This Economic Phenomenon Is Making Government Sick

K-12 education hasn’t improved very much and also costs more, an economic phenomenon that has been labeled the “cost disease.” It turns out the cost disease also shapes politics: To the extent governments manage, run or fund low-productivity-growth sectors, the spending required to sustain those sectors can automatically boost the size of government over time.

.. Part of the problem is that fixing people is harder than fixing machines, because it requires the cooperation of what are often recalcitrant patients. That’s why productivity improvements are difficult to achieve in education as well. Online learning can be potent and very cheap, but it is hard to get enough of the students to care.

.. If patients and students would diet properly, take the right medicines and crack open their textbooks, more drastic cost improvements could result.

.. The first problem will be that other areas of government spending (“discretionary spending”) will tend to suffer, as money is soaked up by the low-productivity sectors. Voters will feel that governments are neglecting some of their most important interests, such as infrastructure.

.. All of the various sides may be correct in their major claims, but none will have a workable solution. This actually isn’t so far from where the health-care debate stands now, and where the retirement and nursing home debate is headed as America ages.

.. As it stands, we’re set to re-create these debates at higher and higher levels of government spending in the low-productivity sectors. And I don’t view such dramatically tense, life-or-death issues as conducive either to rational decision-making or to a broadly liberal, consensus-based politics.

.. If you care about politics, I suggest spending less time on the candidates and more time studying productivity growth. I also suggest spending more time thinking about how to make working with human beings as easy and as fruitful as manipulating physical capital. Often the real political problem is not the people who disagree with you, but rather the empirical regularities of economies and the humans who inhabit them.

Considerations On Cost Disease

Countries like South Korea and Israel have about the same life expectancy as the US but pay about 25% of what we do. Some people use this to prove the superiority of centralized government health systems, although Random Critical Analysis has an alternative perspective. In any case, it seems very possible to get the same improving life expectancies as the US without octupling health care spending.

.. Or instead of slogging through the statistics, we can just ask the same question as before. Do you think the average poor or middle-class person would rather:

a) Get modern health care
b) Get the same amount of health care as their parents’ generation, but with modern technology like ACE inhibitors, and also earn $8000 extra a year

.. It’s actually even worse than this, because we take so many opportunities to save money that were unavailable in past generations. Underpaid foreign nurses immigrate to America and work for a song. Doctors’ notes are sent to India overnight where they’re transcribed by sweatshop-style labor for pennies an hour. Medical equipment gets manufactured in goodness-only-knows which obscure Third World country. And it still costs ten times as much as when this was all made in the USA – and that back when minimum wages were proportionally higher than today.

.. Imagine if tomorrow, the price of water dectupled. Suddenly people have to choose between drinking and washing dishes. Activists argue that taking a shower is a basic human right, and grumpy talk show hosts point out that in their day, parents taught their children not to waste water. A coalition promotes laws ensuring government-subsidized free water for poor families; a Fox News investigative report shows that some people receiving water on the government dime are taking long luxurious showers. Everyone gets really angry and there’s lots of talk about basic compassion and personal responsibility and whatever but all of this is secondary to why does water costs ten times what it used to?

.. I’m not sure how many people currently opposed to paying for free health care, or free college, or whatever, would be happy to pay for health care that cost less, that was less wasteful and more efficient, and whose price we expected to go down rather than up with every passing year. I expect it would be a lot.

.. Right now the standard of living isn’t just stagnant, it’s at risk of declining, and a lot of that is student loans and health insurance costs and so on.