University of South Carolina Arnold School of Public Health Dept. of Health Services Policy and Management HSPM J712 Class 1 Lectures August 30, 2006.

Stocks and Flows

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For our upcoming discussions of GDP and cost, we need a couple of building-block ideas: stocks and flows.

Flows

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Goods and services flow around any economy. "Flow" means that goods and services move from one person to another. In a hunter-gatherer economy, the flow may be done according to custom. In a market economy, the flow may be determined by the buy-sell deals people make. In any society, people are always doing things for each other and giving things to each other. This is the flow of goods and services.

Stocks

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Stocks are also important to economic activity. Stocks do not flow. Rather, they build up or get depleted.

Capital is a stock, not a flow.

Capital

Accumulation of capital

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The greater our stock of capital, the more goods and services can flow from our labor and natural resources.
The accumulation (build up) of our capital stock is central to economic growth.

Depreciation of capital

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The capital stock stays with the producer as resources flow in and goods and services flow out.

But the stock can change as production goes on.

The capital stock depreciates if it wears out or becomes obsolete.

"Stock" -- business and economics usage

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In business and finance, "stock" means an ownership right.

A share of stock in a company gives you:

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In economics, the "capital stock" of a company is everything it has that helps it make things.

The relationship between the business and economics usage is that:

Health is a stock. Health care is a flow.

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Health and health care provide an example of the use of stock and flow concepts.

Health is capital.

Health care is one kind of investment in health. For most of us, we can think of health as having a range from 100% healthy down to 0%, dead. This is the idea behind the quality-adjusted life years used in cost-benefit and cost-effectiveness analysis.

For actors, athletes, and models, appearance or performance is a capital stock that can be enhanced through investments in medical and other services.

Other investments in our stock of health include:

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Public health

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Education (not just health education, but all education -- especially basic literacy)

Income

Injury and illness diminishes our stock of health

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The notion of health as a stock of capital helps inform decisions in tort cases about how much a person should be paid to compensate for a loss of health caused by someone else.

Stocks and flows -- terms we will use

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The distinction between stocks and flows will come in handy in the discussions we will be getting into next. For example:
http://hspm.sph.sc.edu/Courses/Econ/Stocksandflows/Stocksandflows.html
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