Medical Inversions

This list could easily be made much longer. I don't believe all of the allegations or supposed causes are true. Some claims have a kernel of truth in them, but are blown up like popcorn. Other points just represent the interests of one special interest or another.

But, one correlation no one bothers to notice or talk about is the actual standard of living in the United States. There are two sides to a cost: the vendor (seller) and the consumer (buyer). Somebody pays, somebody does something. The focus of most complaints has been the sellers. Sometimes consumers are blamed, as in the demand for frivolous treatments, like BOTOX for wrinkles. But, there is another aspect of the buyer's side rarely mentioned in connection with medical care: the buyer's real income, or purchasing power.    

Consider this: the cost of U.S. medical care, measured in Euros, has not gone up during the last three years. That's because the dollar has sunk more than 30% relative to Euros in that period, offsetting the increases in medical costs measured in dollars. You would be doing pretty well, had you bought Euros three years ago, continued to do so, and paid your medical care costs from (converted) Euros.     

You would not have done so well, had you converted to Yen or Yuan (Renmimbi), because the Japanese and Chinese policies have been to prevent a sinking dollar. This is related to their mercantile policies of exporting finished goods to the United States while buying as little as possible from the U.S. (The Chinese are busy using Australia and other Asian countries as their source of basic materials, thus making China their economic master.) Had the Asian governments maintained a different trade policy - one aimed at equal exchanges - the dollar would have declined just as it did against the Euro.

What is going on?

Since the Carter Administration, the United States has run huge, increasing trade deficits. Except during Clinton's second term, Federal budget deficits have been huge and increasing. Taxes on the rich have steadilly decreased, while taxes on the lower classes have increased. Average and median American family purchasing power and savings have actually decreased, except during Clinton's second term, especially among the lower 2/3 of the households. The wealthiest 1/3 of households have done very well indeed, increasing their incomes more than 20% from 2000-2003.

The key point is this: real purchasing power for most households has actually declined almost every year since 1980. Remember that cost has two sides: buyers and sellers. If Americans, as medical consumers, had real incomes that rose since 1980, as they once did, there would be little or no medical inflation. Again, it is the loss of real purchasing power which appears as medical cost inflation.                      

Our national inflation studies are biased against the lower classes. For example, in determining the inflation index ("cost of living" increase), Wall St analysts routinely remove "the volatile food and energy sectors" from reports on prices. This leaves data important to business: wholesale costs, producer prices and the like. It also leaves data important to wealthy people: the prices of yachts, mink coats and Hummers. In other words, the costs that most severely impact ordinary people are of little interest to those economists. In fact, almost every month, the largest component of inflation is the cost of food and energy. Anyone who has a memory, pays the household bills and goes to the grocery store can attest to the runup of those costs.    

While the inflation in food and energy prices has not been as great as in medical costs, the two inflation measures are almost never compared. If we look at the household purchasing power of ordinary people, including food, energy and medical care, we find that it has decreased by leaps and bounds.                                                       

Another measure of the decreased value of household income among the lower classes is the percentage devoted to housing. Once upon a time, in the 1960s, it was normal to allocate about 20% of take-home pay to pay the rent or mortgage. Even during the galloping inflation of the 1970s, bank guidelines refused mortgages to those who would spend more than 33% of their take-home pay on the house (mortgage, taxes and insurance). (I know, because I bought a house at the time.) Today, young families routinely spend 50% of their net household income on the house. This obviously squeezes everything else, especially since food and energy are increasing, inflating costs.

Without further ado, then, and without detailed study and proof, I would have you consider this proposition:

Why are workers taking home less pay? That's another study, but for starters one might consider globalization, "outsourcing," automation, imports, unsaleable products, and persistent, hidden unemployment.

Take just one item, unsaleable products. The United States just doesn't make stuff that other people really want. And, what we "make" that others want is often produced on foreign soil. American corporations just collect the profits on foreign sales, which are distributed to management and other shareholders. Almost all (about 90%) of those who benefit from American corporate profits are in the top 10% of household incomes and wealth. If the tax liability of those wealthy few seems too onerous to them, they just leave the United States, and often take the corporation with them, settling in some tax shelter island. Obviously, none of this helps lower class American workers.

There are a lot of factors attacking the American lower classes. It seems to me these are more important in evaluating the cost of medical care, than the rise in medical prices taken in isolation. What this point requires you to do is look at things from the other end of the telescope.