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Back to Health and Education

Posted by: Michael Mandel on February 27

I’ve harped over and over again about the importance of health and education as a driver of growth, in both hiring and spending. Taken together, health and education equals 25% of GDP, and growing.

Obama’s budget just drives that home. Like the stimulus package, the 2010 budget puts an emphasis on health and education. Just two examples: The budget includes $630 billion for health care reform over the next ten years, on top of existing money. In addition, Obama is proposing making the Pell Grants part of the mandatory part of the budget. Education becomes essential rather than discretionary.

Health and education are the floor for the economy going forward.

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Reader Comments


February 27, 2009 03:50 PM

I agree that health and education are important elements of our economy.Just throwing more money at them,however is by itself not the answer.As everyone knows we have some of the highest per capita spending on health and education of any advanced country in the world,so reforms should aim at getting more bang for the buck in these areas,otherwise our standard of living will surely suffer in the future.


February 27, 2009 04:31 PM

But aren't education and healthcare just surrogates for government? How does more government makes us wealthier?


February 27, 2009 05:55 PM

Actually, health and education are the two most wasteful sectors of the economy.

Everyone knows that healthcare is wasteful.

Education is wasteful due to teacher's unions, an emphasis on left-wing indoctrination rather than actual education, etc. College attendance was in a bubble due to student loans being available too cheaply. Just like housing, college tuition was inflated due to cheap interest rates. This is why college grad wages did not rise for the last 10 years - the quality of students attending, and quality of educated provided by the Universities, has declined, and employment markets merely reflect that.

There are no shortcuts. The only real answer to make the economy boom again is technology of all types.


February 28, 2009 12:12 AM

Better health and education are benchmarks in human progress. I agree with Viking though that the solution is not necessarily just spending more money. From my perspective in Australia, the health care and education sectors are stagnant, with institutions and practices little different in shape to those I grew up with in the 70s. I suspect both sectors are stifled by a combination of regulation and powerful vested interests. Additional government spending in both these areas should be focussed on new approaches, not justed handed out to existing player so they can expand their empires.


February 28, 2009 12:52 AM

Education and healthcare have great potential as productivity enhancers, but they have also some limitations as tradeable services (at least, the conventional face of these industries do). They can employ a lot of people people and spend a lot of money as long as the surrounding population can afford to pay for it, but how do we continue to afford to pay for it?

I know you've touched upon this before, but I still have trouble understanding how relatively non-tradeable services can provide the solution to one of the key problems you identify with the economy: that we have a large trade deficit and must borrow to buy.
Wouldn't an industry with a strong positive marginal effect have to either export or displace imports (when we we have a trade deficit)? What am I missing here?


February 28, 2009 06:15 AM

Higher education is a significant export earner for my country (Australia). While I'm not sure what the situation is in the US I expect it is a big earner for you too. Medical systems that deliver good outcomes for a reasonable price will always be in demand. Spin-offs in terms of technology are always possible (how much better than selling weapons technology!) I would certainly expect Western developed countries to be able to sell e-learning packages, and medical technology, including diagnostic software should be possible as well. This is what I mean though about avoiding the focus being on pouring more funding into existing institutions. More doctors, nurses and primary school teachers is not the answer.

Jonathon Levy

February 28, 2009 09:26 AM

Education has a long tradition of inefficient delivery of sertvices, a tradition held in place by the educators themselves in their own self-interest.

High-quality online courses are expensive, which is why online learning is mostly garbage. But compelling and powerful online learning programs can be developed to serve millions of students if the cost for quality can be spread over thousands of institutions.

A change in public policy creating a new educational paradigm can break these dinosaurs our of their 19th-century vestments and serve an enormous public good.

If President Obama can extend his "infrastructure repair" vision beyond roads and bridges to the need for innovative infrastructure in education using high-quality online learning solutions, we can have quality at scale. We might get some real progress at a time when it is most needed and, perhaps, the public would be most receptive.


February 28, 2009 01:45 PM

"The cost of health care eats up more and more of our savings each year, yet we keep delaying reform" (from Obama's address to the Congress).
I hadn't taken into account that health care costs have largely contributed to the amassing of Private Debt. High health care costs deprive the American consumer of money to spend on cars, electronics, etc.
If the goal is to bring health care costs down to earth, then I agree with Obama (and our host) on giving health care reform a high priority.


February 28, 2009 03:29 PM

The policy tracks to the future are now in place: more money down the rathole, retreat from the rest of the world (unless we need their money), ignore the real economy and competitiveness, ignore unfunded social liabilities and add on some more. The consequences will be lower growth for decades ahead but with cycles, global problems left to blow up, and faster loss of competitiveness. Enjoy the lost decades and lives, while others live it up on borrowed futures.


February 28, 2009 08:53 PM

You make a good point, but I'm wondering who makes money off of higher education (in the US) after all the government subsidies are figured in. And American universities are already pretty heavily subsidized: I'm not sure what the incremental effects of more dollars will bring. At least it's not a bad jobs program and doesn't leak money too badly :)

You're probably right that software and hardware fields adjacent to conventional healthcare and education have a some real possibility, but it will be interesting to see if money goes there. But big investment dollars, including government dollars, typically flow to the better-established part of a field. I certainly don't get the feeling that's where Obama is heading: wouldn't direct investment in those fields be considered a trade subsidy and incur international wrath?


February 28, 2009 09:21 PM

This move perfectly exemplifies the stupidity of govt spending, where money is thrown down the rathole of the most inefficient sectors of the economy because that's where more useless jobs are created. This is the modern-day equivalent of the worthless public spending projects of the 30s. Our great market economy makes sectors like technology and manufacturing much more efficient, so that we have to use less manpower/jobs in these sectors for the same output if not more, while highly regulated and govt-subsidized markets like medicine and education only get more and more inefficient and what's the govt solution? Let's dump more money down these ratholes. It's good to hear that all the commenters realize this, even the left-leaning ones, but I see no reason why a few of them think that there's a chance this money might be focused on useful reform. The whole focus here is to "create jobs," which is really a euphemism for wasting more work, not to improve anything. The one benefit of Obama's great stupidity in advancing these giant, idiotic, socialist plans is that it's likely to lead to a Republican resurgence in 2010, just as happened with Clinton in 1994. The great benefit of the stupidity of the democrats- these are the people who almost nominated Hilary after all- is that it extends to all aspects, even their political strategy.

Mike Mandel

March 1, 2009 03:28 PM

All good comments. Several points here. First, healthcare and education both generate intangibles which are either poorly measured or completely unmeasured by GDP. Second, we currently have both a demand and supply problem in the economy. Better health and better education are two of the few things that everyone (Republicans, Democrats, technocrats, environmentalists, etc) would agree would be a good thing. Third, there is clearly a distinction between 'better health and better education' and 'more money spent on the current health and education systems.' But in the short-run, during a nasty downturn, it makes sense to glide over the distinction. (I think I will expand this point in a post)


March 1, 2009 05:18 PM

I completely disagree with your last point,Mike.Now is exactly the right time to go after the inefficiencies in both healthcare and education.Do you really think that the powerful unions running these areas will agree to reforms when the economy is back in health?Also the only way that Obama can sustain and justify the trillions of additional spending that he is proposing,is if we start seeing real improvements in efficiencies.His proposal to computerize all medical records is a good start.


March 1, 2009 09:10 PM

Mike, your first two points are irrelevant, the key is your third point. Why should we let the govt take our money and spend it on the grossly inefficient medical and education systems? Why not leave that money with private investors and let them spend it where they think is best? I guarantee they won't put it into our craptastic medical and education systems. If you're worried about them just sitting on the money by putting it into gold or something else unproductive, thereby furthering the current vicious cycle of the economy, give them taxbreaks for investing or spending (not for stock market "investment" though, as stocks have just become lottery tickets, but actual investments into businesses). Simply dumping money into markets like education and medicine, two markets where they after all stringently keep qualified professionals out with their idiotic licensing requirements, is more likely to raise salaries for current workers than to create new jobs. Electronic Health Records is a worthwhile exception but it strikes me as the token benefit surrounded by a ton of waste.

Viking, what makes you think that any govt has the political will to go after inefficiencies during a downturn? Their whole goal is to ADD to inefficiency, as long as it adds jobs, which unfortunately will mean more votes for their party down the line.


March 2, 2009 08:59 PM

Ajay,I guess I want to believe Obama,even though I didn't vote for him,that all this spending he proposes,will make our economy more efficient in the future.If is is really just a way to add more people to the payrolls in education and health care then we are in trouble for the long term.It is interesting though that Mike Mandel seems to suggest that it is okay to throw money into these areas,just to employ more people during the recession.What happens when the recession ends?Why don't we just rename Washington DC Leningrad and be done with it!!

Mike Mandel

March 3, 2009 05:57 PM

Ajay, Viking,

Our economy needs two things at this point. It needs more innovation, and it needs more demand. Right now the previous sources of demand--housing, cars, consumer products--have fallen off sharply. So healthcare and education are valuable as sources of demand, because people clearly want more of them.

Would it be better to have the demand coming organically from the private sector? Probably. But in the short run and even medium run, I'm happier with the tax dollars going to health and education than to bridges to nowhere.

Tom E.

March 3, 2009 08:46 PM

Free, high quality, on-line college is needed. Some foundation needs to step in. Consumers are being fleeced in education and health care.

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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