Does it exist? Is it growing?
I've honestly never previously considered the possibility of a bubble in the health care industry, but my initial thought when this was brought up in a discussion the other day was, "why not?"
I can't seem to find any references to such a concept though. Surely this has been brought up before, no?
Thoughts?
Cabal:I've honestly never previously considered the possibility of a bubble in the health care industry, but my initial thought when this was brought up in a discussion the other day was, "why not?"
This is a very interesting point.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
I thought so too. I mean... I haven't had a chance to give the concept all that much thought, but...
There is a great deal of government regulation and intervention in the health care industry, just as there was with the housing market.
The health care market by itself is already quite large, just as was the housing market.
As the health care debate becomes more and more heated and politicized, there's certainly greater potential for malinvestment.
Prices in the health care market have been perpetually increasing, sometimes at rather alarming rates in certain areas; and it doesn't seem like there would be a shortage of supply to cause such a continuous rise in prices. We seem to have health care professionals being pumped out of colleges and institutes left, right and center accompanied by the ever-expanding tangible goods, such as pharmaceuticals.
I feel like I'm missing something, but still... it seems like the initial makings of a rather disastrous bubble... at least in a certain light.
Cabal:I feel like I'm missing something, but still... it seems like the initial makings of a rather disastrous bubble... at least in a certain light.
Well, this is probably an original idea, and It would be an awesome dissertation topic. Economic theory, especially Austrian theory, tends to focus on real-estate, heavy industry, and financial bubbles, since these were most common during that period (and still are today). But health care could indeed be a modern day bubble. I just don't know anything about it, so I can't really help
It should be in either a state of under- or over-investment going by the socialist calculation argument, relative to how much intervention there is/how readily accessible free market prices are. It's a pretty insulated market. A similar one is education. Bubbles in state controlled areas... hmm.
Freedom of markets is positively correlated with the degree of evolution in any society...
I don't see much motivation for overinvestment in health care infrastructure, but a bubble in pharm stocks or something makes sense. A big part of the dot-com bubble was overenthusiasm about the future of the internet, and when you look at where biotech is going, I can see the same thing happening there.
The Rev
Lifes a piece of shit, when you look at it
Life's a laugh and death's a joke, it's true
Just remember it's all a show, keep em laughing as you go
Just remember that the last laugh is on you
The Rev:I don't see much motivation for overinvestment in health care infrastructure, but a bubble in pharm stocks or something makes sense. A big part of the dot-com bubble was overenthusiasm about the future of the internet, and when you look at where biotech is going, I can see the same thing happening there.
The motivation would be increased returns for pharma and other health care companies which are quite capital intensive. Lower interest rates allows for the relative over-production of highly specialized durable capital goods, as well as intermediary capital goods. The level of regulations placed on research and development (which is a very lengthy process) is immense, and it is definitely conceivable that such companies would find it impossible to remain even temporarily profitable without perpetual flow of producer credit via artificially depressed interest rates. I don't see why one would rule out the ABCT as a possible (partial) explanation for this phenomenon.
I don't know, but I do know that I could not find a single article on NBER that even tried to ask if healthcare inflation might be related to medicare. I know that's not exactly what you're asking here, but the point I'm trying to make is that no one seems to be looking at how massive inflows of public funds into the healthcare sector might have something to do with ever rising costs. Just saying.
Something to consider in this is how easy it is to keep such a bubble going. Health care is not an area that produces services and products people are likely to want to forego, so I would guess it'd be relatively easier to maintain over investment in the healthcare industry and other areas would see the bottom fall out first because of that.
Bubbles involve increasing speculation in rising prices, over investment and over production - leading to a glut in supply. That is not the case in health care system. It is gov't intervention that is driving up the price. Not speculation. I therefore see no bubble.
Well........ever heard of GSE (government sponsored enterprises)???
Maybe we are about to witness Government sponsored industries or GSI
Corporatism is using state means to enhance market share and profitability of a few favored firms, at the expense of the citizen.
Cabal:Does it exist? Is it growing? I've honestly never previously considered the possibility of a bubble in the health care industry, but my initial thought when this was brought up in a discussion the other day was, "why not?" I can't seem to find any references to such a concept though. Surely this has been brought up before, no? Thoughts?
It's a bubble. I figured it was at least back in August last year. Also, as you can see in my post in that link, I eventually stumbled across Ron and Peter saying the same thing. It only makes sense. It's the same old game. Regulate and subsidize sectors to hell and then socialize them when the public cries for further help.
Is research funded by credit?
bearing01:over investment and over production - leading to a glut in supply.
This is only partially correct. The bust is not technically the result of excess supply/deficit demand of final goods (though this is an important factor), but rather by an inefficient combination of capital, an overly-lengthened production processes, and too much investment in specialized long-term durable goods. The bubble is popped when prices adjust, and costs rise. Thus, aggregate demand may rise in that sector, but not to a sufficient degree (which can make the malinvestments actually profitable). It's more complex.
Furthermore, all investment and business transactions are a form of speculation. Pharma may speculate that a new drug will earn them profit at current costs--but when interest rates rise, this lengthy process (R&D, clinical trials, chemical production, ect) may (will) become unprofitable. Speculation is not limited to financial markets, and financial bubbles are always the result of real phenomena.