Disease-Led Recovery


October 5, 2006


Browse in Diseconomy Health

If you doubt that economics has become a hermetic form of math that is disconnected from the world it purports to explain, then I suggest you read the cover story in the September 25th Business Week.  It’s called “What’s Really Propping Up The Economy?” and the answer is what is euphemistically called “health-care.”  Since 2001, the story says, the nation’s medical system has accounted for just about every new job in the U.S.  That’s 1.7 million new jobs for the medical system; and for the rest of the economy – zero.

The article touts the good news in this. Rustbelt towns, devastated by the demise of the steel industry, are coming back as medical centers.  Hospitals have replaced factories as opportunity ladders for the unskilled.  There are dangers too; but these are of the technical economic sort. The writer never gets to the question screaming from the back room: what does it mean when a country devotes 25% of its economic resources (that’s where we are heading) to treating diseases, many of which arise from the growth machine itself?  Is that an economy, or a pathological perpetual-motion machine?

The story is revealing in ways the writer probably did not intend.  It seems an admission that the sales job for NAFTA and GATT were mainly bunk, for example.  We were told these trade agreements were going to boost U.S. jobs.  Well, where are they now?  The only jobs the US has been adding are the medical ones it hasn’t yet figured out how to export. (Even that is changing, as Americans in increasing numbers go to India and elsewhere for medical care at a fraction of the U.S. price.)

There’s also the much-hyped “information-technology” sector, which was supposed to be a dynamo of job creation.   IT, we learn, “has turned into one of the biggest job-growth disappointments of all time.”  Software, semiconductor, telecom companies, the Web – together they’ve lost 1.1 million jobs over the last five years.  (Actually I find that unsurprising.  Much of the vaunted “productivity” of computers comes from the way they enable corporations to shift work from a paid workforce onto us customers, who now do our own data entry and sit for hours in telephone help-line queues.)

And talk about upside down thinking.  The writer attributes the high unemployment rates in such countries as Germany and France in part to the way their medical systems “added very few jobs from 1997 to 2004.”   Is that another way of saying that they run efficient systems, in contrast to the paperwork quagmire that the US medical system has become with its reliance on private insurers?   At last the truth about the opposition to single-payer models: they are not adequate as make-work machines.

But the big problem with the piece – and this is true of how economists think generally – is that there is no curiosity about what these statistical categories mean in concrete human terms.  Health care, which actually is sickness treatment, has become a growth engine.  It is creating jobs, attracting investment.  Fine. But what does it say about the economy as a whole that we have so much need for this treatment to begin with?

No question, as the population gets older it will need more care.  But that’s just part of the story.  Another part is the obesity, stress, coronary problems, environmentally-induced cancers, the cosmetic surgery prompted by media images of physical perfection – in sum, the disease encouraged by the corporate market itself.  This thing called “the economy” has become iatrogenic.  It creates the disease it then has to employ more people to try to cure.

That issue is left screaming in the back room because it does not fit the standard economic script. The market produces “goods” and “services,” the textbooks say.  These by definition increase well being.  Medical care is just one more bundle of goods and services on top of all the rest.  More is always better; the only bad is less. That’s how economists talk about the medical care system – as just another realm of consumption, each dollop of which represents another step up the endless mountain of more..

On August 22nd, the New York Times ran a story called “Making Health Care The Engine That Drives The Economy.”  A typical comment came from Robert E. Hall, a Stanford economist who shrugged “We have to spend our money on something.”  The reporter, Gina Kolata, showed not the slightest interest in whether some of the medical expenditure in question might arise from other things people are spending their money on. The piece could have been called:  “Growth-Led Disease Equals Disease-Led  Growth.”

There are other factors driving the surge in medical spending of course, and one of them is the cost of prescription drugs.  The drug industry calls this the price of research that brings forth new cures.  But that too is just part of the story.  The Wall Street Journal (September 29th) recently looked at another part – the so-called “copycat” drugs that serve mainly to extend the patents on existing ones.  In the case in point, Johnson and Johnson tweaked the formula of Risperdal, its “blockbuster” schizophrenia drug, to produce a new version it calls paliperidone.

Paliperidone “doesn’t represent any kind of quantum leap in efficacy or tolerability” over existing drugs, a professor of psychiatry at New York University says.  But it will enable J&J to squeeze five more years out of its patent, and by one estimate garner $2.5 billion in sales in 2010.

Speaking of drug patents, the Journal had a piece the previous day (September 28th) on another way these serve as profit centers for the corporations that own them.  It seems that the Merck Corporation used them to play a version of the old accounting shell game to save more than a billion dollars in taxes and thus put the federal government that much deeper in debt.  First it set up a paper partnership with a British bank in the tax haven of Bermuda.  Then it “sold” the patents to Zocor and Mevacor, its two big cholesterol drugs, to this paper entity.

It then “paid” the Bermuda entity for the use of the patents, thus reducing on paper its U.S. income and shifting it to Bermuda instead.  In the process, Merck escaped $1.5 billion in federal income taxes over ten years.  The company is perfectly happy to have the government subsidize the drug purchases of older Americans through the new Medicare benefit.  It just doesn’t want to help pay.  I guess you could make a case that this is what Jefferson and Madison had in mind when they wrote the patent clause of the Constitution.  But I doubt it would be convincing.