America Is Getting Richer and Sicker

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(Bloomberg View) -- Per capita gross domestic product is much higher in the U.S. than in the other major developed economies, and no one really seems to be catching up:

America Is Getting Richer and Sicker

Life expectancy, on the other hand, is lower in the U.S. than in those same peer countries -- and the gap has been growing.

America Is Getting Richer and Sicker

In the past, one could argue that the diversity of the U.S., and its huge income disparities, helped explain the poor performance: Economically disadvantaged minority groups were dragging the average down. Recent research by Princeton University economists Anne Case and Angus Deaton, however, shows that since 1999 longevity gains have slowed most dramatically, and in some cases reversed, among white Americans. This is from their latest bombshell paper, released last week:

America Is Getting Richer and Sicker

Depending on which indicators you use, then, you can get a very different sense of how well the country is doing. I was inspired to make the GDP chart above by Harvard University economist Martin Feldstein's recent paper, "Why Is Growth Better in the United States than in Other Industrial Countries?" His main answer: 

The welfare state has grown in the United States, but much less than it has grown in Europe. And the intellectual climate in the United States is much more supportive of capitalism.

Meanwhile Deaton, who won the economics Nobel prize in 2015, argued in Sunday's New York Times that the U.S. is in need of a big expansion of the welfare state and restriction of capitalist medicine in the form of a single-payer health system. Why?

... not because I am in favor of socialized medicine but because the artificially inflated costs of health care are powering up inequality by producing large fortunes for a few while holding down wages; the pharmaceutical industry alone had 1,400 lobbyists in Washington in 2014. American health care does a poor job of delivering health, but is exquisitely designed as an inequality machine, commanding an ever-larger share of G.D.P. and funneling resources to the top of the income distribution.

This was in the context of a review of a book subtitled "Why Economic Inequality Threatens Our Republic," which explains Deaton's focus on inequality. But there's a broader point here, which is that focusing just on GDP gives an incomplete picture of how a country's economy is doing. Here's another economics Nobelist, Harvard's Amartya Sen, from a 1998 paper titled, "Mortality as an Indicator of Economic Success or Failure":

Income is only one variable among many that affect our chances of enjoying life, and some of the other variables are also influenceable by economic policy. Quality of life depends on various physical and social conditions, such as the epidemiological environment in which a person lives. The availability of health care and the nature of medical insurance -- public as well as private -- are among the important influences on life and death. So are the other social services, including basic education and the orderliness of urban living, and the access to modern medical knowledge in rural communities. The statistics on mortality draw our attention to all these policy issues.

Sen was talking about the developing world. It's fascinating, and alarming, that one can now make similar arguments with regard to the U.S. economy. And the increase in mortality that Case and Deaton have documented among middle-aged white Americans really does seem to be mainly an economic phenomenon, as opposed to evidence of a failing health-care system. Suicides, drug overdoses and alcohol-related liver diseases have been the biggest drivers of the mortality increase, and these problems have been concentrated among those without college degrees. As Case and Deaton write in their new paper:

We propose a preliminary but plausible story in which cumulative disadvantage over life, in the labor market, in marriage and child outcomes, and in health, is triggered by progressively worsening labor market opportunities at the time of entry for whites with low levels of education.

That's a major economic failure. It doesn't mean that the economic success documented by Feldstein is a chimera. The U.S. economy's ability to keep finding new ways to grow, and keep spawning world-beating corporations that lead that growth, is a remarkable thing. But it clearly hasn't been enough to keep living standards from declining for large swaths of the population. And countries with those big welfare states that Feldstein decries seem to have done a better job of maintaining living standards than the U.S. has. If he's right that welfare states slow growth, then the U.S. has made a possibly reasonable tradeoff. If he's wrong (and there are economists who argue that real-world welfare states have been a "free lunch"), then we've just been shooting ourselves in the foot.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

  1. Yes, Germany has gained significant ground since but that's partly just a rebound from a terrible 1990s. And U.K. per capita GDP has grown ever so slightly faster since than that of the U.S., but it was coming from an especially low base.

To contact the author of this story: Justin Fox at justinfox@bloomberg.net.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

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