Health Care Progress Might Not Spark Growth

A blog about business and economics.
Dec. 26 2012 2:03 PM

Health Care Progress Might Not Spark Growth

Thinking more about Robert Gordon's cranky pessimism about the future of the economy, I think a better argument might be that it's by no means clear that technological progress in the health care sector would actually lead to economic growth.

Now certainly it might. But the reall big economic gains are probably in things that are of marginal actual health care value. Right now, for example, aggregate spending on baldness treatments is pretty modest since the existing treatments don't work. The fact that the spending is non-zero, however, shows that there's huge lurking demand here. A breakthrough leading to a really effective baldness treatment would have strong sales and produce a ton of revenue and, depending on how it works, a ton of jobs too.

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By contrast, a miracle cure where a $10 pill lets you live disease-free up to the age of 95 and then you drop dead wouldn't be much of a job creator. You'd have a factory or two, and a ton of laid-off hospital workers. The benefits, if they exist, would have to come via ricochet. Vastly reduced health care expenses would potentially open up huge new markets for other kinds of services or consumer goods but it's an open question as to whether that would take the form of really innovative new stuff or just lots of people hiring maids. That said ending all illness would be a pretty remarkable achievement on its own terms! As it happens, per capita GDP correlates pretty well with broader measures of human welfare. But that's an empirical observation, not a law of nature and certainly not anything integral to the concept.

Really dramatic new technical developments could easily sever the link, and that's particularly true in the health care sector. The economy produces and sells "health care services" but the objective of medical research is good health outcomes which is a very different thing.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.