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Sunday, December 16, 2018

Milton Friedman's " 4 ways to spend money" and health care spending

Milton Friedman spoke of the four ways people could spend money based on the funding source and the recipient of the goods or services and the associated mind sets,incentives and constraints that each arrangement supports. In his book "Free to Choose" he presented a four quadrant diagram, a version of which can be found here.

The left upper quadrant  represents the situation in which you spend your own money on yourself, a situation where one typically exerts some degree of prudence a thought not found to same degree in the other arrangements.

In the RUQ you spend someone else's money on yourself.

Much (most ?) health care spending seems to be in the RUQ which is clearly the case with Medicare and Medicaid spending and from one view point employees spending their employer based health insurance money.Although you could consider that type of insurance basically part of the employee's compensation so maybe that should be in the LUQ ,folks tend to act as if they are spending someone else's money so I'll leave that in the RUQ.

The LLQ denotes your spending their money on someone else, such as Aunt Hattie buying a birthday gift for her niece in which getting what the niece really wants may not be the determining factor.

The RLQ represents you spending some one else's money on someone else.Think of a welfare program dispensing money .

The concern over high and rising health care costs is sometimes (and in my view correctly) focused on the governmental spending on health care. However, increasingly pundits and health care policy wonks and "thought leaders" frame the issue as one in which total health spending is a threat to nation's fiscal solvency. .

The argument that government spending is out of control, relies on foreign funding and the national debt is growing to a dangerous level resonates across the political spectrum of views. Regardless of the validity of various elements of that sentiment how would spending in the LUQ relate those concerns?

Would not individual spending their own money on things (even medical care)for themselves increase the C part of the GDP formula? Would not increase in spending be exactly what economists of the Keynesian view prescribe to bolster a economy lacking in the right type of "animal spirits"? Why would policy wonks want to limit personal spending? Are they really basing their proposal for more control over individual actions on legitimate concerns for the future economic safety on the country? Or is it the progressive view ( as well the NeoCons view) that society is best managed by wise leaders ?

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