 14%. So China replaces the US as the world’s economic hegemon less than 30 years from now.

The idea doesn’t make me shudder as badly as it would some other poeple, but I think the conundrum identified is valid: how is the US to allocate it’s resources? How much is going to be allocated to health care for us Baby Boomers versus how much is to be allocated to development of the next generations in a highly competitive world? That dilemma faces indivicual families as well. If grandma doesn’t have the money for things not covered by Medicare like long-term-care (which can run thousands of dollars per month), are you doing to wipe out the kids’ college funds?

During the recent health care reform debate calls for evidence-based treatment or comparative effectiveness were greeted by the demagogic  charge of “death panels.” Nevertheless, decisions about resources will be made, even if they’re only the path of least confrontation. This elephant-in-the-room isn’t going away, and it’s big.

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Tipping-point to government as #1 health payer is at hand

Today a burst of news about the cost of health care in the US, now and in the future, has hit the front pages. An AP report in says that yesterday Medicare’s Office of the Actuary released estimates indicating that by 2012 half of the health care in the nation will be paid for by federal and state government though Medicare and Medicaid. Earlier projections put the crossover in 2016.

There are two main reasons for this: 1) Baby Boomers will start hitting the Medicare system in 2011, and 2) the recession. The recession has thrown people out of work and out of health care plans onto Medicaid.

The report estimated that in 2009, the United States spent $2.5 trillion for health care, with government programs – mainly Medicare and Medicaid – paying $1.2 trillion. Employer health insurance and various private sources covered the other $1.3 trillion. Even as the economy shrank because of the downturn, health care spending grew by 5.7 percent from 2008. Spending by government grew nearly three times faster than private spending, closing in to overtake it.

In other data reported in Health Affairs looks at a little differently.

In 2009 the health share of gross domestic product (GDP) is expected to have increased 1.1 percentage points to 17.3 percent—the largest single-year increase since 1960. Average public spending growth rates for hospital, physician and clinical services, and prescription drugs are expected to exceed private spending growth in the first four years of the projections. As a result, public spending is projected to account for more than half of all U.S. health care spending by 2012.

So…government in one form or another is set to become the biggest payer of all in health care, ready or not.

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