New Normal – Slow Economic Growth and Medical Innovations

New Normal is a term in business and economics that refers to financial conditions following the financial crisis of 2007-2008 and the aftermath of the 2oo8-2012 global recession. The term has since been used in a variety of other contexts to imply something what was previously abnormal has become commonplace.

Definition of the New Normal

A prominent feature of President Obama’s administration has been slow economic growth.  Growth has averaged  2.0% to 2.5% over the last 6 years.   This is roughly half that of previous recession recoveries, and is the slowest since World War II. 

Critics say this stagnant growth stems from the administration economic policies.   They cite anti- business policies (high corporate taxes, onerous regulations, and the employer health mandate), anti- innovation policies (high startup costs, medical device taxes, and bureaucratic impediments),   and high taxes on the rich  and entrepreneurs, and regulations that discourage skilled foreign innovators from entering the U.S.   

Physicians say federal regulations increase costs of doing business by demanding doctors gather quality data on costly electronic health record systems,    by discouraging new practice designs, by creating byzantine coding systems, by insisting upon time consuming credentialing,   by developing unworkable payment systems,   and by discouraging tort reform.

Progressives insist many of these problems would go away if we only had a single-payer system covering all citizens and treating them equally.

Economist Robert Gordon, in his new book The Rise and Fall of American Growth (Princeton University Press),  believes  slow growth is  inevitable because of the lack of   major  new society-wide economic  inventions and "headwinds," i.e. social and cultural forces causing economic slowdowns.

Gordon  notes from 1750- 1830, we had sweeping  transforming  things  like steam engines, cotton gins, and railroads.   From 1830 to 1900 we had the telegraph, electricity, internal combustion engines,   and running water.  From 1900 to 1950, we added airplanes, concrete road systems, and added and refined communications, developed industrial machines, and introduced corporations.   In the 1940s we introduced sulfonamides, penicillin, blood transfusions, and modern anesthesia and surgical techniques. From 1950 to 1970 we added air conditioning,   house hold appliances, and the coast-to-coast highway system.   Starting about 1960 we developed computers and the Internet which peaked in the late 1990s.     Today we have cell phones, big data, and smaller and faster mobile devices, and the ubiquitous social media (Face book, Twitter, Integra, Tube),   and cloud computing.

But unlike previous inventions, Gordon  argues these computer-based technologies will not significantly increase human productivity nor speed up economic growth.

Overall,  because of such economic “headwinds” as an aging population,  rising inequality  between the top 1% and the rest of us,  dropping wages become of foreign competition,  cost inflation of higher education, poor secondary schools,  environmental regulations, and government intervention into consumer and business affairs,   Gordon predicts economic growth will average only 1.4% from 2007 to 2017.   In other words,  1.4% annual growth will be the new normal.

Gordon is not particularly impressed with health care with the history of health care or its contribution to economic growth,  to wit:

”By the 1920s, we had pretty much gotten to a professional stage of medicine where people went to medical school. Medical schools were quack organizations in the late 19th century. And a man named Flexner wrote a famous report which damned the education at existing medical schools and completely reformed the education of doctors and hospitals.”

“And much of the improvement in health, remember, was the curing of infectious diseases. It was things like cleaning up the water and getting rid of diphtheria and other kinds of infectious diseases back in the 19th century. That was the key to curing infant mortality, was the conquest of infectious diseases.”

“Medical invention I would say reached its peak in the 1940s with the invention of penicillin and antibiotics. By 1970, we had identified smoking as a source of both cancer and heart disease; we had identified chemotherapy and radiation as cures for cancer. So, I would say that the core period for reaching the level of modern medicine was between about 1940 and 1980. We've been making very slow progress since then.”

Gordon does not think health reform or innovation will contribute to economic growth.

“And so, I have a fairly progressive middle -- I would call it middle left-wing view of economic policy. I differ with Senator Sanders on several issues, while not overtly supporting Secretary Clinton. In particular, I think it's simply too late for the United States to adopt a single-payer medical care system. We've had decades of Medicare incentives to make our whole medical care system more expensive. We pay 18 percent of GDP on our medical care system. And for all that money, we get life expectancy that's about at the bottom of the top developed countries.”

“And so, I think it's just simply too late. There's no way you can destroy the entire private health insurance industry or no way you can take over-bloated health providers in hospitals and group practices around the country and suddenly impose on them the kind of rules that in Canada and the U.K. keep medical care costs so much more moderate.”

Given current ObamaCare reforms, I agree with Doctor Gordon.  Government reform will stimulate economic growth.  It may even slow it down.  The major trends uninitiated by the administration: accountable care organizations, consolidation at every level of the system, bundled payments between hospitals and physicians,    pay for performance based on evidence-based outcomes,  mandatory electronic records,  employer and individual mandates will not promote growth.

But I believe the electronic revolution and other factors – decentralization of the system, remote monitoring through new devices, telemedicine and virtual visits, and patient engagement. will make health care more efficient. 

 I believe information technologies will speed diagnosis,  will improve health and wellness status ,   and better prognosis and human productivity.  It is currently possible to establish a diagnosis by having a patient enter symptoms, complaints, and history  to create a computer algorithm giving the right  diagnosis 90% of the time; to use a drop of the patient’s blood, coupled with vital signs and a stress test using expelled breath gases  to establish cardiac and pulmonary status, and  use remote and wearable monitoring devices  to define the state of the patient’s fitness and wellness compared to peers,  and to deploy  historical information and  DNA information from blood or saliva to predict and improve  long term prognosis -  and to do all of these things from a patient’s home or other locations outside the usual medical setting.   Many other medical problems – dermatological, ophthamological, surgical, and orthopedic conditions will require examination and evaluation by physicians.

Will these medical innovations improve overall economic growth?  Maybe at the margins.     Other factors besides health care are involved as Gordon indicates – narrowing  of income differences,  better  and less expensive education,  lower taxes,  fewer regulations,  more market-based enterprise.  On the health care front,  repealing ObamaCare,  allowing purchase of health care across state lines,  allowing deduction of insurance from taxes, expanding HSAs,  requiring transparency of  medical goods and services,  state block grants for Medicaid,  and freer markets for pharmaceutical purchases may be required.

Professor Gordon may be right that the new normal  is slower economic growth,  and that  the  Internet and its spin-offs will not significantly  speed economic growth.   But it may be wrong too, and the techno-optimists among us may be right.  Maybe ordinary citizens, armed with information and riding the electronic wave, will help America return to economic growth.