Tag Archives: Government spending

U.S. Health Care Spending

A blog post on Random Critical Analysis argues that high wealth (proxied by high consumption) rather than GDP explains US health care expenditures.

Total per capita health care spending increases as wealth increases because people actually demand more goods and services (volume) per capita and because it is relatively labor intensive sector that does not enjoy the productivity gains found in some other sectors of the economy, i.e., overall costs increase through both volume and price together (volume * price).  GDP per capita is a relatively weak measure for these purposes and those few other high GDP countries happen to be much more export dependent (which does not independently predict significant increases in expenditures).  If you use a better measure like Actual Individual Consumption (AIC) or run multiple regression analysis on GDP expenditure categories most of the apparent excess health care spending shrinks quite dramatically.

Additional analysis of several major claims here (e.g., high prices due to limited market power of payers, high physician incomes, etc) show that these arguments suffer from similar issues.  The best available evidence show that across multiple measures our healthcare labor costs and overall apples-to-apples price levels are generally very much inline with our material standard of living.  US total per capita costs are probably somewhat more than expected, but this appears to be driven through higher volume (~100% more than EU28 average according to PPP study estimates), though even this is significantly, if not quite entirely, explained by our higher material standards of living.

On the Benefits of Higher Inflation in Japan

In his blog, John Cochrane critically reviews arguments in favor of higher inflation in Japan.

He approves of the view that a conventional stimulus argument does not make much sense—given that Japanese growth is around potential and unemployment is low.

He does not approve of the view that inflation would be helpful by lowering (public and private) debt burdens. He doubts that an inflation induced default on outstanding debt would significantly lower taxes (rather than lead to more government spending) and that even if it did, such a default would increase the optimism of young households.

He also questions whether inflation could significantly reduce the real value of Japanese public debt (because debt maturity is short) and whether the debt burden is actually large (given near zero interest rates).

Policy Priorities of French National-Front Majors

The Economist identifies three main policies that National-Front politicians implement in municipalities after they get to power:

  • Reaffirmation of Christianity,
  • security clamp-downs, and
  • spending cuts.

Residents in towns run by a NF major “are happy with their mayor, citing cleanliness and security as chief reasons.”

Scandinavia’s Success

In an online book published by the Institute of Economic Affairs, Nima Sanandaji argues not only that the Scandinavian success story predates the welfare state but also that the welfare state actually undermined the success story. From the book’s summary:

Many analyses of Scandinavian countries conflate correlation with causality. It is very clear that many of the desirable features of Scandinavian societies, such as low income inequality, low levels of poverty and high levels of economic growth, predated the development of the welfare state. It is equally clear that high levels of trust also predated the era of
high government spending and taxation. All these indicators began to deteriorate after the expansion of the Scandinavian welfare states and the increase in taxes necessary to fund it.

“Starving the Beast? Intra-Generational Conflict and Balanced Budget Rules,” EER, 2007

European Economic Review 51(1), January 2007. PDF.

A balanced budget requirement does not only prevent fiscal policy makers from smoothing tax distortions but also affects their preferred choice of government spending. The paper analyzes the conditions under which groups opposed to government spending might want to implement a balanced budget requirement in order to induce the government to spend less. It shows that relaxing a balanced budget requirement need not be associated with higher government spending.