Mankiw points out that medical professions, most notably doctors, are much more expensive in the U.S. and that this is a growing trend. Roberts rightly, in my opinion, refers to this as a symptom rather than a cause. Why do I think Roberts is right?
Most industries simultaneously find labor compensation increasing AND prices falling. To non-economists, this is often perplexing: why is it that an input cost can increasing while an output price falls?
The answer is because of productivity. As labor becomes more productive (because of capital investments, skills, experience, whatever) it is able to increase its value by producing more output and hence lower prices. Labor is, in a sense, being rewarded for making costs and prices fall.
I think our institutions in health care have damaged this important link between productivity and output. I suspect that if you look at laser eye and plastic surgery, you find that doctor compensation will have also increased as prices have fallen. If I have time, I'll look for the data and report back.
Friday, June 26, 2009
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2 comments:
This leads me to believe:
Because of insurance there is too high of a demand. Because this demand is high, prices are also high. Because prices are high for medical procedures, then medical insurance is high. Because medical bills are expensive, people buy insurance (well... among other reasons).
(This is the song that never ends.. yes it goes on and on my friends)
But where is the link between productivity and output broken? Dr. see more patients in less time (aka more productive)therefore they get paid more, and as you show here purchasing less of their time should reduce our medical bills. So is the demand just outpacing the productivity level increases or why are the prices not falling? Which 'institutions' are messing this up and how?
Granted the title to your post is 'Quick Observation...' but the health care system is pretty interesting.
I think many of the productivity gains, as you pointed out, are somewhat artificial. This increases doctors salaries, making it a symptom rather than a cause. I think we are actually agreeing...Monday lunch fodder I suppose...
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