Saturday, August 8, 2009

Kenneth Arrow on Serious Medicine: "The basic reason why health costs increased is that health care is a good thing!"

Kenneth Arrow, who won a Nobel Prize for Economics in 1972, gave an important interview to Conor Clarke of The Atlantic in which he talked extensively about health care. Clarke asks, "As far as cost goes, could technology be the case? As society gets wealthier it might be rational to spend relatively more money on health as opposed to other consumption demands." And Arrow answers:

Oh, why health costs increase? The basic reason why health costs increased is that health care is a good thing! Because today there is a lot more you can do! Consider all these expenses that are diagnostic. Cat scans, X-rays, MRIs and now the proton-powered whatever-it-is. Something that is the size of a football field, cost $50 million, and has all sorts of diagnostic powers. A lot of these technologies clearly reveal things that would not be revealed otherwise. There's no question about it. Diagnostics have improved. Technology has improved. You know, sending things through your blood stream to help in operations, instead of cutting you open. It's incredible. But these things are costly. But for older people longevity is increasing by a month each year. Now, whether that creates other problems with retirement and social security is another question. But, nevertheless, preserving life is a good thing.

Elsewhere in the interview, Arrow serves up a fundamental SMS tenet: health care is not an economic good. At least not in any way that economists are really equipped to recognize:

It's not like buying automobiles. Whether you're sick or not is hard to predict. Some get sick and some don't.

Health care is the superior good that you don't want to consume, and if you do consume it, you rarely brag about it--there's no place for health care in the Veblenite typology.

And yet in the era of HIV and H1N1, it is your duty to consume health care, for the sake of everyone else. And it is also, ultimately, reluctantly, your desire to consume it, for the sake of yourself. Economists can struggle to Procrusteanize health care into their flat numerical models, but it just doesn't fit--we are all Theseus, reversing the roles.

Health care is a spirit in the woods--if you have your health, you are "rich beyond the wealth of kings," as Wordsworth wrote two centuries ago. But if you have to consume health care, you are better off, but at the same time, you feel sad. So health care is unwanted, then wanted, then unwanted again. Economists can't riddle that, nor can anyone else. We see it, but still we don't admit the reality of it.

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