Monday, October 20, 2008

The Importance of Capital Theory

Vijay pointed me to a great article. This is a great read for getting another perspective on the housing bubble and bubbles in general. The way I see it, the capital goods we over-invested in were real estate agents, construction equipment, and home builders (and military/defense companies but that is part of a different story). We should have been investing in doctors, nurses, and more biotechnology. 

From an investment angle, I think healthcare prices will just continue to rise because the next administration is going to want to provide all Americans with healthcare. The fundamental reality is that there aren't enough healthcore workers and infrastructure to provide all Americans good healthcare. That is unless we ration our existing healthcare among more people, which would likely really upset Hollywood actors and New York laywers who donated a lot of money to Obama. At the end of the day, prices (at least in real terms in case we have overall price deflation) must go higher in order to lure all those new workers into the healthcare industry and to get the existing workers to work overtime. Or we need to invent some new technology that totally revolutionizes medicine and reduces the cost dramatically.

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