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The biomedical revolution needs a few good economists

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Picture: Moeletsi Mabe/ANA Files – Medical Laboratory Scientists (biomedical scientist included, ) perform chemical, haematological, immunologic, microscopic, and bacteriological diagnostic analyses on body fluids such as blood, urine, sputum, stool, cerebrospinal fluid (CSF), peritoneal fluid, pericardial fluid, and synovial fluid, as well as other specimens.

By Tyler Cowen (Bloomberg)

This is a golden age for biomedicine. Over the past few years, mRNA vaccines have saved millions of lives and enabled business and social life to resume at much safer levels.

There are pending vaccines for malaria and for dengue, both showing good signs of working. There is serious talk of using Crispr to fix sickle cell anaemia. An mRNA vaccine against some forms of cancer is more speculative but seems possible.

Other drugs, some repurposed from anti-diabetes medicine, show very promising results in reducing obesity. Already they are being used by millions of Americans, and some reports indicate that stronger and more effective drugs are on the way.

Since obesity is arguably America’s leading health problem, this is highly significant news. It was not so long ago that the news was filled with articles about how the pharmaceutical pipeline was broken.

All this progress, however, raises the question of economic impact. Few would challenge the humanitarian benefits. But what will this do for the economy? After all, biomedical investments have been mediocre performers recently.

What’s needed are new metrics to pick up the economic impact of these gains, or in some cases a return to old metrics. Otherwise, there is a risk of underestimating the revolutionary impact of current technological developments.

Take the vaccines against Covid. Of course, the most important fact about them is that they reduce the amount of death and suffering. But what is their economic impact?

The vaccines have been most helpful to the most vulnerable, namely the elderly or those with pre-existing medical conditions. These are not the most productive cohorts of the economy. So, the effectiveness of the vaccines might have actually lowered various social averages, such as per-capita GDP or per-capita productivity.

The extra life is a pure benefit. But to capture that benefit in numbers requires looking at the totals, not just the averages. Labour productivity per hour, for example, won’t necessarily increase. But total labour supply and total population will.

If anything, I am suggesting a throwback to the days of both the mercantilists and Adam Smith. As they did, today’s economists need to consider total national income, population and labour supply, not just the per-capita magnitudes.

The vaccines have another advantage, this one for younger people: They don’t have to go through life afraid that they will infect their grandparents or parents and induce their death or lingering illness. Those lower levels of stress might make them somewhat happier and more productive at work. For the most part, however, these psychological gains won’t show up in GDP figures.

An index of biomedical advances, and their degree of reach through the population, would be a welcome addition to the standard discourse about economic growth. If the health-care sector reaches 29 percent of GDP by 2040, as economics Nobel Laureate Robert W Fogel once predicted, such an index will become all the more important.

GDP measures are much maligned, but they coincide with human well-being far more than is commonly realised. Nonetheless, the core GDP figures and methods were developed at a time when biomedical innovation was relatively unimportant.

Consider also the new remedies for obesity, especially as they become more widely available. Currently they are popular with celebrities, due to their high price, but if they become cheaper, they have the potential to become more egalitarian.

Over time, obesity remedies could help the bottom of the income distribution more than the top. This would be a good thing, even if it resulted in lower average or per-capita worker productivity.

At a time when US’ life expectancy metrics have been falling, even before Covid, these advances are especially important. As American society takes some behavioural steps backward with opioids, violence and gun abuse, and anti-vaxx sentiment, it will be relying all the more on medical progress to make people’s lives healthier and happier.

And what about those subpar returns on biomedical investments? That is a sign that most of the gains from innovation are being reaped by patients, users and consumers – not capitalists. Is that not exactly what everyone has been asking for?

A few decades from now, the current era is likely to be seen as a special time in the history of science. Economists need to be sure we do not miss out on measuring all its benefits.

Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. He is co-author of “Talent: How to Identify Energisers, Creatives, and Winners Around the World.”