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On Fat and Inflation
Did you notice that Sarah P. took a shot at Michelle Obama over the
issue of obesity in America? Clearly another blunder by the functional
leader of the Tea Party (AKA: Republican Party). I went out to find some conclusive information on this topic. Guess what? It’s not as conclusive as you might think.
For example, whose average health bills are higher? A person who is
overweight or a person who is underweight? Surprise, surprise. Underweight people have higher health care bills than do the overweight set. Possibly the press should start doing belly shots of all those skinny folks (instead of the fatties they always have on).
I don’t want to cloud this issue too much. There is clear evidence that
if one is either below or above an “optimal” weight level it is
statistically probable that this person will have higher lifetime health
care costs. More importantly, there is evidence that overweight
children are increasingly having medical problems. So Michelle is right
to focus her attention on those under 18.
But as a numbers guy I thought it would be interesting to look a bit
closer at the issue of adults who are overweight and compare them to the
rest of society. My conclusion was that the problems of rising health
care costs had little to do with our collective waistlines. Overhead and old people are the real problem.
This chart from the CBO is 2007 data adjusted for 2009 costs. Therefore is reflective of current conditions:
The thin line on the left is the cost for under-weights, as I pointed
out, they cost more on average then the over-weights. Notice that the
average costs between “normal” and “overweight” is really not that big a
deal. Finally, the graph clearly shows that obesity has a real cost
attached to it.
The following chart puts some numbers to the graph. Again, the evidence
connecting obesity to health problems is clear. Notice that the average
estimate from the CBO on all categories comes to $4,550. An interesting number.
From another part of the government (Department of Health and Human Services) I find this information.
Per person personal health care spending for the 65 and older population was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and 3.3 times spending per working-age person ($4,511).
Using the above information let me spin some numbers.
-Over weight people cost an extra $18.5 billion versus those who have “normal” weight. A significant number.
-People who are 65 or older cost $420 billion per year more than those
who are younger (overweight or not). Therefore the cost of our aging
population is 22X’s the cost of our overweight population. This is a very significant number.
-The total DIRECT costs of health care for all ages comes to $1.3
trillion based on the CBO numbers. But according to both the CBO and
DHHS total health care cost is equal to 16% ($2.3 trillion) of GDP. The
difference of $945 billion is the dreaded Overhead. Administrative costs are equal to 51X’s the cost of over-weights. The latter is an extremely significant number
Please don’t read this piece to be a defense of poor eating habits or
being overweight. That is not my intent. My point is that numbers can
tell a lie. If you have an axe to grind you can make a set of numbers
prove your thesis. You just have to spin them in the proper way.
The mainstream media (and the CBO) are selling a story that people who
weigh too much are the problem. That is not the case at all. A look at
the numbers show that this is a relatively small issue versus those who
are elderly and it is an very small problem when it comes to overhead in
the medical industry.
On the matter of spinning numbers to make a point consider our methods
of defining inflation. The Federal Reserve is pursuing an insane policy
of monetizing debt. What is their justification? INFLATION IS TOO LOW.
But is inflation really so low? Based on the way the calculation is
made the convenient conclusion is that our biggest problem is that
inflation is too small a number. Hogwash.
The Barron, Alan Abelson had this to say on inflation in his weekly commentary.
The
annual tab for homeowners' insurance is up some 108% since the turn of
the century. During this period, yearly taxes on real estate have
climbed 77%. A gallon of heating oil costs a whopping 150% more. The
average electricity bill is 50% higher. And filling up your rig at the
friendly neighborhood service station is more that twice as much per
gallon. Monthly Medicare Part B premiums have climbed 143%. A humble
potato goes for 67% more than it did 10 years ago, an equally humble egg
93% more, and the price of a loaf of plain old white bread is up a
decidedly unappetizing 50%.
So
why in the world during these years have all the pundits and Washington
mucky mucks been feeding us that stuff about how there's no inflation? Good
question. And so is this: With incomes lagging badly, how does the
run-of-the-block household make ends meet? The answer, of course, is:
with great difficulty.
I think the Barron is spot on with this. Inflation that real people are
feeling has very little to do with the GDP deflator that Ben Bernanke
uses to defend his reckless monetary policy. Ben is spinning the numbers
and coming to an inaccurate conclusion. Not at all unlike the MSM and
the CBO who blame overweight people for our rising health care costs. We
are led to believe that fat and the absence of inflation are our
problems. Nothing could be farther from the truth.
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Where does this war on skinny people come from ?
The first chart clearly shows that they cost far less than obese people but somehow Karl Rove's wunderkind managed to spin this into something negative.
edit | I missed that part during my first read :
My point is that numbers can tell a lie. If you have an axe to grind you can make a set of numbers prove your thesis. You just have to spin them in the proper way.
Big FAT lies.
However, I imagine really skinny people are really quite sick or even near death (elderly, advanced diabetes, cancer). I don't know when the patients are weighed, but at some point the fat ones end up in the skinny column.
Correct!
Health problems in older people tend to result in weight loss.
Obesity in early life is, statistically, a PREDICTOR of likelihood of health problems in later life for that individual.
Gotta us those statistics correctly.
My very favorite blatant misuse of statistics is the application of standard statistics by the great Merton, along with many others, of standard statistics for random events, to financial modeling in the markets.
Coins flipped have no memory of what happened last time. Dies rolled do not communicate. The results generated are based upon random events.
In contrast, man is a remembering, communicating, herding animal that sometimes stampedes.
The statisticians, after the LTCM blowup in 1998 concluded that the thing that was wrong with their models was that the "tails" (of the distribution curve) needed to be fatter to reduce risk. Duh?
Haven't heard much from the likes of Merton lately. The swing back to a rational norm appears to have started.
Thanks for the post to Bruce and Happy New Year to all. And congratulations to the Zero Hedge staff. Appears that ZH is becoming a "must read".
Well...ummm...yes. A 75 year old woman weighting in at 110 pounds when her average weight during productive years of 150 pounds. I think we see what really needs to be illustrated is demographics.
Happy retirement to the 10,000 people that retired today...and the 20,000 on the 1st and 2nd
I've heard this 10k per day number tossed around about people retiring. I have an honest question: are these people actually retiring, or are they just now eligible to receive SS checks and starting to draw more money out of the system?
I wonder because it seems to me that at every gas station & grocery store I stop at all of the clerks are people who should be retired by now but can't because the SS check doesn't cover bills and (rising) food costs.
This ties back into your demographics thesis (sorry about the roundabout way of getting here) because the problem within the job market is amplified if people who are at "retirement age" are not retiring and freeing up jobs for younger workers.
Good Article Bruce. I hope this helps open some eyes.
As the saying goes, there are lies, damned lies, and statistics. You can get them to say just about anything you want. And when you control the data used to generated the statistics... Well, it's a bit like trusting the bookie to let you know how much you won.
(a little OT) It's always the old people and children. Who else is vulnerable?
Ever notice how it's these two groups that pay for the ills of the rest of society over and over and ...?
To put it in fisherman's terms, these two exploited demographics are nothing but bait on the hooks of bad policy.
liying about inflation isn't new. lying to get votes is a common ploy also. have a drink at the new bar conveniently located right by wall st.
http://covert2.wordpress.com
Bruce, and this is a common misconception on the far right, do you realize that nobody who uses core CPI or PCE or deflator metrics is actually trying to measure 'everyday inflation' via them?
Those deflators are metrics of 'sticky' (slow moving) prices and are used to predict the movement of certain macroeconomic components. Those metrics are well-understood - and it is also a well-understood fact that "everyday inflation" can be up to an order of magnitude more volatile than the core CPI:
http://krugman.blogs.nytimes.com/2010/02/26/core-logic/
http://krugman.blogs.nytimes.com/2010/12/27/commodity-prices-and-inflation/
It's like as if Bernanke correctly claimed that "this stick is 1 foot long" and you accused him of: "but this tells us nothing about how thick the stick is!!!".
Well, duh.
Alas, either your arguments are insincere or they are not making much sense.
Sorry but the minute you link to a Krugman article your credibility is instantly shot.
But thanks for the laugh.
Bruce--obviously the captcha is not working, what can we say? I'm embarrassed for the guy.
Sorry. I can't accept this. You point me to two article from Krugman to make a point? This guy is the KING OF SPIN.
If you want to go down the road thinking that inflation is not an issue, then be my guest. By June you will be paying $4 per gallon and the food you eat will be 25% higher. That will stick to you. And you will hate it.
Bruce Krasting
Don't you disrepect krugman. He got a citizenship award and someone will be by to explode you with some C4 that Alfred Nobel made to enforce his endorsements.
Once again, the "Far Right" Krasting has had his insincere numbers picked apart skillfully by the unbiased muscleman. </sarcasm>
Love the Krugman links btw. You are as bad as the zealot who uses the Bible as a source to refute evolution.
The annual tab for homeowners' insurance is up some 108% since the turn of the century. During this period, yearly taxes on real estate have climbed 77%. A gallon of heating oil costs a whopping 150% more. The average electricity bill is 50% higher. And filling up your rig at the friendly neighborhood service station is more that twice as much per gallon. Monthly Medicare Part B premiums have climbed 143%. A humble potato goes for 67% more than it did 10 years ago, an equally humble egg 93% more, and the price of a loaf of plain old white bread is up a decidedly unappetizing 50%.
These are price changes over the past decade. I would hardly equate that with short-term volatility in "everyday inflation". Looks like a pretty long-term (i.e. permanent) change to a rational, unbiased observer. Just because you and your muse Krugman say otherwise does not make it true.