Health-Care Costs and Climate Change

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That’s the average global temperature from 1998 through 2008, according to NASA. This, of course, is what enabled George Will to write, in 2009, “according to the U.N. World Meteorological Organization, there has been no recorded global warming for more than a decade.”

Of course, George Will is just a run-of-the-mill climate change denier with a gift for mis-using statistics. In this case, he was probably citing a World Meteorological Organization study that said, “The long-term upward trend of global warming, mostly driven by greenhouse gas emissions, is continuing. . . . The decade from 1998 to 2007 has been the warmest on record.” And here’s the long-term picture, also from NASA:

You all know this, so why am I bringing it up?

Well, look at this, from J. D. Kleinke of AEI in The Wall Street Journal:

Those are annual percentage changes in nominal terms, so his point is that annual increases are going down. But what does the long term look like?

That’s health care spending as a share of the economy, so we don’t have to worry about correcting for inflation (as we do with Kleinke’s graph). Do you think the trend is up or down?

There is some difference between rising temperatures and rising health care spending. Temperatures are rising because there is too much greenhouse gas in the atmosphere, and that is something we are not going to be able to change in the short run. Health care costs are somewhat more responsive to changes in behavior by companies and households, so it is possible that health care inflation could be slowing down.

But health care costs are also a lot like climate change. We have ever-improving medical technology, and we have a health care system where the usual incentives to contain costs are weak and the incentives to run up costs are strong. In that environment, even if there are short-term changes that keep costs from growing quickly for a few years, as occurred with managed care in the 1990s, the long-term trend is still up—and we should be cautious about declaring victory as long as the structural problems have not gone away.

So people from AEI cherry-pick statistics to make their political points. So what?

I only heard about Kleinke’s article because it was cited by Jeff Sachs (hat tip Mark Thoma) in order to combat what he calls “entitlements hysteria.” In Sachs’s view, doomsday projections of health care costs are being used to fuel deficit hysteria and demands to cut government spending, especially on health care.

That is certainly true. But the fact that conservatives use those projections to argue for their policy goals (like turning Social Security into a 401(k) plan and Medicare into a voucher program) doesn’t mean those projections are systematically biased. It’s true that the long-term projections are likely to be wrong in one direction or the other, but we don’t know which one. Health care spending could grow faster than the CBO projects (CBO models already incorporate a long-term slowdown in the rate of growth of health care spending), in which case the fiscal crisis of the 2030s would hit in the 2020s.

To my mind, if the central projection shows very bad things a long time from now, but there is a wide cone of uncertainty around the central projection, that is all the  more reason to take action now to prevent the bad things from happening.  That’s my opinion about climate change. Sure, temperatures might not rise as fast as we currently expect, and Nathan Myhrvold might invent a magical cure for global warming in the meantime. But things could also go much worse than the current models indicate, and we need to be prepared for that scenario—not just discounting it to nothing because of the uncertainty.

Most liberals (people like me) take this view about climate change, but they take the opposite view of government deficits and the national debt: they think we should not be worried about the debt today because the projections could turn out to be wrong. Many conservatives take exactly opposed positions: they worry about the national debt (because the projections look bad) but not about climate change (because the projections have a big cone of uncertainty).

I worry about climate change and about health care costs and the long-term national debt. Sure, health care inflation could slow down, but it could also speed up. I differ from the folks at AEI in that I think we should preserve Social Security and Medicare and we can pay for them through a lot of tax changes that will be good for the economy on balance (higher capital gains taxes, carbon tax, elimination of tax expenditures, etc.). I also think that major policy changes should be deferred until the economy is stronger, if possible. But the bottom line is that the uncertainty is reason for action, not inaction.

This post originally appeared at The Baseline Scenario and is posted with permission.

One Response to "Health-Care Costs and Climate Change"

  1. John Brown   February 27, 2012 at 10:05 pm

    I agree, "uncertainty is reason for action, not inaction". I attended a talk by Richard Alley last week, in which he used the analogy of a ship headed toward a possible ICEBERG IN THE FOG ahead. The captain could prudently choose to start a gradual change of course now and easily avoid the iceberg, or decide that since he can't be 100% sure it's an iceberg ahead, to maintain course and to wait until he is absolutely sure- which would likely be too late to avoid a fatal collision if it really is an iceberg. This is where we are with anthropogenic global warming/ climate change. If we decide to gradually change our ways over the next 30 years, beginning now (1% of GDP annually devoted to converting from fossil fuels to renewables), just because it may be important (who knows– just maybe all those scientists aren't all wrong), we can confidently avoid avert disaster. If we go on with business as usual, we may trip over so many tipping points that we can't go back to a tolerable climate when it finally becomes clear to all that we 'must' (but no longer can- or if we "can" the annual expense would be completely impossible politically). And so what if in the long run the scientists are proved wrong? The consequences of acting now and being proven wrong later are far less severe than the other way around.