I thought the chart below that Tyler Cowen highlighted yesterday was fascinating, precisely because it begs Tyler's question, "What happened in 1980?" Unfortunately, the discussion got immediately sidetracked. The Incidental Economist guys argued that the chart was somehow wrong and there was no big jump in health care inflation in 1980. But as Kevin Drum points out in a comment to the post, their trend basically looks just like in the chart they are criticizing. Then Tyler posted an email excerpt from Austin Frakt of Incidental Economist that focused on why things flattened out in the late 1980s. Let's dial this conversation back. The fascinating thing about the original chart is how the U.S. pulls away from all the other countries starting in 1980. So, fine, maybe there's not a dramatic change in trajectory in the U.S. beginning in 1980, but American health care inflation departs from the relatively tight pack of countries that it was part of prior to 1980 in a dramatic way. I'd love to hear the IE guys and other health care experts hypothesize why that is.
My main interest in the chart is related to my (on-going, but much delayed) research into inequality trends. Richard Burkhauser and Kosali Simon have shown that the rising cost of health insurance basically explains the (small) increase in income inequality that occurred in the late 1990s and 2000s.* The exceptionalism of the American health care inflation trend in the 1980s mirrors the sharp increase in measured income inequality in that decade. Might the two be related somehow? Perhaps accounting for health insurance would reduce the apparent rise in inequality. Alternatively, perhaps the rise in income inequality might explain the American exceptionalism. Inquiring minds want to know! (mine anyway...)Sorry for the light posting, by the way--there is a very cute 7-month-old to blame.*Disclosure: my employer funded the research they conducted, and I played a primary role in the decision, but rest assured that my employer wants a big distance between this blog and its own work!