This morning, the Wall Street Journal editorial page questioned the oft-alleged link between health care costs and the competitiveness of American business. Echoing Council of Economic Advisers Chair Christina Romer, it referred to that argument as “schlock.” At the same time, everyone interested in health policy is still absorbing the trillion-dollar price tag that the Congressional Budget Office (CBO) put on the Kennedy health bill.
I’d like to point out that these two issues – any link between health care and competitiveness and the estimated cost of health reform – are closely related. The way that CBO estimated the budget impacts of the Kennedy bill implies that health care has little effect on competitiveness. If you take the contrary view, that health care is a big deal for American competitiveness, then you should also believe that CBO has underestimated the difficulty of paying for health reform.
It’s no surprise that Americans have been cutting back in the face of job losses, pay reductions, and shrunken retirement accounts. One result has been a sharp increase in the saving rate, which has averaged more than 4.5% this year after flirting with 0% in recent years.
A second result is a rebound in doing-it-yourself. Home-cooking has replaced some restaurant visits, for example, and more Americans are picking up a hammer rather than calling a handyman.
Seed producers and merchants across the United States are reporting the same phenomenon of crazy demand and even some shortages, especially of staples like beans, potatoes and lettuces. Sales of seed packets picked up last year and have grown significantly again this season, which runs from January to June.
Industry observers attribute the boost in sales to a concern for food safety following outbreaks of E. coli and salmonella poisonings and a desire by consumers to be a part of the local food movement. Michelle Obama’s new vegetable garden at the White House may also be inspiring people, they said.
But the primary reasons, they speculate, are the recession, income loss and the need for people to lower their grocery bills by growing their own. (my emphasis)
Anecdotes like this have a number of larger implications:
I’ve received several emails today about a story posted last night by USA Today. The story points out that government transfers now make up more than one-sixth of American incomes, the highest ever. Naturally, some observers welcome this development, while others denounce it.
I thought it would be useful to side-step that debate and instead provide some historical context. To begin, the following chart shows the ratio of government transfers to personal income from January 1959 through April 2009 (the most recent data):