Thursday, July 28, 2011

Health Care and Education-the new "commanding heights -"Kling and Schult

An interesting and insightful commentary by Arnold Kling and Mick Schult is found in the Summer issue of "National Affairs" and is entitled "The New Commanding Heights".The title is a play on the title of the book by Daniel Yergin and Joseph Stanislaw "entitled "The Commanding Heights:The battle for the world economy". See here for the Kling essay.

The term Commanding Heights was used by Lenin in a 1922 speech in which he refers to the dominate industries in Russia at the time indicating that they would be target of the central control of the communists. He gave up trying to control everything so he decided to control the key industries.These included heavy manufacturing,mining,electric generation and transportation.

Kling and Schult contend that those industries are now largely not controlled by the state in the United States and in western countries generally and while these sectors are important they present data showing they are no longer the major growth sectors in our economy.They argue convincingly that education and health care are the growth sectors in the United States.

History has made it clear that markets work. Market economies lead to prosperity,economic growth and innovation while central planning results in dismal and often tragic failures. Lenin promised to do what capitalism did plus eliminating waste, recessions, and inequality:what was produced was mass starvation and mass murder.

However, the authors warn markets advocates against premature celebration. Their thesis is that in the U.S., both in education and medical care, the new commanding heights, governmental controls are prevalent and growing and if the U.S. is to continues to grow and prosper, we need innovation in these areas? How much innovation occurs in government controlled economic sector?

Many (most?) discussions of the medical economy emphasize the overall
cost" of medical care and its growth ( it is a growth sector) and that it is a bad thing. Two comments are appropriate: 1) often overall costs are conflated with government costs ( i.e. Medicare and Medicaid) with overall costs 2) Costs are only one side of the accounting, one person's costs are another's income stream.

Controlling the amount of money that the government spends on health care or farm subsidies or foreign wars is one thing and is well within legitimate government activity, attempting to limit private spending on healthcare or cosmetics or anything other legal activity is quite something else.So with GDP not snapping back to previous more healthy levels do we really want to decrease activity in one of the two major economic growth centers?

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