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chris stucchio's avatar

Perhaps no one should feel richer due to getting better medical care instead of a bigger house. As a person who has benefited quite a bit (regaining the ability to walk) thanks to expensive medical treatments not invented in 1980, I don't quite agree. Note that the health care portion of CPI is not hedonically adjusted and just treats this improvement as pure inflation.

But if you want to do a fair comparison you need to compare wages to CPI excluding medical care.

A simple numerical example: suppose at t=0 compensation is $1 wage and $1 health care while at t=1 compensation is $2 wage and $3 health care. Suppose the cost of non-health care goods went up 1.5x and health care went up 3x. CPI including health care is now 2.25x (0.5 * 1.5x + 0.5 * 2.25x) while my wages only went up 2x.

In spite of that I can now buy 33% more non-health care goods and the same amount of health care (or the same number of non-health care goods and 10% more health care).

This is what actually happened: https://fred.stlouisfed.org/graph/?g=KJ68

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gmt's avatar

I agree generally, but “no one feels richer, or should feel richer, because their workplace has to pay more in health insurance premiums” is slightly missing it in that health care has also improved over the time period - some of those premiums go into paying for MRIs that prevent cancer deaths or into treatment for COVID.

Your general point is still right though because it’s not like all of that doubling in real GDP has gone into healthcare *and* much of the gains in healthcare go to helping the elderly who are usually on Medicare.

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