What Does the Business Cycle Look Like If Changes in Health Status Are Included?
This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro-cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for the majority of “recessions” after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 37% in the United States and 46% internationally.
NBER paper by Mark L. Egan, Casey B. Mulligan, Tomas J. Philipson.
Sounds like an interesting concept.
I agree with CBrady, this seems like a really interesting concept, I never thought about how those two notions can be connected and compared to one another.
Wow, it seems like economists are starting to pay attentions to other measures to define societal development. I wonder how this research will factor into our GDP.
It is about time we started to pay attention to health as a way to understand economics. Certainly public health is intricately connected to economic development. Indeed, poor public health can cripple communities both socially and economically!
Economists have always understood the variables which SHOULD impact measures like GDP, they just generally tend to ignore them.
We use health measures in forming positive economic development packages to lesser developed countries, it’s silly to ignore them here.
I agree with some the ideas this paper brings up. It certainly broadens our understanding on how to approach development. And so, in many ways all the focus on health care is not misplaced. It is important for our economy.
I feel like this also makes policy work and governance that much harder and so much more longer!
I wonder how they might factor a the growing trends on mental health problems. Way more than before, incoming generation have much higher rates of mental health challenges, I wonder how we can tackle this.
@ Sadat
I know that there is some country in South Asia where they have Gross Happiness Product. By no means is it a perfect measure that tries to address mental health, but it seems like an interesting starting point to garner a better understanding on the links between mental health and economic development.
I thought this information is important to consider for the debate. http://www.thedailybeast.com/newsweek/2013/05/22/why-suicide-has-become-and-epidemic-and-what-we-can-do-to-help.html
I’d think a more nuanced approach than just mortality and estimated value of life should be used.
“The first method uses a uniform VSL [value a of statistical life] estimate as is done in current public accounting by many federal agencies, valuing all lost lives equally at $6.3 million.”
The second is age and gender adjusted, but still.
Interesting concepts thrown in this post. I agree with August on a different approached.
It’s a start to a new measure concept that should be expanded upon.