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Should Medical Spending Count as Investment?


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November 07, 2005

Should Medical Spending Count as Investment?

Michael Mandel

I argue here why at least a portion of medical spending should count as investment and savings in the national income accounts. In particular, spending on prenatal health, childhood health, and public health have long-run payoffs that are big enough to easily qualify them as investment.

I welcome comments, especially from those "status quo" types who are prepared to defend the current silly system, where a new 20-room mansion counts as investment but spending on public health does not.

Added. See Mark Thoma's post on fixing health care. It would be a lot easier having a reasonable discussion about health care if we talked about it as investment rather than consumption (at least in part). Right now it all falls on the consumption side of the ledger.

08:44 AM

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When are you going to just admit that the supply side argument that tax cuts would lead to increase savings has failed miserably rather then trying to "define" the failure away by including anything you can dream of as savings.

Posted by: spencer at November 7, 2005 10:30 AM

It is the inclusion of depreciation due to new bugs, increased resistance, increased population, travel, behavioral changes, as well as how much of this may already be counted as investment by the firms providing such services that pose problems. In the US R&D is an expense while internationally R is an expense and D is an investment. It is too difficult to assess the value of R without the D. Isn't the improvement of life spans and work life already embedded in GDP, albeit future GDP, as much as ours are the product of past 'investments'.

Posted by: Lord at November 7, 2005 03:33 PM

When it comes to public health programs (vaccination, etc) then you could make a reasonable case for calling it an investment. But while orthodontics may increase the future earnings of an *individual*, it's hard to see how they would increase the future earnings of the entire society--seems like a zero-sum game in which the beautiful benefit at the expense of the not-so-beautiful (unless someone wants to argue that overall productivity will improve because of more smiles...)

Posted by: David Foster at November 7, 2005 05:03 PM

David

No, I don't really think that orthodontics contributes a lot to increased productivity. But then again, neither does that 10th bathroom in a newly built mansion (and housing construction still counts as investment).

Posted by: Mike Mandel at November 7, 2005 05:20 PM


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