[November 8, 2007 @ 12:01 pm] David Catron

A central issue in the debate over health care reform is spending. The consensus seems to be that the steady increases we have seen in health care expenditures as a percentage of GDP are symptomatic of a dysfunctional delivery system badly in need of repair.

Not everyone endorses this gloomy perspective, however. In a recent article in the Quarterly Journal of Economics, Robert E. Hall and Charles I. Jones argue that, as our incomes grow, it makes perfect sense to invest more money in good health and longer life:

Is the growth of health spending a rational response to changing economic conditions—notably the growth of income per person? We develop a model based on standard economic assumptions and argue that this is indeed the case.

Unfortunately, being economists, these guys use a good bit of impenetrable jargon:

Standard preferences—of the kind used widely in economics to study consumption, asset pricing, and labor supply—imply that health spending is a superior good with an income elasticity well above one.

Huh? All they’re saying here is that health care is a species of luxury good. Thus, as our disposable income increases, we choose to devote more of it to health care. And, Lefty agitprop notwithstanding, we’re getting our money’s worth.

Over the past half century, Americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result.

Something to think about the next time some advocate of government-run health care uses rising costs as a justification for turning our entire medical delivery system over to Uncle Sam. 

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