Does America Have to Overpay For Health Care to Drive Innovation?

Most informed observers agree that the United States overpays for health care by a wide margin. Which is good because it’s hard to argue with this graph:

But I’ve now seen a few conservatives argue that actually it’s good that the United States overpays by so much, because the juicy profits these high prices create incentivize medical innovation. It’s therefore unfair to compare costs across countries, because the US is subsidizing the world’s R&D. And while the United States does not reap the full benefits of these innovations — some spill over into other countries — the innovations are valuable enough that the extra costs are worth it.

At first I thought this was a silly argument, for reasons I’ll explain. But then I ran across an old column in this vein from Ross Douthat, whom I find to be usually careful and thoughtful, and he links to Tyler Cowen, whom I hold in higher regard still. (Cowen’s article is from 2006 — it’s possible his views have changed since.) Then just days ago, Northwestern economist Craig Garthwaite, an even higher authority on health care economics, made the same point in an interview with Vox. These authorities…