Zero-marginal productive people, and healthcare rationing

Tyler Cowen entertains an unpopular hypothetical, A view that hardly anyone embraces.

The depressing reality is that a lot of people are a net-negative on society, or so called zero-marginal productive people. Although the ‘official’ unemployment rate is 3.7 percent, the lowest in decades, when you include people who are chronically unemployed and or who consume more in government programs than they produce in value, such as the disabled, the mentally ill, drug abusers, Medicaid recipients, homeless, etc. the figure is way higher…probably closer to 30%.

The question is, how long is this sustainable? How can the US economy be so strong when so many people are a drain, either due to healthcare costs, disability, or not working?

I think much longer than people expect. Or in other words, I would not want to bet against it. This is why the US economy recovered so fast from Covid, way faster than anyone could have foreseen, because most of the people who died or got sick were not that productive to begin with, and were not big contributors to consumer spending either. The people who remodeled their homes after Covid, took vacations, etc. were not among those who got badly sick from it.

Also, individuals who are productive can produce a tail or outsized economic windfall. A single Bezos or Musk is equal to millions of zero-marginally productive people. Europe, South America, etc. does not have the necessary economic incentives or cognitive capital to produce or attract such exceptional individuals. So without that tail boost, their overall economies and stock markets do worse.

Regarding healthcare rationing, Tyler writes:

To make this more specific, imagine a health care policy that stated individuals have a true right to access any health care technology invented up through say…2004 or so. Individuals would be guaranteed “2004 value health care lives.” (In 2004 that certainly seemed pretty good.) But for subsequent health care developments, a free market will reign. Is not guaranteeing basic needs an essential part of the egalitarian argument? Surely not everything needs to be equalized? Anyway, no one believes in guaranteeing individuals protection against all the rare diseases out there, as that would cost too much. So a line will be drawn somewhere.

I don’t think a two-tiered healthcare system would be possible. The reason why ‘modern’ healthcare exists is because it’s so heavily subsidized, such as Medicare and Medicaid. Cutting off this funding would create a strong disincentive for pharma and medical equipment companies to produce new treatments and devices, so even the wealthy would eventually be made worse off, not just the poor in the lower tier. The biggest drain is end of life care, so rationing end of life care, and or encouraging euthanasia, would be a good start. Someone with a costly terminal disease could be offered an option to voluntarily end his life in exchange for some remittance that would go to his heirs. Overall, rationing would have to be done in such a way that it does not discourage innovation, which would be hard to do.