Wednesday, May 27, 2020

Economic recovery policies must focus on income inequality rather than on GDP growth

Vijay K. Mathur

Policymakers, following economists and media in general, have traditionally focused on implementing policies to increase growth in GDP (Gross Domestic Product). However, beginning in the early 1970s, increasing income inequality shows that all Americans have not shared the prosperity generated by economic growth. Isabel Sawhill, in her book "The Forgotten Americans," raises this issue very cogently.
Sawhill primarily addresses the economic plight of the white working class between the ages of 25 and 64. Since the ’70s, labor force participation has been decreasing and wage and salary income has been stagnant for this group, even with the increase in productivity. The same holds true for most Americans. The labor force participation rate peaked at 67.3% in early 2000 and has since declined to almost 63% percent, per the Bureau of Labor Statistics. Most productivity gains have gone to Americans in the top of the income distribution. Hence, income inequality has increased, and its incidence is harder on low- and middle-income Americans with an inadequate social insurance system.
Congressional Research Service reported July 23, 2019, that cumulative percent change during 1979-2018 in real wages for households in the top 10% of the income distribution was 37.6%, while for the middle- and low-income households it was 1.6% and 6.1%, respectively. Men in the middle and low income lost and women gained real wages. Household income for the top 1% increased 229% while the bottom 90% gained only 46% for the years 1979-2015 (Economic Policy Institute (EPI), March 27, 2019). Wage inequality is the driving force for income inequality. Using census data, Utah Workforce Services reports that Utah’s income inequality index (Gini coefficient) declined during 2014-2017 but has increased since 2017.
The capitalist system, supported by technological revolution and globalization, lately has not generated an economic system where all Americans have shared in private sector prosperity and growth in productivity. Real wages have diverged from productivity since the ’70s. EPI reports that cumulative percentage change in productivity from 1979 to 2017 was 70.3%, while hourly compensation grew only 11.1%. It is the responsibility of the government and the private sector to ensure jobs’ growth, with wage growth commensurate with increase in productivity. The gig economy, with more part-time workers and contract workers, and more self-employed (not by choice), is not a healthy sign of a growth economy, higher standard of living and happiness.
Involuntary unemployment surprises many economists, especially conservative politicians and policymakers. They would argue that a rational individual should be willing to accept a job, even if wages paid are below his or her expectations. However, as Nobel Laureate Professors George Akerlof and Robert Shiller argue in the book "Animal Sprits," the answer lies in efficiency wages. Effectiveness and efficiency of work effort in a job depends upon the wages paid. Employers cannot monitor their workers' efforts perfectly in doing their jobs. Employers’ preference for lower wages may backfire in lack of motivation, reduced work effort and productivity.
The COVID-19 pandemic has further worsened the economic well-being of low- and middle-income Americans. Their employment prospects look dim even after the emergence of a virus treatment and vaccine. Policymakers have to implement plans for education and training programs to prepare the labor force for emerging technologies. Utah has done better than many other states during the epidemic. Reduction in unemployment claims in Utah is a healthy sign for a quicker recovery. However, attention must be given to shared prosperity.
The growth rate of the economy is essential, but the focus must be on its distributive aspects — i.e., how it affects working Americans whose main earnings and standard of living is determined by labor market participation. Income is based upon education and training in the technologically sophisticated economy. I hope that our policymakers and politicians are wise enough to foresee the upcoming challenges.

Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at mathursblogonomics.blogspot.com

The Free market: An instrument of economic growth

Vijay K. Mathur


In the current Democratic presidential debates, concern is raised that free market capitalism is contributing to income and wealth inequality. Capitalism now is seen as crony capitalism, where businesses get political and regulatory favors to benefit themselves rather than most Americans, thus increasing income inequality. Is there a better economic system than free market that brings growth and prosperity to the nation and its people?

Presidential candidate Sen. Bernie Sanders is a proponent of “democratic socialism,” a term borrowed from the economic system of Nordic countries (such as Sweden, Norway, Denmark) that existed in the 1960s. These countries are now far removed from socialism and have a thriving free market system, more freedom (www.heritage.org), less regulation, higher per capita income and lower income inequality than the US. They have a very robust and extensive social safety net compared to the US, and their residents are willing to pay higher tax rates to support it.

What kind of free market system produces high growth and prosperity that benefits most people in a country? Contrary to the general notion among many economists, William L. Baumol, professor of economics at Princeton and New York Universities (now deceased), cogently argued in his book “The Free-Market Innovation Machine” that an oligopolistic market structure with few firms dominating in competitive free markets drives innovation and growth. Free market competition among a few dominant firms forces them to make innovations part of their economic strategy to survive. Innovations are “systematized” and “routinized” in oligopolies and are the drivers of economic growth and higher standard of living. Utah’s growth is largely driven by innovating industries, called super-centers by the Brookings study (The New Yorker, Feb. 3, 2015). Utah is one of the top 15 innovation centers in the country.

Oligopolies have resources to routinize innovations and keep track of other firms’ behavior in order to be competitive. However, a large number of small firms competing in perfectly competitive markets (an ideal free market structure) do not have resources to routinize the innovation process. In addition, they cannot keep track of other competitors’ economic strategies, ascertain emerging technologies and dynamic movements of markets.

Many individual innovators and entrepreneurs eventually transform themselves into larger oligopolistic firms. Examples of new small-scale startups that eventually became giant multinational companies are Google (now part of Alphabet), Microsoft and Apple. These companies compete in oligopolistic markets and are constantly engaged in incremental product innovations to keep ahead of their competitive rivals.

A labor force that matches the skills and talents needed in innovative companies participates in the economic growth and prosperity. Professor Thomas Philippon argues in his book “The Great Reversal” that market concentration in the U.S. has been increasing since the 1990s due to oligopolies, thus causing income inequality and efficiency problems. However, as Baumol, John Panzar and Robert Willig contend in their book on contestable markets, efficiency problems do not arise when markets are contestable, where entry and exit of businesses are relatively easy. Antitrust laws and regulations must make sure that there are minimum barriers to entry and exits in markets.

The threat of entry is precisely what persuades incumbents to constantly engage in innovations, maintain market share and increase profitability. In the long run, exorbitant profits are driven down by competition due to the entry of new competitors, who also bid up wages for the labor they need to compete. I am sure most are familiar with the fate of companies such as IBM, Xerox and Kodak, and traditional auto companies due to the entry of Tesla.

The U.S. economy is a free market economy and increasingly dominated by oligopolistic firms, mostly in service and high tech industries. In the short run, the labor market is going through a structural change, because it has not kept up with the emergence of new technologies. In some corners of the country, there is a battle cry for democratic socialism since a significant part of the labor force, due to inadequate technological training, especially in manufacturing, has not participated in the prosperity of businesses and the economy.

The short-term hardship of Americans, who are severely impacted by technological change, must be dealt with. But democratic socialism and crony capitalism (with tacit political favoritism) are not the answers. I hope our government learns some of the novel ways Nordic countries have dealt with the economic hardships of their citizens, not by promoting socialism and crony capitalism but by adopting free market strategies that promote innovations and growth.

Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at http://mathursblogonomics.blogspot.com.

Reversing American leadership in free trade subverts US interests


Vijay K. Mathur

In 1817 David Ricardo, in “Principles of Political Economy and Taxation,” proposed his theory of comparative advantage where he argued that trade policies in England were protectionist. Comparative advantage proposed that beneficial trade, between two countries and two products, for example, is probable even if one country is absolutely more efficient in the production of both products. However, in the 1930s most nations, including the U.S., imposed trade restrictions, such as tariffs and currency devaluations, to boost exports and reduce imports. Hence, world trade and economies shrank.

After World War II, the U.S., U.K. and 42 other nations met at Bretton Woods, New Hampshire, to fix the world trading system. They established the International Monetary Fund (IMF) to monitor rules for trade and international finance and provide financial assistance to countries with balance of payment deficits. Under U.S. leadership, the World Bank and the General Agreement on Tariff and Trade (GATT), precursor to the World Trade Organization (WTO), were established to provide assistance for economic development, promote trade liberalization and arbitration on complaints of unfair trade practices.

The U.S. leadership succeeded in opening up more trade among nations that benefited all countries, including the U.S. The U.S. total trade was 27.09% of the GDP in 2017 and was almost the same in 2018. Despite the U.S. tariffs on imports, the trade deficit increased by 10% during 2016-2017 (www.macrotrends.net) and 12.45% from 2017 to 2018 (https://.world101.cfr.org). It has narrowed slightly in 2019. However, Utah exports are close to three times its imports, thus resulting in a large trade surplus during 2017-2018. (www.census.gov). Regrettably, it may suffer from trade restrictions in future years. Business Roundtable reported that most exports from Utah are by small- to medium-size companies, and trade created 1 in 5 jobs in 2013.

Under President Trump’s administration, the U.S. leadership in promoting free trade is crumbling. The U.S. is engaged in dismantling the WTO court, weakening the institution that promotes free trade. Selectively imposing import tariffs from China and Europe, the largest trading partners, to improve trade deficits is not having much success. The U.S. withdrawal from multinational trade treaties, except replacing NAFTA with USMC (with minor changes), is not in the national interest.

Import tariffs on products do not provide effective protection to home industries. For example, an import tariff on electrical machinery and steel products increases production cost and prices of products. It decreases demand for products in the U.S., hence the demand for labor, capital and raw materials in the production of those products. Price increases also make our products less competitive in export markets, thus contributing to trade deficit, economic growth and employment. In fact domestic investment and growth is declining. Bloomberg economists calculate that a 25% tariff shaves 1.5% off economic growth, according to a May 13, 2019 article.

The Federal Reserve study from Dec. 23, shows that tariffs by U.S. in 2018 and retaliatory tariffs by trading partners have reduced manufacturing employment and increased producer prices due to an increase in input costs. Aside from the beneficial effect of trade on employment and prices, the question is what are the other gains from trade?

Trade enhances product variety and consumer choice. It promotes intra-industry trade. For example, the U.S. exports and imports automobiles of different makes, models, quality and prices. Trade increases competition in the markets, and leads to economies of scale in differentiated products. The most productive firms (businesses) survive and expand and less productive firms contract or go out of business. This increases overall productivity in industries and in the country, and hence wages. More productive and competitive firms with expanding local and world markets innovate new products and processes. Thus competition increases churn in markets and promotes formation of new businesses.

Imports from lower wage countries, especially in manufacturing, do lower wages and real incomes in the U.S., especially of mid-skill Americans. But loss of wages and income is also partly due to the use of new technologies in businesses. This problem can only be fixed if the U.S. competes in the world market in high-valued products, for example in services and intellectual property-based industries. It must train the labor force for those advanced industries. Competing in traditional manufacturing products is a lost cause. The intellectual property dispute with China is an excuse for general protectionist policies. A policy that claims that trade restrictions would brighten the future living standard of Americans is self-defeating.

Leadership requires that U.S. persuade other nations to further open their markets to increase world trade so that all can prosper in the future.

Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at http://mathursblogonomics.blogspot.com.

Wednesday, November 6, 2019

Adverse Economic Consequences of Ideology Driven, Ill Informed or Not Voting



Vijay K. Mathur


“A man without a vote is a man without protection.” 
 Lyndon B. Johnson

Ill-informed voters and low voter turnout, aside from threatening democratic values, often end up electing politicians who decide on policies that result in adverse economic consequences for most Americans. Pew Research reports that in the 2016 presidential election 61.4% of the voting age population in the U.S. voted, the same as in 2012.

In Utah, the 2016 voter turnout was an impressive 82%. Republicans in the Utah Legislature have had a supermajority since 1992. This supermajority of Republicans in both state Houses is surprising, since only 45% of the voters are declared Republicans. Unaffiliated declared voters are 37% and only 13% are Democrats, according to www.elections.utah.gov. Hence it is more likely that voters in Utah are driven by their conservative ideology and political spin on policy stands, rather than by party affiliation.

Alexander Field states in the December, 2017 Journal of Economic Literature, “ An ideology is an integrated system of belief about how the world should be, how the world is, and how new evidence about the state should be interpreted and used.” Note, ideology clouds independent judgment since it is subject to an ideological interpretation of facts and logic.

Hence, elected by ideology, Utah legislators know that their status is secured. Therefore they were emboldened to change the voters’ recently passed propositions on Medicaid and medical marijuana. The changes will reduce the expansion of Medicaid, thus depriving health care benefits to thousands of Utahns. The state monopoly in medical marijuana will create barriers to entry in production resulting in higher prices. This is the cost voters will pay for electing people on ideological grounds and making ill-informed decisions on politicians.

Nationally, the most alarming fact is that voters who suffer the most from unfavorable economic policies have the lowest voting record. Voting percentages increase with education and income. Blacks and Hispanics have lower percentages than non-Hispanic whites. Young voters (18-29 years of age) vote less than voters of age 45 years and older, according to the Census Bureau. US.. government economic policies reflect this tilt in voting patterns, favoring older, wealthy and white voters.
Most voters old and young, low income and middle class, complain about wealth and income inequality. However, despite promises, the 2017 tax cut primarily benefited corporations and the rich. The research by Professors Emmanuel Saez and Gabriel Zucman, reported by David Leonhardt of The New York Times, shows that the richest 400 households paid less average tax rate (23%) in 2017 as compared to 1950 (70%) and 1980 (47%). The middle class and poor barely benefited from the tax cut.
Trade policies of the current administration are also economically detrimental to small farmers and workers in the industrial belt, most of whom voted for President Donald Trump. The Republican majority in the Senate and President Trump have also tried to dismantle the Affordable Care Act (Obamacare), that primarily provides health care benefits to lower income Americans. Voting also affects the choice of politicians who, for example, care about preservation of national parks, cleaner environment and policies to deal with climate change, skills training for unemployed workers, housing affordability and assistance in paying college debt.

Only 63.3% of women voters voted in the 2016 election (the same as in 2012). It did not help their causes dealing with child-bearing rights, childcare, early childhood education, parental leave and real income security. Randall Akee and other coauthors in the March 2018 American Economic Review find that an increase in household income has significant effect on children’s personality traits, emotional well-being, behavioral health, educational attainment and other beneficial adult outcomes.
Voters’ apathy by not voting or by ill-informed voting causes perils for democracy also, because policy decisions are made to please donors and partisans driven by their agenda and/or ideology. Democracy promotes economic stability, as Dan Rodrik finds in his study published in the American Economic Review in May 2000. Economic stability is vital for economic growth, employment, and the vitality of financial and labor markets. We are witnessing this instability in the Trump administration and its adverse consequences.

American voters must get over their excuses for not voting or for ill-informed voting. Voting by the missing one-third of voters and better informed voters could change things like registration barriers, gerrymandering, placement of voting facilities and voting days; complaints will not resolve such issues. As Louis L’Amour states, “ To make democracy work, we must be a nation of participants, not simply observers. One who does not vote has no right to complain.”

Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH.  This article was published as opinion piece in the Standard Examiner, October, 31, 2019, Ogden, UT.

Escalating Drug Prices and Patent System Abuse

Vijay K. Mathur

High drug prices in the U.S. significantly contribute to the high cost of health care and health insurance. Rand Corporation found that in 2016 Americans spent $10,300 per person on health care, and 17% of that was on drugs. The U.S. has 5% of the world’s population but spends half of the total world expenditure on drugs. Such expenditure increase will lead to serious disruption in the health care system and in Americans’ lives.

The latest state data for 2014 shows that Utahns spent $784 per capita on prescription drugs and medical nondurables (PD&MN), one of the lowest amounts among states (Kaiser Family Foundation). That is 33% of the total per capita spending on health care, much larger than in some Scandinavian countries. However, using average growth rate of 1.8% per year for the decade 2004-2014, the 2014 per capita expenditure on PD&MN in Utah would increase to $857 in 2019.

The claim, by Budget Director Mick Mulvaney, that drug prices have fallen for the first time in 50 years is erroneous. The use of pharmaceutical drugs data from the Consumer Price Index is very unreliable, according to the National Bureau of Economic Research. In fact, the list prices of more than 3,000 drugs increased, and they decreased for only 117 drugs as cited by KFF on April 7, 2019.

Drug companies argue that the development of drugs is risky; 90% of drugs in clinical trials fail according to the Rand study. However, even though development of many new products is risky, industry R&D costs are exaggerated. In addition, risk is the hallmark of any innovation, development and market acceptance of resulting products. Moreover, Bloomberg in January 2015 ranked the U.S. sixth in innovation from the top after South Korea, Japan, Germany, Finland and Israel, countries with lower drug prices. Partly it reflects lower spending on R&D as a percent of the gross domestic product.
Patents provide incentives for innovations and risks involved in the development of drugs. Professors Adam Jaffe and Josh Lerner report in their book, "Innovation and its Discontents," that the modern patent system has existed since 1836, when it extended the 14-year term of the 1790 Act by seven more years. However, since 1995 patent law provides 20 years of protection from the time of filing the application. But it has many loopholes.

DrugPatentWatch reports that pharmaceutical companies earn 80% of their revenues from patented drugs’ monopoly. Monopoly increases prices by restricting quantity, hence earning enormous profits. Companies maintain their monopoly by manipulating the law, by new formulations, and by new administration of drugs. For example, simplifying doses, extended release versions and new methods of administering (oral dose or nasal spray) are some of the tactics to extend patents’ duration.

Deep-pocketed companies engage in lawsuits to block generic drugs competition or buy generic drug makers to suppress the promotion of generics and maintain their patented drugs monopoly. Robert Posen, Harvard Business School lecturer, suggested that innovations and granting of patents should be sped up by hiring more experts and adopting the “first to file” rule for the applications, rather than wasting time discovering who first came up with the idea. Also, “first to file” rule will reduce frivolous and costly lawsuits since the patent office will decide the first filing date. Granting extensions should be rare.

“Cross licensing”, where companies agree to license their patents to each other as a device to expedite innovation, has outlived its usefulness. It depresses competition by blocking entry, especially of new startups. Small companies face threats of expensive infringement lawsuits or unwillingness of large companies to enter “cross-licensing” agreements or face substantial royalties in any agreement, thus thwarting competition and increasing prices.

On June 10, Bloomberg Business Week reported that American drug companies Merck & Co and Bristol-Myers Squibb are facing stiff competition in prices in China from some Chinese companies that have patented their drugs to treat the same health conditions. For example, the drug Tuoyi by Shanghai Junshi Biosciences Co. to treat melanoma (skin cancer), sells for 1/3 less than the price for Merck’s drug Keytruda in China. Allowing importation of drugs and Medicare to negotiate lower drug prices to counter monopoly power will also deescalate prices in general.

Professors Jaffe and Lerner cogently state, “Thus, the patent system — intended to foster and protect innovation — is generating waste and uncertainty that hinders and threatens the innovative process.” I might add that it also destroys competition.

Mathur is former chairman and Professor of Economics, Department of Economics, Cleveland State University, Cleveland, Ohio.  This opinion piece was published in Standard Examiner, August 23, 2019, Ogden, UT.

The American Dream and happiness in America

Vijay K. Mathur

Recent research on Americans’ well-being and happiness is finding that the American dream is fading. These findings are at odds with some in the media parroting the current administration’s and its sympathizers’ announcements that the economy is very healthy with plentiful jobs, better than in past decades.

This apparent conflict between the macro data and the personal lives and perceptions of Americans about their well-being can only be understood if one looks beyond the macro data on unemployment and growth rates. For example, if businesses in Utah advertise for 100 job openings for part-time work and single moms fill those jobs at minimum wages and no benefits, the unemployment rate will drop. However, those single moms will not be very happy with their lives, especially when they have small children to support.
The 2019 World Happiness Report (WHR) uses Gallop World Poll from 2016-2018 to rank countries on a happiness measure. This survey uses a measure, “life evaluations”, where people in a country’s population are asked to put the status of their lives on a ladder with zero to 10 steps, where zero is the worst and 10 is the best. Each country is ranked based upon the average score from the survey for the measure “life evaluations”. Six variables, per capita GDP, social support, healthy life expectancy, freedom, generosity and absence of corruption, are used to explain the overall average score. The U.S. ranks 19 from the top out of 154 countries for the period 2016-2018.

The U.S. ranking has been declining over a period of time since the first WHR in 2012. The survey also collected data on positive affects and negative affects. Positive affects represent an average of previous day for happiness, laughter and enjoyment over the survey waves from three to seven years, and negative affects represent an average of previous day of worry, sadness and anger over the period of time. The U.S. ranks 35 on positive and 70 on negative affects from the top out of 156 countries.

A review essay by Davis Blanchflower and Andrew Oswald (BO) in “Journal of Economic Literature,” from June 2019, fills up some gaps on the overall happiness status of Americans. The authors present research findings of Carol Graham of Brookings Institution and draw certain other conclusions based on their data. Graham finds that mental well-being has become more unequal; Americans are suffering from lack of hope and are less optimistic; the poor have more stress, pain and lower life satisfaction as compared to the rich; Americans have lost confidence and hope for upward social mobility.

In addition BO find that Americans are facing psychological difficulties in mid-life. White Americans are less happy than black Americans despite wide financial gap between whites and blacks during 1972-2016. There is lower financial satisfaction and happiness among less educated. Depression, anxiety and suicide are more prevalent among whites than blacks. High-income inequality contributes to low life satisfactions.

Utah is one of the happiest states in the U.S. with a ranking of No. 2 from the top, even though it has a drug overdose death rate higher than the U.S. rate (www.druguse.gov) and one of the highest suicide rates (www.cgc.gov) among states in 2017. Some of the factors contributing to high overall happiness ranking are fewest working hours, high-income growth, low divorce rate and high level of safety.

The economic uncertainty among Americans plays a very dominant role in hope, life satisfactions, confidence and optimism. A June 2019 survey of a sample of 1116 adults, by AP NORC center and University of Chicago, finds that fewer adults have confidence in their ability to retire or pay an unexpected expense of $1,000. A quarter of adults do not have enough income to meet expenses. Economic opportunities are not widely shared. The American dream is becoming more distant for an increasing proportion of Americans.

Professor Angus Deaton, Nobel Prize winner in economics, appropriately states in his book, “The Great Escape,” “There is much to be said for equality of opportunity, and for not penalizing people for the success that comes from their own hard work. Yet, with other rich countries, and in spite of the popular belief in the American dream that anyone can succeed, the United States is in fact not particularly good at actually delivering equal opportunities.”


Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH.  It was published as opinion article in Standard Examiner, July 23, 2019, Ogden, UT.

Monday, June 24, 2019

Health capital is as valuable asset as human capital

Vijay K. Mathur

“Physical fitness is not only one of the most important keys to a healthy body, it is the basis of dynamic and creative intellectual activity.”
Robert F. Kennedy

Let me first clarify the word capital in the current context. Capital goods such as machines, tools and buildings are durable goods that last for some time in production. Specifically, physical capital is a produced means of production that increases productivity and profits to the employer for a period of time. It does require maintenance due to wear and tear, and it depreciates in value over a period of time. Financial capital is not a direct input in production, but it is used to produce physical capital.

Human capital is accumulated by investment just like physical capital, and once it is embodied in raw labor it increases labor’s productivity, thus producing rewards to the employer and employee over his/her lifetime. In addition, human capital in knowledge workers has spillover effects. In other words, an employee’s human capital not only benefits him or her in terms of high productivity and wage earnings but also benefits other employees who come into contact with the educated and knowledge employee. That is why “Silicon Valley” in California and “Silicon Slopes” in Utah attract knowledge workers. In the presence of spillovers of ideas and knowledge, workers self-interest would dictate under-investment in the acquisition of their education. Therefore, public financing of education is required to fill the gap.

Just like human and physical capital, heath capital is a durable good. Professor Michael Grossman, in the Journal of Political Economy, argues that health capital stock can be increased by investment, but increase in its price will reduce its quantity. This implies that disinvestment in health will decumulate health capital. Health is a multidimensional input embodied in raw labor and/or human capital. It not only increases productivity but also contributes to the person’s wellbeing and longevity.

A healthy labor force would be more productive than a labor force in poor health. Centers of Disease Control and Prevention (CDC), in 2016, found that stress is the leading cause of workplace health problems and the primary cause of occupational risk. Productivity loss from missed work costs employers $225.8 billion and $1,685 per employee per year. There is increasing evidence of job stressors contributing to depression. According to ibis.health.utah.gov, Utah had a greater age-adjusted depression in percentages of adults than the U.S. in all the years from 2011 to 2017.
Poor health not only reduces well-being and longevity of individuals, but it also costs the rest of society due to the loss in productivity and growth. It is well established that free choice of some in not preventing communicable diseases such as measles, mumps and rubela adversely affects others’ free choice of being free from these diseases.

Hence, in the presence of deleterious spillovers there is a need for public funding and regulation to prevent such diseases. A similar argument can be made for non-communicable poor health conditions. Poor health of workers affects productivity of individual workers and human capital, and it also adversely affects productivity of others in the workplace teams. Hence, investment in health capital by both private sector and government financing is needed to fill the gap in underinvestment in health capital by the private sector.

Ironically the state of Utah, concerned about growth, has been very reluctant to spend public funds to promote health capital, as evidenced by reduced funding for Medicaid. Health capital and human capital are complementary means of production. One cannot expect more productivity from human capital and its robust spillover effects without effective health capital.
Another line of research, reported by D. Almond, J. Currie and V. Duque in the Journal of Economic Literature in December 2018, further strengthens the case of partnership between public and private sector financing to promote health capital. This research on fetal origins hypothesis (FOH) basically establishes, for example, that parental nutritional deprivation, lack of medical care and lower income results in lower birth weight, chronic health conditions in adulthood and non-health outcomes such as low test scores, adults’ schooling attainment and wages.

Hopefully, decision makers in the private sector and governments recognize that more health capital not only benefits individuals but also society as a whole. Hence, health capital also deserves the same attention as human capital. We cannot succeed in reaping the fruits of increasing human capital without increasing health capital.

Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, Ohio.