Healthcare is Broken Windows

America Cannot Repair Its Way to Prosperity

I don’t think anyone actually knows if the economy is doing well or not. People show charts proving job creation. Others counter with charts showing stagnation, declining real wages, unaffordable housing, or collapsing small business formation. A recent chart caught my eye because it showed something that should make us pause: much of the recent job growth is coming from healthcare.

In 1850, Frédéric Bastiat gave us the parable of the broken window. A boy breaks a shopkeeper’s window. The shopkeeper pays a glazier to fix it. The townspeople see the glazier working, see the money changing hands, and conclude that the broken window has stimulated the economy.

What they fail to see is what the shopkeeper would have done with that money had the window never been broken. He might have bought new shoes, improved his shop, lowered his prices, invested in new inventory, or saved the money for some future opportunity. The glazier’s work is visible. The lost alternative is not. Bastiat’s lesson was that we should judge economic activity not merely by the jobs it creates, but by the productive possibilities it displaces.

The repair may be necessary. But the breakage did not make society richer. It forced scarce labor and capital into restoration rather than creation.

Healthcare is becoming the broken window of the American macroeconomy.

I say this as someone who has spent his professional life in medicine. I do not regard healthcare as unimportant. No decent society can be indifferent to illness. But moral importance and economic productivity are not the same thing. Much of medicine is defensive spending. A successful operation may return someone to work, and that has enormous human value. But an economy cannot confuse the necessary work of repair with the compounding work of building.

When a society moves more of its workforce into managing illness, that labor is no longer available to raise productivity elsewhere. There is always a tradeoff. The existence of a job does not tell us whether that job reflects prosperity or dysfunction.

The data coming out of California should make people uncomfortable. From March 2022 to March 2026, healthcare and social assistance employment in California grew 25.3 percent, faster than any other state. California’s total job growth over that period was only 3.4 percent. Remove healthcare and social assistance, and employment in the rest of California’s economy actually declined by 0.3 percent. Healthcare now accounts for 17.4 percent of all jobs in California, up three percentage points in four years. Here is the underlying EIG/BLS data analysis.

This is not some trivial regional curiosity. California is supposed to be the future. Yet in the state most associated with the artificial intelligence boom, recent labor-market growth has been propped up by healthcare and social assistance. A state that should be exporting productivity to the rest of the world is increasingly hiring people to manage the costs of sickness.

That is not a healthy sign.

The most revealing part of the California data is not simply that healthcare grew. Some healthcare growth is real. But the composition matters. EIG found that services for the elderly and disabled added 211,000 jobs, representing nearly half of the state’s care-sector job growth in the detailed QCEW data window. This is the picture of a wealthy state trading down into lower-wage, publicly financed care work while higher-value sectors stagnate.

And then there is the fraud problem. Hospice fraud does not explain all of California’s healthcare job growth, and it would be sloppy to pretend that it does. But it is a warning sign about what happens when public money flows through weak oversight. California’s own state auditor found in 2022 that Los Angeles County had experienced roughly a 1,500 percent increase in hospice agencies since 2010, including indicators of large-scale fraud, likely fraudulent billing, and apparent use of stolen medical personnel identities to obtain licenses. The auditor found that one Van Nuys building was reported as housing more than 150 licensed hospice and home health agencies.

The problem has not stayed theoretical. In April 2026, California’s attorney general and Department of Health Care Services announced charges in a hospice fraud scheme involving 14 hospice companies and roughly $267 million in improper billing. The state says no hospice services were rendered in that scheme. California has revoked more than 280 hospice licenses, placed hundreds more providers under investigation, and kept a moratorium on new hospice licenses.

This is the broken-window economy in its purest form. First, the taxpayer funds the program. Then the bureaucracy writes the rules. Then companies learn how to bill the rules. Then regulators discover abuse. Then the state hires more people to investigate and prosecute the abuse. At each step, employment rises. We simply created an elaborate employment ecosystem around the repair of a policy failure.

This is why the phrase “healthcare jobs” can obscure more than it reveals. We also employ armies of people to manage the healthcare bureaucracy created by the unholy alliance of government care and private insurance.

The country pays for all of this in ways most people never see. Healthcare spending reached $5.3 trillion in 2024, or 18 percent of GDP. Medicare, Medicaid, private insurance, out-of-pocket spending, employers, households, federal taxpayers, state taxpayers, and local governments all share the bill. But sharing the bill only hides the true cost.

Employer-sponsored insurance is the clearest example. Workers often think their employer “pays” for healthcare, but employers do not have a magic pile of healthcare money separate from compensation. Premiums are part of labor cost. When healthcare prices rise, employers eventually adjust. They hold down wages or reduce hiring. The cost shows up somewhere.

This is not ideological speculation. Zarek Brot-Goldberg, Zack Cooper, Stuart Craig, Lev Klarnet, Ithai Lurie, and Corbin Miller found that rising healthcare prices act like a de facto payroll tax. Using hospital mergers as a source of price increases, they estimate that a 1 percent increase in healthcare prices lowers payroll and employment at non-healthcare firms by about 0.4 percent. At the county level, a 1 percent increase in healthcare prices reduces labor income by 0.27 percent and increases flows into unemployment.

That is the unseen cost of healthcare job growth. One sector expands while the rest of the economy quietly absorbs the burden.

There is an obvious counterargument. America is aging. Older people need more care. Medicine can do more than it could do 50 years ago, and patients understandably want the benefit of that progress. CMS reports that older adults were about 17 percent of the population in 2020 but accounted for about 37 percent of personal healthcare spending. Per-person spending for those 65 and older was more than five times higher than spending per child and almost two and a half times higher than spending per working-age person.

All of that is true. But economics is about tradeoffs. A country can support a large repair sector if its productive sector is strong enough. It can care for the elderly, the disabled, and the sick if the rest of the economy is growing, innovating, building, and producing real surplus. But when the repair sector becomes the growth sector, we should ask what has gone wrong. An economy can handle many people caring for the frail and sick. It cannot become a giant claims-processing machine attached to a stagnant productive base.

The goal should not be to shrink necessary care. The goal should be to stop confusing the growth of healthcare bureaucracy with prosperity. The next time a politician celebrates healthcare as the engine of job growth, we should ask a simple Bastiat question: what are we not seeing?

We see the hospital expansion. What we do not see are the houses not built, the wages not paid, the businesses not started, the independent practices not sustained, and the innovations never attempted because labor and capital were diverted into managing the rising cost of repair.

Healthcare is necessary. The broken window still has to be fixed. But a country that mistakes window repair for growth has stopped understanding wealth

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