Given that it’s election season (again), the twin topics of jobs and health care will be upon us ad nauseum.  Employmnet in health care fields has grown rapidly since the passage of Medicare in 1965 (see the chart in the article cited below.)  Is this a good thing?  If the health care industry is terrific at creating jobs, why don’t we just spend continuously more on health care (as we in the U.S. have done steadily for at least the past 60 years)?

In the current issue of that most famous of medical journals, The New England Journal of Medicine, Katherine Baicker and Amitabh Chandra explain why such a policy is a terrible way to increase the economic welfare of Americans.  The argument is pretty straight forward for any student of economics, though not necessarily for the political cognoscenti.

But this focus on health care jobs is misguided. The goal of improving health and economic well-being does not go hand in hand with rising employment in health care. It is tempting to think that rising health care employment is a boon, but if the same outcomes can be achieved with lower employment and fewer resources, that leaves extra money to devote to other important public and private priorities such as education, infrastructure, food, shelter, and retirement savings.

They provide two graphs to illustrate the strong correlation between employment growth and cost per year of life expectancy gained (not easily transported to this blogpost).  Now, clearly, correlation does not imply causation, and there certainly are health outcomes of interest in addition to life expectancy, but careful studies of such relationships suggest strong diminishing returns to devoting a larger and larger share of our workforce to health care services.

Keynes argued that we could increase employment and spending by hiring one group of people to dig holes in the ground and another to fill the holes back up.  Although this might increase expenditures and employment in the short run, without productivity increases to generate income, such workers would have to be paid out of existing production, and thus, such income generation would not yield sustainable improvements.  Baicker and Chandra make a similar point.

The bottom line is that employment in the health care sector should be neither a policy goal nor a metric of success. The key policy goals should be to achieve better health outcomes and increase overall economic productivity, so that we can all live healthier and wealthier lives. Our ability to ensure access to expensive but beneficial treatment is hampered whenever health care policy is evaluated on the basis of jobs. Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price.

So what does this have to do with yesterday’s Supreme Court ruling?  Who knows?  It all depends upon how the legislation is implemented and how people respond to incentives provided.

The article described below was published yesterday in Spiegel, a well known German periodical.

Economic historian Niall Ferguson (who typically takes a long term view of economic forces) and economist Nouriel Roubini (who some know as Dr. Doom for his prognostication in 2005 of the housing bust and subsequent financial crisis) have gotten together to argue that the  toxic mix of contemporary economic and political forces could generate both economic and political chaos for Europe.  They suggest a variety of steps that they believe could both resolve the unstable conflicts presently in existence and be palatable to all stakeholders, if they desire to sustain (or expand) the integration of Europe.   In brief there recommendations are as follows:

1.  Banks should be recapitalized by direct (rather than indirect) means  – similar to the TARP program in the U.S.

2.  A deposit insurance program should be constructed – similar to the FDIC program in the US

3.  Funding of 1 and 2 should be through means that minimize moral hazard burdens for tax-payers and avoid the creation of “too-big-to-fail” institutions.

4.  Fiscal austerity should be built into a long run plan but should not be implemented in the current economic context.

5.  Economic growth needs to be the number one priority.

6.  Public policy should employ all available tools – monetary, fiscal, barrier reducing, and infrastructure increasing – to boost income and consumption.

The article begins as below.  For the full piece, follow the link at the bottom of this posting.

The Perils of Ignoring History: This Time, Europe Really Is on the Brink
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The European Union was created to avoid repeating the disasters of the 1930s, but Germany, of all countries, has failed to learn from history.  As the euro crisis escalates, Berlin should remember how the banking crisis of 1931 contributed to the breakdown of democracy across Europe. Action is urgently needed to stop history from repeating itself.

A Commentary by Niall Ferguson and Nouriel Roubini