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Will Healthcare Save the Country from Recession?

Posted by: Michael Mandel on January 04


I wrote this story in September 2006. The headline reads “What’s Really Propping Up the Economy: Health care has added 1.7 million jobs since 2001. The rest of the private sector? None.”

Well, here we are back to the same point again. The healthcare and social assistance sector added 37,000 jobs in December. By contrast, the rest of the private sector lost about 50,000 jobs. Over the past two months, health care and social assistance have added 66K jobs, and the rest of the private sector 8K.

In fact, I believe that the continued growth of health care employment will be the reason that the U.S. economy skirts official recession. With a baseline job growth of 30-40K per month, funded in large part by government spending, healthcare may be enough to keep the economy afloat.

In fact, healthcare is this generation’s version of keynesian economic policy. Both Republicans and Democrats are willing to “borrow-and-spend” to fund healthcare (though Bush was able to sustain his opposition to expanding the State Children’s Health Insurance Program). In fiscal year 2008, Bush’s budget calls for spending roughly $750 billion on various health-related programs, up almost $40 billion from the previous year). That’s a river of money.

You can argue about whether we should be spending more or less, about whether there should be a single payer or more competition, about whether the money is well spent or badly spent…but it’s there, and it’s paying for lots of jobs.

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Reader Comments


January 4, 2008 09:49 PM

Is there still a chance to skirt official recession? After today, I would say that it is no longer avoidable.


January 5, 2008 01:58 PM

Since first reading your piece in September 06 followed by your talk at the National Economists Club that following winter, I've been watching the healthcare labor market with great interest.

In my review of the data from BLS and BEA, I've noticed that capital expenditures per employee in health care run about two thirds that of capital investment per employee in general manufacturing. You've written about the declining manufacturing labor market as well and I have been wondering if you see capital investment in health care aimed at improving health care labor efficiency as a legitimate topic of focus as we look toward the future of servicing a growing demand for health care services with a declining number of RN's available to provide care.



January 5, 2008 02:51 PM

The problem with Keynesianism is that it can only prop up the economy in the short to medium-term. And that's exactly what has happened with the wars on Iraq and Afghanistan, tax cuts, increase in government spending and interest rate cuts. The US right now is not in a position where a solution à la Keynes may help. More spending just means an even uglier recession in the future.


January 5, 2008 05:48 PM

"In fiscal year 2008, Bush’s budget calls for spending roughly $750 billion on various health-related programs, up almost $40 billion from the previous year"

Mike that's a 5.6% increase. Is that a lot? Nominal GDP growth is often higher and likely as not in 2008 will be higher than 5.6%, so you are bearing the news that government spending on health care as a portion of the overall economy will very likely ... DECREASE? Sounds about right, but isn't that counter to your thesis?

Joe Cushing

January 6, 2008 04:19 PM

What concerns me about health care taking a larger part of our economy is its lack of durability. Our economy used to be driven by goods that were very high on the durability/consumable scale. Health care even used to be more durable when it was busy trying to cure illnesses and prevent them. Today the focus is on treatments and getting that life long income stream from every sick person. Today, a pencil is more durable than a visit to the doctor. Is it a shame that we spend so much on something that we have nothing to show for; or is it just a sign that we already have enough durable goods and have leftovers to spend on pure consumables?

Mike Mandel

January 7, 2008 05:24 AM


I've noticed the lack of capital spending myself in healthcare myself. I think we've shot ourselves in the foot a bit, by trying to control costs with less capital spending. But I'll have a lot more to say about that soon.

Mike Mandel

January 7, 2008 05:25 AM


A good point..which suggests that health care spending is only stimulative if the rest of the economy is slowing.


January 9, 2008 05:40 PM

Interestingly, the Dept of Health & Human Service just released their report -- health care spending grew only 6.7% in 2006 -- only a whisker faster that the nominal GDP growth, so health care/GDP was flat (up a tenth of a percent).

In 2005 it actually grew *more slowly* than nominal GDP, so health/GDP ratio fell a bit. The health care growth rates of 2005 - 2006 are less than HALF the average of the preceding decade.

I guess it'll be awhile before we know about 2007.

But THAT is an interesting story -- perhaps marking an historic inflection point.

The government headline said 2006 growth accelerated "only slightly". The big New York paper preferred to apply the word "SOARED".

The real story is sort of being missed here, I think.


January 12, 2008 03:42 PM

Much of our healthcare spending is to keep terminally ill patients alive for a few extra months. Once their inevitable death occurs the economy has nothing to show for the expenditure of those valuable resources.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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