We don’t spend enough on health care?

Craig Karpel writes today in the Wall Street Journal that we don't spend enough on health care.  Basically, he writes that as the economy has evolved, we have gone from focusing on food (in the agricultural and mercantile revolutions) to clothing (in the industrial revolution) to shelter (in the late 20th century and this decade).  It is only natural that we would now turn to focusing on our health and longevity.  It's an interesting argument, if different from the viewpoint I have expressed in my previous health care pieces.

One reason that I do believe it is in fact unfair to compare the cost of care in the US to that in other countries is that the rest of the world free rides off the medical innovation that mostly takes place in the United States.  The entrepreneurial medical culture in the US incentivizes the use of advanced technologies, which eventually spread throughout the rest of the world.  Other countries use their monopsony buying power to push down prices so that, in effect, American workers subsidize the health of the rest of the world.

The benefit of spending money on health care versus other items like consumer goods or petroleum is that it is a domestic industry.  In addition, the accumulated R&D that takes place in the United States translates to a large amount of net exports.  Better health care and advances in longevity should also allow for a long term rise in the average retirement age, increasing the productive life of an American worker and boosting the long term potential growth rate of the economy.

The health care conundrum is the classic "on the one hand, on the other hand" situation that permeates economics.

Market Valuation Model

I have been working on a stock and bond market valuation model, and have been updating it a little more than once a quarter.  The links are below:

How to Value the Stock Market (8/25/08)

The Stock Market is Overvalued, Potentially by alot (11/6/08)

First Quarter 2009 Market Update (3/31/09)

Revising my Stock Valuation Model (4/24/09)

The Recent Market Rally Explained (6/15/09)

Q2 Market Update (7/7/09)

Q3 Market Update – A low return world (10/2/09)

Year End 2009 Market Update (1/6/10)

The Long Term, Real Return on Stocks is Only 4-5% (2/9/10)

Predicting Inflation: Gold versus Bonds (3/28/10)

Q1 Market Update: The Stock Market is Now Overvalued (4/16/10)

Q2 Market Update: Sometimes cash is the “least bad” option (7/14/10)

Q3 Market Update: The Fed’s War on Savings (11/14/10)

2010 Market Review: Beware an Emerging Market Inflation Crisis (2/6/11)

Q1 2011 Market Review: It’s Time to Raise Interest Rates (4/10/11)

Get ready for a Dollar Bull Market (5/17/11)

Q2 2011 Market Update: The “Rounded Bottom” Scenario (4/6/11)

Are stocks Cheap? Not Quite, But Close (8/10/11)

Q3 ’11 Market Update: The Beginning of the End (10/8/11)

Q2 2012 Market Update: Have Corporate Profits Peaked? (7/1/12)

2009 Economic Analysis

I am a top-down analyst.  My first instinct is almost always to look at the long term trends and patterns.  I’ll go back hundreds of years if I can.  Sometimes the easiest way to make money is to grab on to the “one big trend” and ride it.

2009 Annual Outlook (12/08-1/09)

Part I – The Depression’s Long Shadow – The economic policies that were put in place in response to the Great Depression and built upon since that time…promoting housing investment, personal consumption, rising indebtedness, monetary stimulation…have run to their logical conclusion.  We are now in the period of transition that will likely lead to the reversal of those trends.

Part II – The Trade Deficit and the US Debt Machine – How periods of tight monetary policy lead to a strong dollar, which leads to large trade deficits leading to a weak dollar policy, leading to foreign intervention which leads to high US indebtedness.  The only sustainable way out of our debt problem is to start running a trade balance, or preferably, a trade surplus.

Part III – Shrink the Stimulus, Triple the TARP – Economic crises are always banking crises.  The health of the financial system is critical to stabilizing the economy.  The Obama stimulus is more of a sideshow.  The banking system needs another $1 trillion to properly absorb the projected losses.

Part IV – The Recession’s End is not Near – Given the state of the housing market and high consumer indebtedness, the US consumer is tapped out.  Business is in OK shape.  The federal government does have capacity to lever up while the consumer pays down debt.  The aggressive fiscal and monetary policy response should produce a spurt of growth by early 2010, but it will likely be unsustainable without borrowing more demand from abroad.

2009 – Interim econ posts

Progress on the Financial Rescue (1/29/09)

Shock and Awe from the Feds (3/26/09)

Good News on the Trade Deficit (4/6/09)

Hot and Cold on Obamanomics (5/15/09)

The Economist on the Stress Tests (5/17/09)

Inflation is not a problem (yet) (5/25/09)

The truth about US trade deficits and US manufacturing (6/2/09)

Bill Gross on the Coming Fiscal Train Wreck (6/3/09)

More on American Manufacturing (6/4/09)

The Nature of the Economic Recovery (10/28/09)

Assessing the Quality of Q3 GDP Growth (10/30/09)

Government Deficits are Necessary (for now) (11/04/09)

Invest in infrastructure to stimulate jobs (11/20/09)