NYT Argues Slowdown in Health Care Spending Hurts Economy

by Feb 12, 2014Health & Vaccines, Liberty & Economy0 comments

(Photo by Sean McCormick/Flickr)

Binyamin Applebaum in the New York Times actually makes the argument that slowing spending on health care is hurting the economy. That should sound idiotic to you on its face, but Applebaum does a fair job of trying to make a ridiculous idea sound plausible, so its worth taking a few moments to actually address his arguments.

Binyamin Applebaum in the New York Times actually makes the argument that slowing spending on health care is hurting the economy. That should sound idiotic to you on its face, but Applebaum does a fair job of trying to make a ridiculous idea sound plausible, so its worth taking a few moments to actually address his arguments.

He begins by announcing that it is a “fact” that “health care is already imposing a drag on growth” because the rising costs of health care have slowed, as has employment in the sector. “Lower health care spending isn’t helping the economy to heal”, Applebaum declares.

Then he illustrates his own fallacy. It’s the fallacy Frederic Bastiat identified in 1850 as the “broken window” fallacy, that of looking at the easily seen consequences of something while ignoring the unseen. Applebaum himself notes that “it seems likely that some of the money could be put to better use elsewhere. Also, making the health care sector more efficient not only frees up people, money and office space in places like Boston’s hospital district, but it also cuts labor costs in other industries by cutting insurance premiums.”

But he’s not done yet. Applebaum next argues, But in the nation’s current economic malaise, idled resources are not being put to better use. Workers, companies and the federal government are all paying down debt rather than spending and investing.” 

Here, he fails to identify his own additional fallacy. A bit further down the page, he adds that “inflation can help to stimulate economic activity. Rising prices spur people to borrow and spend more quickly. Rising prices also tend to raise nominal wages, making it easier for borrowers to pay fixed debts like mortgage loans.”

Applebaum is just regurgitating nonsense from the Keynesian school of economics that, unfortunately, is predominant in the profession. True, he notes, money not spent on health care is money that could be spent elsewhere. But, he argues, the money not being spent on health care isn’t being spent elsewhere! So, there you have it. That is why the slowing growth in health care spending is hurting the economy!

Except that, by this logic, choosing to talk about health care is totally arbitrary. Applebaum could just as well have written about how the lack of people spending money on purchasing clown costumes is hurting the economy because while they could use that money to spend on something else, they aren’t. The logic of this is that if millions of Americans went out and bought clown costumes, then this would help the economy to grow.

To take another example, Applebaum could just as well have written that the lack of jobs in the area of digging up holes and filling them back in is hurting the economy because while the money spent to pay people to dig holes and refill them might be otherwise spent elsewhere, it isn’t being spent elsewhere. So the question is: if Americans spent billions of dollars paying people to dig holes and fill them back in again, would it help the economy to grow?

According to the logic of Applebaum’s argument, the answer is: yes! Sound idiotic? It is. The problem is Applebaum’s assumption that economic growth comes from spending, regardless of how that money is spent. This is the assumption behind his argument that price inflation is good for the economy because it incentivizes them to go out and spend instead of saving their money. People shouldn’t be paying down debt, in Applebaum’s world! They should instead be borrowing and spending even moreThis is the path to economic growth in his Keynesian Wonderland worldview he subscribes to.

But how can increased debt be synonymous with economic growth? Sound idiotic? Yeah, it is. People passing dollars around does not create economic growth. Federal Reserve Notes going from pocket to pocket does not increase society’s standard of living. What does create economic growth, if we define it as an increase in society’s overall standard of living, is rather production. When producers are able to provide ever better goods at ever lower prices, people’s standard of living is improved. Spending to dig up holes and fill them in doesn’t improve society’s standard of living. It rather reduces it because — remember the fallacy Applebaum himself identified — that is money that could otherwise have been put to productive use instead of wasted.

The argument that inflation helps grow the economy is particularly idiotic. He claims more inflation results in higher nominal wages for workers. But (a) wages tend not to keep up with the inflation and (b) Applebaum surely cannot be ignorant that what matters here is not nominal but real wages — that is, wages adjusted for the inflation. Needless to say, a worker’s real wage is reduced when he is able to buy fewer and fewer goods with it. How does robbing people of the purchasing power of their dollars and making them pay more for the things they want help them have a higher standard of living? And let’s confront this additional fallacy that saving is bad for the economy. Without people saving, there is no capital available with which to invest towards expanding productive capacity. So people paying down debt and saving is a good thing. It’s what needs to occur in the short term for capital to be able to accumulate once more so that real economic growth can occur in the longer term.

Applebaum is in effect arguing for impeding economic growth, not stimulating it.

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About Jeremy R. Hammond

About Jeremy R. Hammond

I am an independent journalist, political analyst, publisher and editor of Foreign Policy Journal, book author, and writing coach.

My writings empower readers with the knowledge they need to see through state propaganda intended to manufacture their consent for criminal government policies.

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