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Try regressing it on Federal transfers. My take on this is that the rellatively high growth over the past decade is due to transfers being maintained at 6%, making up for cuts in the 90's. If the feds choke increases down the provinces will adjust.

Thanks Livio. I was just reading this on Friday (original paper here). Although his paper is about the US, many of his comments about political dynamics (and reference to Peter Orszag's doom-laden paper) are relevant to Canada.

I am puzzled by the assertion that HC spending/consumption should taper off with rising wealth due to diminishing returns (though I am macro-ignorant). This hasn't been the case since 1970, why should it be so now? And when something is centrally allocated, veiled in guild interests and mystique, and people are fundamentally allergic to assessing its real value, why should it be sensitive to any economic variable other than the policy willingness to rob Peter yet again?

An interesting natural experiment, which I don't see a lot of comment on, were the big cuts in the 90s. The cuts were quite substantial and widespread, yet we did not see the big spikes in nosocomial or iatrogenic morbidity and deaths that many predicted. I was still an undergrad then, but I remember the squawking. Yet the one thing no one talks about is that the "austerity" of those years forced HC systems to innovate and have a serious look at improving value. This led to a dramatic drop in post-surg bed days, development of more coordinated care, and serious ops-management attempts to control wait lists. In other words, we developed better organizational capital out of it, and few people today demand an overnight stay after a tonsillectomy. For all the cuts, there was a utility-enhancing change in social norms.

Good point on the transfers. Will take a look.

Thanks very much for the paper reference.

The invocation os "Stein's Law" here is intended both as a cautionary comment and a bit ironically.

Suppose that right now real health care spending is 15% of real GDP per capita. Suppose real GDP per capita grows at an average annual rate of 2% and real health care spending grows at an average annual rate of 5%. In 67 years, real health care spending will be 101.6% of real GDP per capita...which (this being Herb Stein's point) is seems somewhat difficult...

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