If health care in the U.S. were as cost efficient as the delivery of cosmetic procedures, Americans would have saved $1.19 trillion last year.
Gale L. Pooley, Marian L. Tupy —
Professor Mark J. Perry from the American Enterprise Institute produces an annual report on the costs of cosmetic procedures, and hospital and medical care services. Between 1998 and 2018, the average cost of cosmetic procedures rose at a slower pace than inflation. In contrast, hospital and medical care costs rose well above inflation. Thus, while the former became more affordable, the latter became less affordable. We take Perry’s analysis a step further by looking at the time prices of cosmetic procedures and conclude with a few remarks about the cost of healthcare in America.
According to Perry’s analysis, inflation in the United States amounted to 54 percent over the last 20 years. Over the same time period, the nominal cost of 19 cosmetic procedures increased by 34 percent (unweighted average) or 32 percent (weighted average). In inflation-adjusted terms, therefore, the cost of cosmetic procedures fell. In contrast, hospital and medical care costs rose by 202 percent (four times the rate of inflation) and 110 percent (twice the rate of inflation) respectively. As Perry notes,
The competitive market for cosmetic procedures operates differently than the traditional market for health care in important and significant ways. Cosmetic procedures, unlike most medical services, are not usually covered by insurance. Patients typically paying 100 percent out-of-pocket for elective cosmetic procedures are cost-conscious and have strong incentives to shop around and compare prices at the dozens of competing providers in any large city. Providers operate in a very competitive market with transparent pricing and therefore have incentives to provide cosmetic procedures at competitive prices. Those providers are also less burdened and encumbered by the bureaucratic paperwork that is typically involved with the provision of most standard medical care with third-party payments.
Let’s interrogate Perry’s data a bit differently. Goods and services can become more affordable in two ways. First, the money price can decrease. Second, hourly income can increase. Note that incomes tend to rise faster than inflation, because people tend to become more productive over time. That’s a good thing, for as the Scottish economist Adam Smith noted in The Wealth of Nations 243 years ago, “The real price of everything…is the toil and trouble of acquiring it…What is bought with money or with goods is purchased by labor.”
The time price captures both the price fluctuations and the value of labor. As such, it better reflects the availability of goods and services in any given society. The time price can be defined as “the amount of time that a person has to work in order to earn enough money to buy something.” To calculate the time price, the nominal (or current) money price is divided by nominal hourly income. Dollars and cents are thus converted to hours and minutes of labor.
Having obtained the nominal prices of the 19 cosmetic procedures from Perry’s report, we then acquired the average hourly income data from www.measuringworth.com. This source, which is curated by Lawrence H. Officer of the University of Illinois at Chicago and Samuel H. Williamson of Miami University, includes nominal hourly wage rates of unskilled laborers and nominal hourly compensation rates of blue-collar workers. (On average, blue-collar worker receive about a third of their total compensation in benefits, including bonuses, paid leave, and company contributions to insurance and retirement plans.) What did we find?
The cost of the 19 cosmetic procedures relative to the wages of unskilled laborers fell by 26 percent on average. For the same amount of labor that an unskilled laborer had to work to earn enough money to purchase one item in our basket of cosmetic procedures in 1998, he or she could buy 1.35 items in 2018.
The cost of the 19 cosmetic procedures relative to the compensation of blue-collar workers fell by 31 percent on average. For the same amount of labor that a blue-collar worker had to work to earn enough money to purchase one item in our basket of cosmetic procedures in 1998, he or she could buy 1.45 items in 2018.
Finally, consider an upskilling worker, who is defined, solely for the purposes of this article, as an employee who started as an unskilled laborer in 1998, but acquired additional skills and ended up as a skilled worker in 2018. Such a worker would see the cost of 19 cosmetic procedures decline by 71 percent on average. For the same amount of labor he or she had to work to earn enough money to purchase one item in our basket of cosmetic procedures in 1998, he or she could buy 3.4 items in 2018.
Total nominal health care spending in America rose from $1.2 trillion in 1998 to $3.65 trillion in 2018. That amounts to 204 percent. In other words, the overall healthcare costs rose 6.3 times faster than Perry’s weighted average of cosmetic procedures (32 percent). If the overall provision of health care in the United States were as cost efficient as the delivery of cosmetic procedures, Americans would have spent $1.58 trillion (in 1998 dollars) on health care in 2018. That amounts to $2.46 trillion in 2018 dollars. Thus, the savings last year would have amounted to $1.19 trillion.
“Household incomes rose last year for the first time since the Covid-19 pandemic began, reflecting the effects of easing inflation and a strong job market.
The new data from the U.S. Census Bureau on Tuesday signaled an improvement in 2023 after inflation that spiked to a 40-year-high the prior year swallowed up household income gains.
Inflation-adjusted median household income was $80,610 in 2023, up 4% from the 2022 estimate of $77,540, the bureau said in its annual report card on households’ financial well-being. This move returned incomes to about where they were in 2019, the peak that was hit just before the pandemic.”
“The median household net worth of older millennials, born in the 1980s, rose to $130,000 in 2022 from $60,000 in 2019, according to inflation-adjusted data from the Federal Reserve Bank of St. Louis. Median wealth more than quadrupled to $41,000 for Americans born in the 1990s, which includes the generation’s youngest members, born in 1996.
The turnaround has been so dramatic that millennials—mocked at times for being perpetually behind in building wealth, buying homes, getting married and having children—now find themselves ahead.
In early 2024, millennials and older members of Gen Z had, on average and adjusting for inflation, about 25% more wealth than Gen Xers and baby boomers did at a similar age, according to a St. Louis Fed analysis.”
The Earth was 509.4 percent more abundant in 2023 than it was in 1980.
Marian L. Tupy, Gale L. Pooley —
The Simon Abundance Index (SAI) quantifies and measures the relationship between resources and population. The SAI converts the relative abundance of 50 basic commodities and the global population into a single value. The index started in 1980 with a base value of 100. In 2023, the SAI stood at 609.4, indicating that resources have become 509.4 percent more abundant over the past 43 years. All 50 commodities were more abundant in 2023 than in 1980.
Figure 1: The Simon Abundance Index: 1980–2023 (1980 = 100)
The SAI is based on the ideas of University of Maryland economist and Cato Institute senior fellow Julian Simon, who pioneered research on and analysis of the relationship between population growth and resource abundance. If resources are finite, Simon’s opponents argued, then an increase in population should lead to higher prices and scarcity. Yet Simon discovered through exhaustive research over many years that the opposite was true. As the global population increased, virtually all resources became more abundant. How is that possible?
Simon recognized that raw materials without the knowledge of how to use them have no economic value. It is knowledge that transforms raw materials into resources, and new knowledge is potentially limitless. Simon also understood that it is only human beings who discover and create knowledge. Therefore, resources can grow infinitely and indefinitely. In fact, human beings are the ultimate resource.
Visualizing the Change
Resource abundance can be measured at both the personal level and the population level. We can use a pizza analogy to understand how that works. Personal-level abundance measures the size of an individual pizza slice. Population-level abundance measures the size of the entire pizza pie. The pizza pie can get larger in two ways: the slices can get larger, or the number of slices can increase. Both can happen at the same time.
Growth in resource abundance can be illustrated by comparing two box charts. Create the first chart, representing the population on the horizontal axis and personal resource abundance on the vertical axis. Draw a yellow square to represent the start year of 1980. Index both population and personal resource abundance to a value of one. Then draw a second chart for the end year of 2023. Use blue to distinguish this second chart. Scale it horizontally for the growth in population and vertically for the growth in personal resource abundance from 1980. Finally, overlay the yellow start-year chart on the blue end-year chart to see the difference in resource abundance between 1980 and 2023.
Figure 2: Visualization of the Relationship between Global Population Growth and Personal Resource Abundance of the 50 Basic Commodities (1980–2023)
Between 1980 and 2023, the average time price of the 50 basic commodities fell by 70.4 percent. For the time required to earn the money to buy one unit of this commodity basket in 1980, you would get 3.38 units in 2023. Consequently, the height of the vertical personal resource abundance axis in the blue box has risen to 3.38. Moreover, during this 43-year period, the world’s population grew by 3.6 billion, from 4.4 billion to over 8 billion, indicating an 80.2 percent increase. As such, the width of the blue box on the horizontal axis has expanded to 1.802. The size of the blue box, therefore, has grown to 3.38 by 1.802, or 6.094 (see the middle box in Figure 2).
As the box on the right shows, personal resource abundance grew by 238 percent; the population grew by 80.2 percent. The yellow start box has a size of 1.0, while the blue end box has a size of 6.094. That represents a 509.4 percent increase in population-level resource abundance. Population-level resource abundance grew at a compound annual rate of 4.3 percent over this 43-year period. Also note that every 1-percentage-point increase in population corresponded to a 6.35-percentage-point increase in population-level resource abundance (509.4 ÷ 80.2 = 6.35).
Individual Commodity Changes: 1980–2023
As noted, the average time price of the 50 basic commodities fell by 70.4 percent between 1980 and 2023. As such, the 50 commodities became 238.1 percent more abundant (on average). Lamb grew most abundant (675.1 percent), while the abundance of coal grew the least (30.7 percent).
Figure 3: Individual Commodities, Percentage Change in Time Price and Percentage Change in Abundance: 1980–2023
Individual Commodity Changes: 2022–2023
The SAI increased from a value of 520.1 in 2022 to 609.4 in 2023, indicating a 17.1 percent increase. Over those 12 months, 37 of the 50 commodities in the data set increased in abundance, while 13 decreased in abundance. Abundance ranged from a 220.8 percent increase for natural gas in Europe to a 38.9 percent decrease for oranges.
Figure 4: Individual Commodities, Percentage Change in Abundance: 2022–2023
Conclusion
After a sharp downturn between 2021 and 2022, which was caused by the COVID-19 pandemic, government lockdowns and accompanying monetary expansion, and the Russian invasion of Ukraine, the SAI is making a strong recovery. As noted, since 1980 resource abundance has been increasing at a much faster rate than population. We call that relationship superabundance. We explore this topic in our bookSuperabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet.
Appendix A: Alternative Figure 1 with a Regression Line, Equation, R-Square, and Population
Appendix B: The Basic 50 Commodities Analysis: 1980–2023
Appendix C: Why Time Is Better Than Money for Measuring Resource Abundance
To better understand changes in our standard of living, we must move from thinking in quantities to thinking in prices. While the quantities of a resource are important, economists think in prices. This is because prices contain more information than quantities. Prices indicate if a product is becoming more or less abundant.
But prices can be distorted by inflation. Economists attempt to adjust for inflation by converting a current or nominal price into a real or constant price. This process can be subjective and contentious, however. To overcome such problems, we use time prices. What is most important to consider is how much time it takes to earn the money to buy a product. A time price is simply the nominal money price divided by the nominal hourly income. Money prices are expressed in dollars and cents, while time prices are expressed in hours and minutes. There are six reasons time is a better way than money to measure prices.
First, time prices contain more information than money prices do. Since innovation lowers prices and increases wages, time prices more fully capture the benefits of valuable new knowledge and the growth in human capital. To just look at prices without also looking at wages tells only half the story. Time prices make it easier to see the whole picture.
Second, time prices transcend the complications associated with converting nominal prices to real prices. Time prices avoid subjective and disputed adjustments such as the Consumer Price Index (CPI), the GDP Deflator or Implicit Price Deflator (IPD), the Personal Consumption Expenditures price index (PCE), and the Purchasing Power Parity (PPP). Time prices use the nominal price and the nominal hourly income at each point in time, so inflation adjustments are not necessary.
Third, time prices can be calculated on any product with any currency at any time and in any place. This means you can compare the time price of bread in France in 1850 to the time price of bread in New York in 2023. Analysts are also free to select from a variety of hourly income rates to use as the denominator when calculating time prices.
Fourth, time is an objective and universal constant. As the American economist George Gilder has noted, the International System of Units (SI) has established seven key metrics, of which six are bounded in one way or another by the passage of time. As the only irreversible element in the universe, with directionality imparted by thermodynamic entropy, time is the ultimate frame of reference for almost all measured values.
Fifth, time cannot be inflated or counterfeited. It is both fixed and continuous.
Sixth, we have perfect equality of time with exactly 24 hours in a day. As such, we should be comparing time inequality, not income inequality. When we measure differences in time inequality instead of income inequality, we get an even more positive view of the global standards of living.
These six reasons make using time prices superior to using money prices for measuring resource abundance. Time prices are elegant, intuitive, and simple. They are the true prices we pay for the things we buy.
The World Bank and the International Monetary Fund (IMF) track and report nominal prices on a wide variety of basic commodities. Analysts can use any hourly wage rate series as the denominator to calculate the time price. For the SAI, we created a proxy for global hourly income by using data from the World Bank and the Conference Board to calculate nominal GDP per hour worked.
With this data, we calculated the time prices for all 50 of the basic commodities for each year and then compared the change in time prices over time. If time prices are decreasing, personal resource abundance is increasing. For example, if a resource’s time price decreases by 50 percent, then for the same amount of time you get twice as much, or 100 percent more. The abundance of that resource has doubled. Or, to use the pizza analogy, an individual slice is twice as large. If the population increases by 25 percent over the same period, there will be 25 percent more slices. The pizza pie will thus be 150 percent larger [(2.0 x 1.25) – 1].
“We find that each of the past four generations of Americans was better off than the previous one, using a post-tax, post-transfer income measure constructed annually from 1963-2022 based on the Current Population Survey Annual Social and Economic Supplement.”
