Belmont Club

A point of view

Robert Fogel, who won the Nobel Prize for Economics in 1993 estimates what the demand for health care will be over the coming decades. His conclusion is that total costs will be a battle between two trends. While technological advance is lowering the age at which chronic disease takes hold and therapies are becoming cheaper (hence more cost effective) a larger number of people are surviving to an older age. In other words, if aging is taken to be a proxy for health care, we are more successful at ameliorating the ravages of old age but on the other hand, this results in more old people. Writing in The American, Fogel says:

In attempting to forecast the cost of healthcare a generation in the future, several different issues must be considered when constructing estimates. The first of these is the likely downward trend in age-specific prevalence rates of chronic diseases and disabilities. Secondly, there is the rate of change in the cost of treating these conditions: will advances in biotechnology reduce or increase the cost of treatment? A third issue is the likely increase in the number and proportion of the population that is elderly, and a fourth issue is the rate at which the U.S. population will increase and the sources of that increase. The fifth issue is the rate of growth of per capita income and the impact of economic growth on the demand for the quantity and quality of healthcare.

But something else is going on.

Fogel argues that because most Americans have satisfactorily met their food, shelter and clothing needs, people are willing to spend a greater fraction of each extra dollar on health care, simply because it matters more to them then say, extra comestibles, which they have enough of. To some extent the American propensity to spend more on health care resembles the demand for a luxury good, “a good for which demand increases more than proportionally as income rises”. Fogel writes:

The main factor is that the long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent. This is not a new trend. Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87 percent to just 30 percent, despite the fact that we eat more food, own more clothes, and have better and larger homes today than we had in 1875. All of this has been made possible by the growth in the productivity of traditional commodities. In the last quarter of the 19th century, it took 1,700 hours of labor to purchase the annual food supply for a family. Today it requires just 260 hours, and it is likely that by 2040, a family’s food supply will be purchased with about 160 hours of labor.

An aging but still functional society, in Fogels apparent view, would naturally demand more health care than skateboards, but for so long as they can sustainably pay for it through a well functioning market, there is no need to suppress demand. On contrary, health care will be one of the fundamental demand drivers of technology for biotechnology and other new industries way into the 21st century. In the long struggle between man versus death, humanity, having basically beaten starvation and cold, would naturally turn its efforts to fighting old age and disease.

Consequently, there is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction.

Fogel’s graphs and calculations, his estimates of total health costs and curves while interesting, are less fascinating than the philosophical perspective he brings to the debate. By contrast, Dr. Zeke Emmanuel’s age rationing diagram seems straight out of the Marxist 19th century. To Emmanuel, aging and its challenges are a cost to be managed, for Fogel it is a market opportunity.

Dr. Zeke Emmanuel's Allocation System

Dr. Zeke Emmanuel's Allocation System

They are two interesting points of view in the health care debate. Marxism is fundamentally a sad philosophy which takes the view that life is a brief opportunity to make hay between two endless stretches of darkness. Fogel’s attitude seems to be that Death is something that should be taken on and if possible, eventually defeated. The fight against death and aging is “driven by demand”. Pierre Teilhard de Chardin wrote that “someday, after we have mastered the winds, the waves, the tides and gravity, we shall harness for God the energies of love. Then, for the second time in the history of the world, man will have discovered fire.” Perhaps it’s a dream, but while we live, we can choose our dream.


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