Health Care Is a Growth Industry

Robert Fogel explains why controlling health care costs is counterproductive:

Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. […] 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.

The statistics on health care expenditures may seem alarming at first glance, but they aren’t so out of the ordinary when you compare health care to other sectors of the economy. The average consumer spends a lot more on personal computers than she did 40 years ago. That’s because people are wealthier, computers are more readily available, and technology has improved. The increased spending on computers has created jobs directly, as more people work to build the hardware and software components that go into computers. Computer spending has also helped the economy indirectly, because when people use computers to work more efficiently, they free up resources for new investment.

Health care is similar. As Fogel points out, people tend to purchase more health care as their incomes rise and medical technology advances. These spending increases are not a sign of rising costs, but of the changes in resource allocation that come with wealth. Controlling health costs — i.e., limiting health care expenditures — would hold back this sector of the economy and keep new jobs from materializing. No one would want to control spending on computers; health care spending should also grow unfettered.