Why Some Medical Spending Should Count as Investment

Michael Mandel

I get fried when economists don't play by their own rules. The government statistics consistently count medical spending as consumption--that is, not contributing to productivity or future growth.

But more and more, it's becoming clear that at least some medical spending--especially for the young--should be thought of as investment in the future.

A new paper from the National Bureau of Economic Research makes that very clear. From the Cradle to the Labor Market? The Effect of Birth Weight on Adult Outcomes makes several very important points:

*"An extra 10% of birth weight raises earnings by about 1%."

*" An increase in birth weight of 10 percent increases the probability of high school completion by a bit less than 1 percentage point "

*"10% more birth weight is about as valuable in the labor market as a quarter of a year of education."

Medical spending for the young should be counted as investment, not consumption.

Before it's here, it's on the Bloomberg Terminal.