Economics Questions

Re: Health care bubble?

Esuric — Thu, 04 Mar 2010 23:07:17 GMT

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.

Re: Health care bubble?

Caley McKibbin — Thu, 04 Mar 2010 20:07:22 GMT

Is research funded by credit?

Re: Health care bubble?

wilderness — Thu, 04 Mar 2010 18:23:31 GMT

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.

Re: Health care bubble?

wolfman — Thu, 04 Mar 2010 18:13:46 GMT

Well........ever heard of GSE (government sponsored enterprises)???

Maybe we are about to witness Government sponsored industries or GSI

Re: Health care bubble?

bearing01 — Thu, 04 Mar 2010 17:33:20 GMT

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.

Re: Health care bubble?

xahrx — Thu, 04 Mar 2010 13:29:04 GMT

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.

Re: Health care bubble?

bloomj31 — Thu, 04 Mar 2010 11:44:21 GMT

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.

Re: Health care bubble?

Esuric — Thu, 04 Mar 2010 10:12:22 GMT

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.

Re: Health care bubble?

The Rev — Thu, 04 Mar 2010 09:43:19 GMT

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

Re: Health care bubble?

Jon Irenicus — Thu, 04 Mar 2010 08:57:54 GMT

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.

Re: Health care bubble?

Esuric — Thu, 04 Mar 2010 07:57:54 GMT

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

Re: Health care bubble?

Cabal — Thu, 04 Mar 2010 07:54:18 GMT

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.

Re: Health care bubble?

Esuric — Thu, 04 Mar 2010 07:41:28 GMT

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.

Health care bubble?

Cabal — Thu, 04 Mar 2010 07:39:21 GMT

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?