GDP and Healthcare
In the past article, we discussed how GDP views war and why it is dangerous for all of us since GDP insinuates the idea that war is good for the economy. Now, war as a phenomenon may not be applicable to every human being on the planet. There are quite a few countries going to war. However, most countries still have a largely peaceful existence.
In this article, we will discuss about healthcare. We will expose how GDP is opposed to common sense when it comes to healthcare. Also, we will explain why this fallacy is wreaking havoc in most countries around the world and what needs to be done to stop it.
How GDP Views Healthcare?
In everyday life, expenditures on health care are considered to be a bad thing. The healthier a person is, the lesser healthcare related expenditures they will have. Hypothetically, if there were a community with absolutely no sick people, common sense would dictate that it is a successful community and that their way of living must be studied and emulated.
GDP sense, once again, works in stark contrast to common sense. GDP sense once again mindlessly counts the numbers. Zero expenditure on healthcare from community A is considered bad whereas $1 trillion expenditure on healthcare from community B is considered desirable.
In other words, the sicker the people of a community are, the more expenditure they will incur and the better it is considered for the economy! Once again this creates a fallacy that economics is an anti-social science. In reality, this is not the case. If true principles of economics are considered, then it is completely in harmony with the common sense view. It is GDP thinking that hijacks the economic principles and makes it antisocial by blindly considering higher expenditures as better.
Why this View is wrong?
Let’s take a deeper look at why this presupposition made by the GDP system is incorrect. The reasons are listed below:
- Welfare Point of View: Firstly the science of economics is built on human welfare. If you study the founding text of economics, the objective is satisfy as many human needs and wants as possible with limited resources. This means that if economics and humanity are somehow at conflict, the humanitarian point of view should gain precedence. Hence, countries all over the world must consider the humanitarian point of view and include the expenditure on healthcare as a negative indicator.
- Alternate Spending Point of View: The GDP system projects a situation wherein if this money was not spent on healthcare, it would not have been spent at all. Well, that is not the case. When we think in terms of economy, savings equal investments which are a good thing. Hence, if this money was not spent on healthcare, two situations would arise.
- The money would be spent on recreation on consumption of other goods and services which are more beneficial to the economy as a whole.
- The money would be saved and therefore would contribute to investment which would drive higher GDP growth in future periods.
In either scenario the money would be put to better use.
- Opportunity Cost Point of View: Now onto purely economic terms. Sick and dying people usually are participants of the labor force. When people are sick, they do two things. One is that they spend money and resources on getting back their health. Secondly, they also do not report to work as often as they should. Long leaves and absenteeism are common. The economy as a whole has lost hours of labor that it would have otherwise gained.
The strange part is that the GDP system counts the money that was spent on the treatment. However, it does not count the opportunity cost of the labor lost. Many economists argue that if this opportunity cost were considered, sick people would be the last thing that an economy would want. The healthier the people of an economy are, the more they can work and the more productive they can be. Hence, the potential GDP with a healthier economy is higher than an economy with sick and dying people.
It is only because the GDP system adds the credits while completely forgetting about the debits that this fallacy arises.
As a result of this dangerous fallacy, governments all over the world do not crack down on many products. Products such as sugar, tobacco and alcohol cause massive damage to public health. The explanation provided is that these products are somehow good from an economic point of view. As explained above that is not the case. Any product that makes the people sick reduces the potential GDP even though it may appear to be increasing it. The appearance is just an eyewash because of a faulty system.
GDP Promotes Imbalance
Most of the developed countries in the world today are facing healthcare epidemics. In fact the more developed an economy is, the more expenditure there is on healthcare. Countries like United States have massive healthcare budgets. Medicines are so expensive that people with chronic diseases resort to smuggling from nearby Canada. Even countries like UK, Germany and Japan have astronomical healthcare costs.
The point is that these costs are red flags. Firstly the economy is making the people sick by working more and more and secondly it cannot offer them treatment. If GDP were a legitimate indicator, it would immediately highlight this issue to the decision makers. Instead, it projects rising healthcare costs as an economic boom.
Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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