Waste, economists and American healthcare

Twenty-five years ago, Uwe Reinhardt pointed out that sheer bureaucratic waste, particularly in the private sector, accounted for much of the extraordinarily high cost of American health-care. Last year an expert panel of the Institute of Medicine reconfirmed his point, estimating that in 2009, administrative waste accounted for $190 billion out of a total of $765 billion in various forms of waste--31% of overall American spending on healthcare. Reinhardt recently noted a peculiar schizophrenia among American economists, simultaneously deploring this monumental waste while celebrating the contribution of healthcare, and particularly medical research, to the American economy. The apparent paradox may arise from a confusion between the meanings of "value" in economic and everyday language, and from economists' tendency to create pseudo-aggregates of diverse and non-commensurate entities.