Tuesday, July 22, 2003
Time to Be a Demand Sider-Part II-Where's the New Stuff?-Another thing that may be slowing the economic recovery is the lack of new products to add to our budget. There doesn’t seem to be that many new products coming down the pipeline in the last few years. Late adopters like me might wind up buying a DVD player and a cell phone, but there doesn’t seem to be too many gizmos that are going to have me running out to Best Buy. The computer industry and home electronic industry have become steady-state; the computers, TVs and game boxes may get faster and have more hard drive space, but only are adding to existing realms and not adding a new good to the shopping list. WiFi might be the killer ap to bring extra oomph to portable computing, while satellite radio might get some people into the car upgrade stores. The kitchen market could use a new appliance; bread makers and Foreman-style grills are mature markets. Other than that, you’re going to see more of the same-old stuff that people already have. As people make more money, they have to make the decision to buy more now or save more for spending stuff later. If there is no new stuff to buy, more and more of that increased income will go into savings. That will be great if you’re a business looking to expand, for the cost of capital will be low, but it may reduce aggregate demand if their isn’t much new stuff to demand. The one area that does seem to be expanding is health care; the pharmaceutical companies are cranking out new stuff to lengthen and improve lives. However, this will be a very edgy area, for people are used to having their employer or Uncle Sam to pick up the tab for their health care. The percentage of our budgets going to health care will be going up, not because the system is screwing us but because there more types of health care products to spend money on. The 90s growth was computer-driven. Might the 00s be health-care driven? Barring some major breakthrough from out of left field (nanotech developments, like self-cleaning clothes? Robot-driven cars? Computer interface implants?), it looks like health care will be the driver. How we pay for it will be a major set of scuffles. We’re looking at expanding Medicare to cover drugs, much to the dismay of most conservatives. Will we collectively wind up paying for Grandma’s new wonder drugs? That will increase demand for such drugs, but may slow down the supply side of the equation with higher taxes (or higher interest rates if we crank up the deficit) to pay for it. I’m not all that opposed to doing so in theory (that’s another post, hold your fire until I write it), but it will slow down the economy some. For the pre-Medicare crowd, we’ll have an ongoing fight over how much employers will pay for health insurance and how high the copays and deductibles will be. As more stuff becomes available, insurance rates will go up, since they’ll be more stuff to insure. This will mean lower take-home pay, since this will add to the cost to employers. Our politics may respond to this in one of two ways. From the left, the added cost of health care will result in calls to make policy changes that take out their frustrations at the expense of drug companies, doctors and hospitals, or at the taxpayer. From the right, this will be an opportunity to make some free-market reforms, such as making medical insurance tax-deductible for individuals as well as businesses and making health-purchasing co-ops easier to form and join. The bigger-picture issue here is that health-care will become a bigger percentage of GDP in the years to come. Rather than worry about that, the system needs to adapt to it, and allow it to become a bigger part. If productivity winds up making existing products less expensive, the added buying power can be shifted into health care without lowering our non-health-care standard of living.
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