Friday, September 4, 2009

The Amorality of Public Goods

. Friday, September 4, 2009

The other day I wrote a post trying to parse out how and why superior societal goods -- like environmentalism, universal health care, public education (esp. higher education), sustainable agriculture, labor rights -- have a high income elasticity of demand, and what that might mean for our conceptions of public morality. In other words, as societies get richer, they demand more of these things and often use moral arguments to support the cause. Indeed, moral claims seem to rise proportionately to income: poorer societies demand less of their governments and civil society than richer societies. The flip side of this occurs when societies get poorer: the morals get relaxed a bit and some compromises get made for pragmatic reasons.

Apropos of that observation comes this piece by economic historian Robert Fogel, winner of Nobel Prize, who observes that health care is a superior good:

The main factor is that the long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent. This is not a new trend. Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87 percent to just 30 percent, despite the fact that we eat more food, own more clothes, and have better and larger homes today than we had in 1875. All of this has been made possible by the growth in the productivity of traditional commodities. In the last quarter of the 19th century, it took 1,700 hours of labor to purchase the annual food supply for a family. Today it requires just 260 hours, and it is likely that by 2040, a family’s food supply will be purchased with about 160 hours of labor.

Consequently, there is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction.

Of course there is a need to suppress the demand for health care; namely, that the government can't afford to guarantee full service to the entire populace under the present cost structure. But in strict terms Fogel is absolutely right: rising health care costs are no problem in and of themselves. Instead they signify a good thing: more people are buying more health services, which pushes prices up.

But at the same time that consumption rises, expectations of the appropriate baseline rise. A citizen of America in 1960 would be shocked and amazed at the amount of public provision of health care for the poor and elderly in 2009, and the range of options available to those who can't pay for them on their own. Now nearly everyone believes that we can and should do better; we only argue about the best mechanism for extending coverage. What has happened in the meantime? Our society has gotten much richer, and can therefore afford to spend more time and money on the provision of public goods. The acceptable floor has risen along with societal wealth.

Similarly, developing countries are almost universally less concerned about climate change than developed countries, despite the fact that most of the adverse effects from climate change will be located in the developing world. Why is that? Because they are still primarily concerned with feeding, clothing, and sheltering their citizens in the short run. Anything more abstract than that gets put on the back burner.

In other words, public concern is something of a luxury good. And that's a good thing. We should hope that as we get richer we should be more and more concerned with broad provision of public goods. But it should also give us some pause when making moral claims about public policy. For one thing, it will make it more difficult to get broad consensus if the wealth distribution is unequal (think about the problems of international coordination on issues like climate change). For another, I'm a bit uncomfortable with the idea that morality is (or should be) determined by public goods relative to wealth levels and I suspect that most others are as well. I would never judge the morality of a society by regressing its wealth on the number of public bus routes. Public policy requires pragmatism and the consideration of a wide array of public and private interests. If we reduce every policy debate to dueling accusations of immorality then we are shooting ourselves in the foot.

In a somewhat related vein, Chris Bertram and Julian Sanchez discuss Ronald Dworkin's thoughts on health care. Dworkin is a utilitarian and redistributionist, but even he argues that any public provision of insurance above a socially-accepted minimum is unjust, as are any Canada-style prohibitions on top-up coverage. Interesting stuff.


Michael Tobis said...

Sorry, what "Canada-style prohibitions on top-up coverage" are you talking about?

"About 30% of Canadians' health care is paid for through the private sector. This mostly goes towards services not covered or only partially covered by Medicare, such as prescription drugs, dentistry and optometry. Some 65% of Canadians have some form of supplementary private health insurance; many of them receive it through their employers.[26] "

"The Canada Health Act of 1984 "does not directly bar private delivery or private insurance for publicly insured services," but provides financial disincentives for doing so. "Although there are laws prohibiting or curtailing private health care in some provinces, they can be changed," according to a report in the New England Journal of Medicine.[27][28]"

One wonders why Canada is so consistently misrepresented in these discussions. (Of the things I miss most about Canada living in America, Canadian style health care is easily the most prominent.)

The Amorality of Public Goods
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