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Goal-Driven Innovation: the Case of U.S. Health Care

By Shlomo Maital

Health Care

U.S. health care expenditures ($billion)

The U.S. spends 18 per cent of its GDP on healthcare. Much of the recent rise in healthcare spending has been driven by higher prices and costs.

   In any industry faced with rising costs,   innovation must play a role.   Harness creativity, ideas, new thinking, to get costs under control. Yet in healthcare the opposite has happened.   More and more innovation has created amazing medical technologies that costs astronomical sums – devices, drugs, etc.   Innovation became part of the problem, rather than the solution — it’s great to know that you can save lives, but how many people can afford to have their life saved, at those prices?

   Writing in today’s Global New York Times, David Brooks notes that healthcare inflation seems to be under control, and partly, as a result of cost-saving innovation:

   “ …Recently health care inflation has been at historic lows. As Jason Furman, the chairman of President Obama’s Council of Economic Advisers, put it in a speech to the Hamilton Project last month, “Health care prices have grown at an annual rate of 1.6 percent since the Affordable Care Act was enacted in March 2010, the slowest rate for such a period in five decades, and those prices have grown at an even slower 1.1 percent rate over the 12 months ending in August 2015.”

   There is naturally some controversy over why precisely health care prices have stabilized. But here is one theory:

Jonathan Rauch, in a report for the Brookings Institution, argues that the health care market is more open to normal business model innovation than ever before. The quality of health care data and analytics is improving exponentially. Pressures to reduce costs are ratcheting up. Profitable niches are growing for efficiency improving products.   In the past, most innovation involved improving quality of care at high cost. Rauch described many entrepreneurs who are providing innovations that maintain current quality of care but at lower cost. We seem to be making at least some incremental progress toward a structural reduction in health care inflation.

   Innovation indeed is regarded as a panacea, when the world faces severe problems, as with healthcare provision, and increasingly severe budget and resource constraints.

   But the innovation effort has to be focused, with a goal. If health care inflation is the problem, direct your innovation efforts toward controlling and reducing costs, rather than ever-more-expensive gadgets and drugs that make the problem worse.

     Like all human activity, innovation needs a clearly defined goal – a precise question to which it is directed. For America, the question should probably be: how can we use our creative thinking to keep healthcare prices stable?   So far, it seems to be working.

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When Is Good News Bad News?  When It’s the Stock Market

By Shlomo Maital   

stock market

   Love that stock market!  It goes up on bad news, down on good news.  Can we understand why?

   I belong to a panel of the German Ifo Institute, that quarterly surveys experts around the world to assess the global economic situation.   The latest report?  “world economic climate deteriorates, economic expectations less positive, inflation expectations remain low, US dollar expected to rise (it has), interest rates look set to remain stable (maybe not).”.

    The U.S. stock market has risen sharply in the past year.  But it recently declined. Why?   Good news on the American economy – U.S. job creation and GDP growth are stronger than expected.

    Run that by me again? How can good news be bad news for the stock market?

   It’s simple.   Wall St. is incurably addicted to cheap money and low interest rates, and plentiful credit.   When the economy gets stronger, it increases the likelihood that Janet Yallen and the Fed will raise interest rates, ending the era of cheap money, and denying Wall St. from its daily/weekly fix of low-interest cash, used to speculate and earn billions.  So the stock market drops, because good news for the economy is bad news for Wall St.

    Does this show a sharp conflict of interest between the general population and the moneybags who run Wall St.? 

 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2019
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