While she doesn’t spell out that we are headed for an inevitable crash, McArdle’s analysis of the healthcare economy doesn’t allow much room for hope.
Megan McArdle is an insightful, if rather “establishment,” economist. This recent column was, among other things, a startling look at how important healthcare jobs have become. She observes that “everyone” agrees on two political positions: 1) government must do something to help the working class financially, and 2) government must do something to lower healthcare costs. McArdle argues that the two positions are incompatible because the working class makes much of its income from the healthcare economy.
Go to a Rust Belt city or a medium-size town somewhere and start talking to folks about how they’re doing. There’s something you’ll quickly notice about the people who tell you their family is doing OK: a whole lot of them work in health care. They are the registered nurses, the LPNs, the physical therapists, the home-health-care aides, the X-ray technicians, the phlebotomists. They work at a local hospital, or a nursing home, a doctor’s office, or maybe for the school system.
Their jobs are well-paid for their educational level and the local cost of living. The work is also very stable, for an aging society needs a lot of health care, and since it is generally reimbursed by third parties, demand does not fluctuate with the business cycle as strongly as, say, demand for hairdressing or construction.
She goes on to say that jobs in the healthcare economy are the equivalent of manufacturing jobs for working class Americans a couple of generations ago. She also points out that human labor makes up a large part of the healthcare expense. The idea that most of the cost is due to technology or Big Pharma is a myth. The cost of all these nurses, LPNS, physical therapists, etc., adds up.
McArdle says that she doesn’t think these expenses will be significantly cut anytime soon—for at least four decades.
They won’t have to be cut. There will be a crash at some point that the government cannot stop. The whole healthcare economy is going to end with riots in the streets.
When we had more jobs in manufacturing, we produced items that other people, at home and abroad, wanted and were able to pay for with money that they had saved and earned. They didn’t sell items that were absurdly overpriced, paid for by third parties, subsidized by the government, and often unwanted (as is the case with many tests and other “care” in the healthcare economy).
It isn’t just that healthcare expenses are high. This is a bubble just like housing in 2008. To sustain the bubble, prices must continually rise higher to keep the system afloat. There is no way it will keep expanding for four decades.
In fact, the healthcare bubble probably would have collapsed already, or at least deflated, if it were not for Obamacare enabling costs to rise further. I think this illustrates the dirty secret behind all government programs, including welfare spending. Those programs provide “welfare” not just to the marginal people they claim to help, but to a cadre of educated professionals who support the program and rationalize it.