Duncan’s Economic Blog

US Healthcare & the Global Economy

Posted in Uncategorized by duncanseconomicblog on November 12, 2009

Look suffering readers will be pleased to hear that I now putting the finishing touches to the next post in my series on ‘capital’.

But today I want to share just one chart. It’s a chart which I think  fundamentally changes how people perceive the Global macro-economy.

 (And annoyingly enough – the two lines are mislabeled, reverse them).


(Hat-tip Macro-man)

The headline figures of US consumption as a share of GDP rising from 60% in the late 1960s to over 70% today are crucial to the ‘global imbalances’ theory. The US consumer has been on a credit fuelled binge – buying SUVs and plasma screen TVs and under saving, whilst Asia has saved too much. The world economy is unbalanced.

But what this chart suggests is that this is not the case. Excessive US consumption is not driven by what we typically think of as consumption – but by rising healthcare costs.

This should be viewed alongside John Ross’s article on China.org:

Equally striking, the level of US investment (14.7 percent of GDP) is scarcely above its calculated rate of capital consumption (12.9 percent of GDP)–which means that, in net terms, the US is scarcely accumulating capital.

Such an extraordinarily low investment rate precludes a rapid rate of recovery from the economic downturn. US economic growth following the recession will therefore be relatively anaemic compared to previous downturns.

Could it be the case that excessive healthcare costs are squeezing out US investment?


3 Responses

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  1. crossland said, on November 12, 2009 at 11:59 am

    Great post !

    This also reminds me of the arguments people like Allyson pollock (NHS PLC) made about the desire american health companies had to open up new markets in Europe and the UK, that they were aware that their US market was coming close to saturation.

    Ive always believed that efficient forms of social insurance (like the NHS etc) help us become more independant and entrepenurial because we feel more secure and have to worry about our health less.

    Its good to see you raise that as an economic /GDP point as well.

  2. dannyboy said, on November 12, 2009 at 12:29 pm

    Duncan, interesting!

    If we overlaid a 10 yr EMA of interest rates on top of that graph it would move inversely to the healthcare component of PCE.

    Any connection or causality there do you think?

  3. David Heigham said, on November 14, 2009 at 3:09 pm

    Looks an excellent quantitative point. But have you checked against the original data? I sort of distrust commentators who label their arse as their elbow on their charts.

    Should it be right, i think the Japanese have already established the point that a growing stream of purely wasteful expenditure can be expected to cripple a stromg economy if it goes on growing long enough.

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