Greg Mankiw on Fiscal Policy
By Arnold Kling
One of the classic hypothetical questions economists ask when referring to healthcare costs is, “Would you rather go back to 1950s medical care and 1950s prices?” If that option were offered at your place of work, my guess is that you would not take it. What that means is, in some real sense, healthcare is cheaper today if you adjust prices properly to account for quality improvements. A dollar of healthcare today has more value than a dollar of healthcare in 1950.
The piece is a survey of issues regarding U.S. fiscal policy. It is a great read, strongly recommended for any undergraduate student of economics. Or for the many economists inside and outside the Administration who seem to have forgotten undergraduate economics.
Nonetheless, I suspect that the thought-experiment comparing 1950’s health care to today’s health care may be a bit of a swindle Suppose we posed a similar question: would you rather have 1950’s college room and board at 1950’s prices or today’s college room and board at today’s prices? We would say the latter because we can afford the latter, not because the real cost of room and board at college has necessarily gone down.
Put it this way: suppose the assumption was that you had a 1950’s level of income. Then I think most parents would choose to send their kids to a college with 1950’s room and board, rather than today’s room and board. For health care, you might prefer today’s open heart surgery, but health insurance would eat up most of your 1950’s income. So it’s not such an easy call.