Whenever the economy begins growing again -- be it early next year, if the recession is an average one, or many months later, if not -- the next expansion will probably have a character starkly different from those of the recent past.
For the past few months, the business of keeping people healthy has been one of the only parts of the US$10 trillion US economy that has remained healthy, and many economists now say that the sprawling health care industry may be the only driver of growth in the near term. Even when consumer spending and corporate investment pick up, the health care sector is likely to expand faster than most industries in the years ahead.
PHOTO: NY TIMES
For the economy over all, that suggests a mixed prognosis. With health care as a growth leader, the next expansion may not be as robust as the boom of the late 1990s. Spending on health care does not ripple through an economy as forcefully as new purchases of technology, housing or factories. It also does relatively little to make an economy more efficient -- yet increases in efficiency improve material living standards by allowing more goods or services to be produced with the same amount of human effort.
Enormous returns
On the other hand, a health care expansion can bring benefits that new computers, houses and cars rarely do, economists say. By many standards for valuing human life, the medical spending of the last half-century has yielded enormous returns, primarily by cutting the death rate from heart disease, the nation's top killer. Future treatments may well reduce the rate further -- or extend the lives of people suffering from diseases like cancer.
"Think of the economy as a system that at the end of the day is supposed to make life nice," said Paul Romer, an economist at Stanford University who studies technological change. Computers, he said, "don't do all that much to make my life happier."
"What makes me happy," Romer said, "is good food, a nice house and, most of all, good health."
The US$1.3 trillion health care industry -- including pharmaceutical companies, medical equipment makers, hospitals, nursing homes, assisted-living centers and insurers -- has boomed before, as far back as the 19th century. But the current expansion comes after a decade in which health care's share of the economy remained flat, largely because insurance companies and the government restrained spending. Now, widespread demand for more flexible health programs, the aging of the population and a spate of hospital mergers are pushing up both costs and investments in health care.
Research budgets at drug companies and the federal government are also rising, and scientists expect the recent mapping of the human genome and other advances to yield major new treatments in the next decade. As baby boomers near retirement and their golden years, they will further inflate the number of Americans who spend heavily on medical care.
In recent weeks, fears about bioterrorism have led the Bush administration to request US$1.5 billion to fight germ attacks, and some members of Congress are arguing for as much as US$7 billion in new spending. Policy-makers are also considering a law that would require companies to offer more coverage of mental illnesses.
By 2010, health care is expected to account for 16 percent of the nation's economic output, up from 13 percent today and 4 percent 50 years ago, according to the Centers for Medicare and Medicaid Services, a division of the Department of Health and Human Services. In 2040, economists say the sector could exceed 20 percent, and David Cutler, a researcher at Harvard, has argued that even 30 percent would not be unlikely.
Whatever the specifics, executives and economists agree that health care will become a more important part of the economy. "We look at various scenarios, and the answer almost always is 8 percent" a year, said Henry McKinnell, the chief executive of Pfizer, the drug company, referring to the industry's expected growth rate. "I don't think the economy will grow that rapidly."
As a result, health care is likely to help determine just how rapidly the economy expands. Over the past half-century, a variety of sectors -- among them construction, transportation and, most recently, information technology -- have fueled economic booms.
Lifting productivity
Those other sectors have advantages that medical care does not. A new computer, a new highway and a new building not only provide employment, but they can also lift the productivity of the people using them. They are, in other words, investments. Some money spent on health care counts as an investment, but much is pure consumption.
Economists are debating whether the gains in efficiency, and therefore productivity, from the technology boom of the 1990s were large or small. However, most agree that the spending has helped the country emerge from the long productivity slump of the 1970s and 1980s that depressed economic growth. Increases in productivity allow companies to increase their profits without raising prices and setting off inflation.
Health care, by contrast, has little effect on the productivity in a wealthy country like the US because the population is already healthy enough to perform its work, economists say.
The industry is not ideally suited to stimulating a weak economy because, compared with retail, restaurants, entertainment and many other services, a relatively large part of health care wages go to well-off workers like doctors, scientists and executives. "A dollar to the service sector is almost certainly a bigger stimulus than a dollar to the health care sector because it's more likely to go to a lower-income person who's more likely to consume," said Professor Jonathan Gruber, an economist at MIT.
"There is absolutely no credible evidence on the short-run impact of health spending on the economy," Gruber said.
That does not mean that a society that spends more of its money on medical care is worse off. For starters, there are some straightforward economic benefits.
A healthier nation will have a larger work force because many of its citizens can work well into their 60s, 70s and 80s; the more labor a society has, the faster it can grow.
The nature of the industry also requires companies to keep most of their jobs within the US. Unlike information technology, which is concentrated in a few cities, the health care sector is dispersed across the country and comes in many forms. In many cities, hospitals are the largest employers.
More important, however, are the benefits that simply do not show up in the nation's gross domestic product statistics, economists say.
In recent years, a handful of researchers have tried to quantify those benefits. Usually, they begin by examining the amount of money the country has spent on medical care. The researchers next study the extent to which medical treatment -- as opposed to diet or other factors -- has reduced death rates. Finally, they try to put a value on a year of human life by analyzing, for example, how much more people are paid to work in jobs with a higher risk of death.
Value of health
In one finding, William Nordhaus, a professor at Yale University, calculated a value of the last century's improvements in health. That value, he said, slightly exceeded the enormous gain in monetary wealth that the US has experienced since 1900.
Romer said, "The naive perspective is, `Spending on health care has gone up; that's a bad thing.'" But, he added, "If the question is have we gotten big benefits from spending on health care, the answer is unambiguously yes."
Of course, a word of caution may be necessary. Recessions have often bred heady predictions for health care because it is a not particularly cyclical industry, and some of those predictions have not exactly come true.
In 1993, as the country was slowly emerging from recession, the government projected that health care would account for 20 percent of the nation's economic output by the end of last year. Instead, starting in the middle of the decade, health insurance companies were able to increase their profits by restraining medical spending, and Congress took a similar step in an effort to balance the federal budget. By the end of the 1990s, health care made up 13 percent of the nation's economy -- just as it did at the start of the decade.
Investors have become overly excited about the sector in the past. Many biotechnology companies first offered stock, with great fanfare, during the last recession. "If you go back to the early '90s, there were a whole slew of biotech deals that are trading at pennies on the dollar" now, Richard Peterson, the chief market strategist at Thomson Financial, said.
But analysts say that even if the most optimistic projections again prove unfounded this time, the for-ces propelling the sector's growth seem too strong to be fleeting. For example, most of the possible cost reductions imposed by managed care companies and the government have already happened, and any similar efforts are unlikely to succeed in the near future, analysts say. The earlier restraints lowered health care spending once but will not reduce future growth rates.
And while some predictions about the effect of mapping the human genome may also be grandiose, researchers agree that many new treatments will be possible in the decades ahead. "There's a whole new industrial revolution afoot," said Uwe Reinhardt, a Princeton economist who studies health care.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique