Walking the llama trail - The North Star Monthly

10 NOVEMBER 2009 THE NORTH STAR MONTHLYFollowtheMoney“GUNS OR BUTTER OR...”BY RACHEL SIEGELEducation is a growthsector of the economynow. Enrollment is up asemployment is down. Thecompetitive advantage of adegree in this labor markethas become an easier sell,and the unemployed havetime on their hands. Besides,the other growth sectorsand job creators of theeconomy—professionalservices such as healthcare—also require skilledand educated workers.Health care is a growth sectorbecause our population isaging, and as it does, it is requiringmore care. There’s morecare to be had, as medicine exploresnew ways to treat chronicconditions that we now live longenough to want to endure morecomfortably. And health care isgrowing because that’s whereour innovative talents go, becausethat’s where the money is.As we expand our knowledge ofcare, we devote more resources,especially public resources, to it.The money, in turn, attracts researchersand innovators as wellas practitioners.“Guns or butter” is the classiceconomic argument ofwhether to use scarce resourcessuch as labor and capital forpublic goods, both themetaphorical and very real“guns,” or private sector productionand consumption, the“butter” (not “bread,” a necessityof life, but “butter,” the fatof the land). The dilemma liesin the scarcity of resources andthe opportunity costs created bytheir use: if more went into thepublic sector, there would beless for the private sector, withits innovators and engines ofeconomic growth.The decision of whether ornot to take on health care as apublic good can likewise beframed as one of taking resourcesout of the creativeeconomy and devoting them topublic goods. In addition to thepublic bearing the costs of thehealth care itself, there is alsothe cost of the sacrifice in innovationand growth from the privatesector, deprived of thoseresources.The argument is not thatsimple, however. The assumptionthat defense, for example,does not create and thus limitsgrowth is proven false by themany products and services thathave come to consumers asadaptations of military researchin such varied fields as communications,transportation, nuclearphysics, and … medicine,with advances in acute woundcare, anesthesia, antibiotics, andstress disorders, etc. Defensealso creates jobs that do not requirehigher education, while inturn providing military benefitsthat allow pursuit of educationand re-entry into the civilianworkforce as more productiveworkers.In the debate about how orhow much health care to provideas a public good, naturalparallels are drawn to other developednations that have providedsuch services for yearsand manage to maintaineconomies that are thrivingenough to provide an acceptablequality of life.In fact, in those countries it’snot a question of taking resourcesaway from the privatesector and therefore from economicgrowth in order to supporthealth care, it’s a matter ofwhich public goods are produced.In developed economies,there is usually an inverse relationshipbetween military andsocial spending. So far, we havechosen guns; others have optedfor gauze.As a subject of the 18th centuryBritish Empire, protectedby the Royal Navy, Adam Smithsuggested that a primary role ofgovernment was to protect aneconomy so that it would besafe enough to enjoy the gainsfrom trade. We have followedsuit in developing our military inthe post-War era, and that hasnot deprived us of empire. Despitethe costs of defense, wehave managed economic growthand enviable living standards.We have plenty of butter.It is tempting to look backon World War II as the awfulbut effective catalyst that restoredemployment to our depressedeconomy, not only inthe military but also in the factories.In turn, that led to an ageof manufacturing as the driverof innovation and employment—aprosperous era ofproduct and job creation—andof military spending. Now, insteadof younger men who needthe jobs that the military cancreate, we have an aging populationthat needs the care thatresearch and science can create.Rather than public healthcare becoming a drain on resourcesand economic growth, itmay actually shift our use of resourcesto be more in line withour changed needs, and thereforebe a more productive andefficient catalyst for growth.Perhaps this will lead to anotherprosperous era, this timebrought by knowledge insteadof guns—or butter.Rachel S. Siegel, CFA, consultson investment portfolio performanceand strategy, and on accountingdilemmas. She is a professor in thebusiness administration departmentat Lyndon State College. “Follow theMoney” has been a regular feature inthe Northstar since 2001.Sanderson’s Wooden BowlsPerfect for that Special GiftEach Bowl is Hand-turnedfrom Native VermontHardwoodwww.vtbowls.comSam & Weeza Sanderson2902 VT RT 114 East Burke, VT, (802) 626-9622Visitors Always Welcome