24 ms·

Considerations on Cost Disease

369 points by apsec112 10y ago

bradleyjg 10y ago
For schools and healthcare I'd like to see total FTE across every employment category in the sector per student and per capita respectively. I'd guess that even if the teacher and doctor ratios are staying the same or going down the overall ratios are shooting up. If so, the missing money isn't mostly being siphoned off to a few people but is going to enormous new workforce that didn't exist in the medical and education systems of the 1970s.
lend000 10y ago
Diseconomies of scale is a very real phenomenon, and it makes a pressing argument for decentralizing by giving power back to the states. Was that a foreseen side effect the founders wanted to avoid with the 10th amendment? Probably not, but freedom is inherently a decentralized proposition, and tends to be more efficient in many cases as a result. https://en.wikipedia.org/wiki/Diseconomies_of_scale https://en.wikipedia.org/wiki/Diseconomies_of_scale > Cowen assumes his readers already understand that cost disease exists. I don’t know if this is true. Unfortunately, "cost disease" has become politicized, so just like some won't accept global warming, others deny basic realities about economics.
- _bpo 10y ago
  > "cost disease" has become politicized Citation needed. Where is this term common and where is it broadly discussed?
  - lend000 10y ago
    It's not; I've never heard of the term before the article. I'm referring to the phenomenon itself. For example, Elizabeth Warren was recently quoted as measuring success in dollars spent: http://reason.com/blog/2017/01/19/on-entitlements-elizabeth-warren-says-th http://reason.com/blog/2017/01/19/on-entitlements-elizabeth-...
    - _bpo 10y ago
      "Entitlement programs" is politicized as a term, certainly. "Cost disease", though... possibly in search for a new keyword? > I'm referring to the phenomenon itself. From your example, Elizabeth Warren and Tom Price are looking at the same appearances (phenomena) and deriving different "noumena".
      - deleted 10y ago
        [deleted]
      - _bpo 10y ago
        Lots of downvotes here – any explanation? The GP uses the phrase "the phenomenon itself" referring to the Kantian term "Ding an sich", which (as applied to phenomena) is just a logical error...
        lend000 10y ago
        I have nothing against being the guy who spends time pointing out small, or even irrelevant errors, but there is no error to correct. I think this is just a misinterpretation on your part, either stemming from not reading the article to understand what the author described as 'cost disease,' or perhaps you did not understand my use of quotation marks around cost disease in my original post.
      - SilasX 10y ago
        I don't understand the hate for "entitlement programs"; it's a precise, common, useful category with no better suggestion offered.
  - metaphorm 10y ago
    citation: https://web.archive.org/web/20110724151936/http://publishing.eur.nl/ir/repub/asset/782/TOWSE%20EBOOK_pages0103-0113.pdf https://web.archive.org/web/20110724151936/http://publishing... it's been a heavily discussed subject amongst economists. it has not fully passed into mainstream conversation. I'm not an economist but I first encountered the term about 10 years ago while reading economists.
- js8 10y ago
  But is it really diseconomy of scale and not just increases in profits? While the difference is fuzzy, they are not really the same thing. I would say most large companies have economies of scale that make them so much more efficient that they can have (a little bit of) diseconomy of scale and yet rake in enormous profits. At the end, though, I think people (like doctors mentioned in the article) are unhappy because they don't want to be just cogs in a very efficient machine, despite this being a libertarians' dream.
  - lend000 10y ago
    > But is it really diseconomy of scale and not just increases in profits? While the difference is fuzzy, they are not really the same thing. The concept of diseconomies of scale applies just as much to government bureaucracies as it does to private for-profit organizations. We see public education costs have skyrocketed for no return on investment; did they make profit? Well, perhaps, there are more uselessly employed school administrators and other bureaucrats "profiting." So yes, it is indeed diseconomies of scale at work.
    - js8 10y ago
      It seems to me then your definition of "diseconomy" is pretty arbitrary - I mean, do you include private profits of the owners? Presumably not.. but why not? What's the difference between renter raking in profit, between CEO having bonuses and golden parachutes, and between a bureaucrat creating useless work for himself? Aren't all these diseconomies? And if you accept that, then eventually whole human existence becomes one big "diseconomy".. To me, "diseconomy of scale" is a weird concept, and I think it's because it actually has to be normative. This is unlike "economy of scale", which is well-grounded; if I want to make one car, it's not efficient to build a production line first, but for million cars, it can be. So when something is subject to "economy of scale", it is because there are more possible economic solutions; however, I fail to see how something could be (in the physical, and non-normative, sense) subject to "diseconomy of scale" - surely you could in that case just duplicate the original small-scale process as needed (in other words, why would the corresponding "reduction of possible solutions" happen?).
struppi 10y ago
Ok, maybe I'm getting this wrong, but to me, it's not entirely surprising that those costs have been rising, even when adjusted for inflation. AFAIR, we spend a lot of money on food, transport, holidays, electronic devices, ... All of which have become cheaper over the last few decades. The consumer price index reflects this. So, if a lot of items have become cheaper, even adjusted for inflation, others must become more expensive, adjusted for inflation. The article even mentions this effect: First, can we dismiss all of this as an illusion? Maybe adjusting for inflation is harder than I think. Inflation is an average, so some things have to have higher-than-average inflation; maybe it’s education, health care, etc. Or maybe my sources have the wrong statistics. But: Maybe this does not explain the whole effect, and maybe I am missing something important. I am not an economist, after all.
- Scaevolus 10y ago
  You don't have to use CPI-- just compare percentages of income spent on expenses for people performing the same job over time. If the price of basic goods became cheaper, you might expect people to invest more of their money or buy more luxury goods. You wouldn't expect basic necessities like health care or education to increase their total cost percentage vs income. FTA: "The average 1960 worker spent ten days’ worth of their yearly paycheck on health insurance; the average modern worker spends sixty days’ worth of it, a sixth of their entire earnings."
  - Sacho 10y ago
    There's an implicit assumption that the health care coverage a person recrived is roughly the same as it was in 1960, or at the very least that the expansion of health benefits is smaller than the possible price decrease due to improvements and commoditization. I'm not sure this assumption holds.
    - WaxProlix 10y ago
      That assumption is addressed in the article.
    - 10y ago
_bpo 10y ago
Tangential, but why do people write things like "even after adjusting for inflation" when discussing long timespans (40 years in this case)? Is there any reason to not adjust for inflation? The "even..." in the sentence suggests that the author is being liberal with potential critics when it would seem only rudimentary to acknowledge inflation when discussing a 40-year timespan. A typical (new) car cost ~$4.5k in 1977 in the US....
- venomsnake 10y ago
  > Is there any reason to not adjust for inflation? Lies, damned lies and statistics. It is easier to mislead if you don't adjust.
- petters 10y ago
  I agree but I think it is just a way to explicitly state that this adjustment was performed and not forgotten. Better would be: "Per student spending has increased about 2.5x in the past forty years (after adjusting for inflation)."
- nabla9 10y ago
  It's a common idiom used when writing for general audience. Distinction between real and nominal is not at all clear to the public.
- Tenoke 10y ago
  Because news articles often don't adjust for it when making their arguments, and savvy readers are used to thinking "yeah, this argument only sounds right because they don't adjust for inflation".
  - matt4077 10y ago
    [citation needed]
    - Tenoke 10y ago
      I really hope that this is a bot making that comment, and not someone asking me for a citation on why I think the author has used a certain wording.
BrailleHunting 10y ago
In the US, education, military and other budgets are seen as sacred cows as proxy signals for the emotional investment in their missions, such that insisting on service value for budget outlay is viewed as "social treason." The US needs to do more of what Robert Reich ("Inequality for All"), Michael Moore ("Where to Invade Next?"), Bernie Sanders and Plato suggest: copy what works from elsewhere in the world (which others often copied from elsewhere including the US in the past), strengthen unions and get people more engaged in all levels of politics. (The US isn't a special snowflake, policy prescriptions can be tried and customized for commonwealth utility. But first, get money out of politics.) "The price good men pay for indifference to public affairs is to be ruled by evil men." -Plato
- trome 10y ago
  The DOD's budget is much more of a sacred cow than the Dept of Education's, Lockheed Martin is much better at lobbying than Pearsons. Plus, entrenched interests like CoreCivic are actively lobbying against effective education as it creates a cash cow down the line for them.
  - zeveb 10y ago
    > The DOD's budget is much more of a sacred cow than the Dept of Education's Well, the Department of Defense is an actual constitutional branch of the executive, whereas there is nothing whatsoever in the Constitution which grants the United States authority over the education policies of the several states.
- matt4077 10y ago
  I don't quite understand how you jump from "sacred cow / cannot be cut" to "insisting on service value is viewed as treason". I'm firmly in the camp that wouldn't cut education, but does consider the state of the system somewhat prolematic. Those two opinions aren't in conflict. But, having experienced both the US and the German school systems, they were ultimately pretty similar: put 20-something children in a room with a teacher (where variability seems to be extremely high everywhere). Do calculus for 45min, repeat. Even though outcomes are quite similar as measured by PISA, there is a lot around the margins even these countries could learn from each other: extracurricular are virtually nonexistent in Germany and added so much, at least to my experience. OTOH I felt US high schools tended to be too large.
venomsnake 10y ago
I think I can explain the subway costs - the construction itself is relatively cheap - tunneling and excavating is something mine companies do regularly on a bigger scale. It is the NIMBY, regulations and not breaking anything. Unlike China you cannot rule by decree - there be subway here - dig.
- mahyarm 10y ago
  But how about spain, france & the UK?
  - venomsnake 10y ago
    Different culture. People like, use, and depend on subways so they like the extensions and expect their governments to get shit done. And in Europe the power of a single individual to block major project is limited.
    - matt4077 10y ago
      Well in France any hamster is basically empowered to stop a project... While we're guessing, this may just be due to the very special environment that is Manhattan. It's been a few years since I read about it, but I seem to remember that they had to fight some quite unusual challenges, including skyscrapers, the constant influx of water, and both granite and basically liquid sediments. Manhattan probably also has an insane amount od existing, badly documented underground infrastructure.
  - tomarr 10y ago
    The UK also has problems with particularly expensive infrastructure projects. They tend to cost magnitudes more in common law countries (USA, Canada, UK, Australia, NZ. This is generally down to the land and legal costs, with the dispute framework becoming much more expensive. Land and property rights are much more extensively protected in common law countries.
    - xioxox 10y ago
deleted 10y ago
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rjeli 10y ago
I vaguely remember someone saying the #1 doomsday scenario that keeps them up at night is complex systems collapse: that everything just starts to fail and no one knows why. Anyone have a link?
- imh 10y ago
  Sounds like a Strogatz kind of thing. I seem to remember him talking about it somewhere, but can't find it either.
martinpw 10y ago
For the specific case of public university tuition costs, this analysis from the UC system suggests the increase it is primarily due to reduced government funding, requiring students to make up the difference: http://www.ppic.org/main/publication_quick.asp?i=1119 http://www.ppic.org/main/publication_quick.asp?i=1119 It also suggests that increasing administrative costs are not a significant contributor, but that there is some effect from increased student services.
- jimhefferon 10y ago
  I'm a prof at a private college, no state funding. When I ask our president he says, "80% of costs are personnel and the driver there is health care." Certainly I don't make what it says on the chart and have not had a raise since 2008; in fact, my overall compensation has fallen. (I don't know about doctors but I can absolutely testify that the satisfaction in being a professor has plummeted, particularly since 2008. I have a son who graduated a couple of years ago and considered graduate school, which I did my best to warn him about.)
aidenn0 10y ago
Elizabeth Warren gave a talk about this about a decade ago (before becoming a senator): https://www.youtube.com/watch?v=akVL7QY0S8A https://www.youtube.com/watch?v=akVL7QY0S8A For a family of 4 compared 1975 to 2005, all inflation-adjusted: Median housing went up by 76%, median number of rooms only went from 5.8 to 6.1 (5% increase), and the house is older. 74% increase in median health-care costs for a family of 4 with employer sponsored health-care. 52% increase in spending on cars, but cars are cheaper; many more families have 2+ cars. Childcare went from the median family of 4 spending $0 to being a significant expense. Tax liability went up by 21%
- aaron-lebo 10y ago
  That's a remarkable criticism for someone who: She earned about $165,300 from September 2010 through August 2011 as a special adviser to President Obama, setting up the consumer protection agency she helped establish. Before that, she collected a total of $192,722 for leading the congressional panel that oversaw the US bank bailout. That government salary covered a period that began before her latest disclosure report, spanning from November 2008 through September 2010. Elizabeth Warren, the Harvard Law School professor and consumer advocate challenging Republican Senator Scott Brown, took home more than $700,000 in compensation from teaching and consulting fees over a two-year period from 2010 to 2011, according to her most recent financial disclosure form. I don't understand how you can in good conscience make criticisms like that while collecting millions of dollars serving the American people and working in academia. https://www.bostonglobe.com/metro/2012/01/13/elizabeth-warren-salary-topped-over-two-years/pRhtt3yITonYDO7SXiongJ/story.html https://www.bostonglobe.com/metro/2012/01/13/elizabeth-warre...
  - onion2k 10y ago
    Her argument isn't that no one should be well paid, but that poor people shouldn't get screwed over. You don't have to be poor to recognise that poor people have a bad time and pay a disproportionate amount of the cost of running society.
  - simonbyrne 10y ago
    > Elizabeth Warren gave a talk about this about a decade ago (before becoming a senator)
justcommenting 10y ago
The question I'd ask in response to this post is "So where did the money actually go?" I suspect inequality and wealth transfer explains much more of the observed trends than the author acknowledges at the end. In each of the verticals discussed, there have been strong (albeit sometimes less obvious) trends for consolidation among institutions and organizations. This includes companies, government contractors, and even vendors in ecosystems we tend to think of as decentralized like local schools, where significant consolidation might be occurring over time at the level of food suppliers like Aramark, utility companies, or diesel fuel suppliers for school buses. These organizations' compensation and capital structures, in turn, likely grew increasingly unequal over time. Stockholders, stakeholders like executives, and intermediaries like insurance companies in those organizations likely extracted more and more capital relative to traditional stakeholders like the college students, physicians, and teachers addressed in the post. Wealth transfer from traditional stakeholders (college students, physicians, teachers) to organizational stakeholders (execs, stockholders, suppliers in consolidating markets) seems like both a cause and a consequence of the 'cost disease' discussed in the post.
- oli5679 10y ago
  I think he's trying not to be too opinionated about the cause of the problem, mainly highlighting that the problem exists. Amongst people who are aware of cost-disease, conservatives and libertarians normally see the cause as excessive regulation and occupational licencing, whilst liberals jump to increasing corporate power and market failure. Determining which if these is the true cause is tricky, and can quickly become political. However, it is important for everyone to acknowledge the problem.
  - deleted 10y ago
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  - pjc50 10y ago
    The original formulation of Baumol's cost disease is that it's a relative effect caused by increasing efficiency in automatable fields making non-automatable fields look bad. If a job has to be done by a human in the West, of course it's expensive compared to those that have either been outsourced to cheaper humans or turned over to machines. The "exchange rate" between human-produced goods and machine-produced goods looks worse and worse over time. The classic example is whenever you hear someone describing "flatscreen TVs" as a lavish expense. They're not. All TVs are flatscreen and you can get perfectly adequate ones for under $100. Whereas ladies' haircuts can easily exceed that - after all, it's a job you can't export to the Far East. And a college education costs several hundred televisions.
ekianjo 10y ago
good article but it should look at who profits from increased revenues and why instead of focusing only on costs increasing.
misja111 10y ago
I'm probably biased because I'm from Europe but to me it seems that the decreasing cost effectiveness for health care and schooling in the USA is due to the capitalist philosophy that is so strong in USA politics. For instance in health care, in the USA pharmaceutic companies have much more opportunity to sell or advertise their products directly to consumers. This is because as a consumer in the USA you have more influence in the choice of medicine or medical care you receive; as long as you are willing to pay for it, you can get almost anything. In many European countries it is not like that, it is many times the doctor who decides what is the most appropriate cure for you and even he can not always decide which medicine to use, many times this is regulated by the state or by health insurance companies. In schooling there is a big competition in the USA between universities to have the best ratings; this competition drives up salaries of top professors to a level that does not reflect the extra benefits that they bring to their students. All of this can happen because universities are pretty much free to ask whatever fee they desire to students. Again in many European countries it is not like that, universities have only limited freedom to determine their tuition fees by themselves.
- adrianN 10y ago
  I don't think Professor's compensation makes up a big chunk of universities' spending. Administration seems to be the biggest and fastest growing cost.
- lojack 10y ago
  > pharmaceutic companies have much more opportunity to sell or advertise their products directly to consumers. This is true, but I don't think its for the reasons you described. The cause is actually simply that they are legally allowed to advertise. I don't believe there's a single European country that allows pharmaceutical companies to advertise directly to consumers. Consumers actually have a lot less choice than you'd imagine. You can request prescription medication from a doctor, but they won't necessarily prescribe it. Doctors can prescribe for off label usage, but the pharmaceutical companies are strictly forbidden from advertising that, and often even mentioning it. Doctors only really follow your request if its for an alternative treatment that they agree with. Similar to what you describe, insurance companies can also refuse to pay for drugs with generic alternatives, or request that the doctor follows other forms of treatment first. Some of the advertising is to drive consumer choice, but it actually may be more for the doctor. Even if they don't prescribe a medication requested by the patient, they're forced to consider the drug, and they'll have the name in their head when reading journals and publications.
fnord123 10y ago
This is a 3% compounded increase in cost YoY. Not bad seeing at the population about doubled in the same time (2.5% YoY): http://www.censusscope.org/us/chart_popl.html http://www.censusscope.org/us/chart_popl.html
hamilyon2 10y ago
Underpaid/free labour (by women and black) that was very common back then. Much less now. This sosiety shift alone could double every price in economy, while keeping wages stagnant. I.e. household income rose even if wages did not.
- laurent123456 10y ago
  If people were underpaid back then, wouldn't the average salary have raised significantly over the past decades? However his article shows that it's pretty much stagnant.
  - chongli 10y ago
    wouldn't the average salary have raised significantly over the past decades? Not if those people were previously excluded from salary calculations. If they were unpaid, it's definitely true that they weren't included in the average salary figures.
John_Innocent 10y ago
Isn't it obvious? All of the fields experiencing the cost disease are dominated by government. Either through massive funding, or vast numbers of regulations. Even within sectors, we see the pattern. For example, the two fields of medicine which have seen the least cost growth are cosmetic [1] and laser eye surgery. Not only have costs risen the least, but the quality of some procedures in these fields has improved tremendously over the last two decades. Both are electives, so there are fewer mandates requiring that they be covered by insurance and fewer redistributive programs to subsidise them. The source of the complex system dysfunction is the political and social system, which enables special interests to mislead the public in order to implement policies that benefit themselves but have a negative-sum impact on the economy as a whole. One of the 'big lies' that these special interests have succeeded in convincing the public of is that the free market is a misguided ideology that is promulgated by the rich in order to exploit the poor, when in reality it is a basic rule-set necessary for economic development in complex systems (due to properties like the rule-set enabling effective large-scale coordination of economic resources through price signalling, aligning private incentives with the public interest through laws granting and protecting the right to property produced through one's own efforts, or acquired through trade (and inversely, prohibiting acquisition of property through theft, armed robbery and other non-voluntary and predatory means), etc). [1] http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06-17-2013.jpg http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06...
- pjc50 10y ago
  > Both are electives This is critical, because it makes them actually price-sensitive. You can't choose not to have heart disease, though. Free markets have a bunch of conditions on their efficiency that are often ignored by advocates and don't always apply: must be plurality of non-coordinated buyers and sellers, must be feasible for participants to determine quality of goods (Akerloff's "lemons"), must be low barriers to entry, must be feasible for participants to choose not to do a transaction, and so on.
  - John_Innocent 10y ago
    >This is critical, because it makes them actually price-sensitive. You can't choose not to have heart disease, though. But the sectors experiencing the cost disease do not universally share the property of having inelastic demand. In fact, inelastic demand alone will not make a field price-insensitive. One can still be price conscious when purchasing a non-elective service. Only in the case of an emergency service, where the consumer is not capable of shopping the market is price sensitivity lost. The biggest source of price insensitivity is government coverage, which eliminates all incentive for a consumer to shop around to find the lowest cost product/service. >must be plurality of non-coordinated buyers and sellers, must be feasible for participants to determine quality of goods (Akerloff's "lemons"), must be low barriers to entry, must be feasible for participants to choose not to do a transaction, and so on. Collusion-prone industries are the edge case, not the norm. We have levels of government intervention far in excess of what's needed to prevent abuse in these sectors. Moreover, many of these sectors are collusion-prone due to artificial regulatory costs imposed by government, as well as the intellectual property system created by government, which create barriers to entry that benefit larger economic entities, and lead to many sectors being dominated by a handful of large companies that are in a position of being able to collude with one another. >must be feasible for participants to determine quality of goods (Akerloff's "lemons"), Akerloff's lemons have many market solutions.
jasonmorton 10y ago
Imagine a distant future where advances in technology makes everyone fantastically wealthy in modern terms. Material goods are as cheap as digital storage feels now. What would spend money on in this utopia? My guess would be extending our time and quality of life (health care) and improving our minds (education).
tptacek 10y ago
Nominal teacher salaries may be reverting back towards the mean salary, but teacher compensation is not. Public school teachers in the US have a unique compensation structure: 1. They're salaried at a middle-class level (in a major metro like Chicago, the median teacher salary is $70k). 2. The get an extraordinary amount of time off. There are large public school districts where teachers have a contractual maximum of 190 work days. 3. Most importantly, many (most?) receive a defined-benefit pension plan. During the period of time this piece documents the teacher salary decline, virtually all competing jobs of every status lost defined-benefit pensions and switched to defined-contribution plans. Further, the trend over the last 10 years has been towards tonier school districts paying spectacularly high teacher salaries. The perception in those districts is that a dollar spent on the schools (in any way) pays back more than a dollar in increased property values. So my kids at Oak Park River Forest high school have teachers --- not assistant principals, not coaches, not LD/BD specialists, just teachers --- making over $100,000. And bear in mind, if you normalize this back to a 50 week work year, that's closer to $140,000. With a defined-benefit pension. And we're pikers compared to Buffalo Grove, which has several teachers making over $150,000.
- jonstewart 10y ago
  Compared to 1975, though, women are far more engaged in the broader labor force. Back then, if you were a woman and you wanted to work, you could be a nurse or you could be a teacher, and that was about it. Yet teaching and nursing are skilled professions--your school district pays teachers quite a bit more these days in order to attract good teachers. There used to be more good teachers, so teacher costs were lower. So, too, with nurses. I don't expect that labor force engagement by women is the sole factor in "cost disease", but I bet it's one factor of several. There are a lot of teachers in small towns in poor states making below-average money to offset the above-average costs in your [Animal name] [Nature feature] Chicago suburb.
  - tptacek 10y ago
    My point doesn't hinge on Buffalo Grove teachers making 150k per year, although the trend towards suburban school districts paying this much (which was not the case 20 years ago) does offset some of Alexander's claims about teachers. Even in rural school districts, teachers likely have a pretty reasonable deal: a reliably middle-class (for whatever region) salary, lots of time off, and a defined-benefit pension plan.
John_Innocent 10y ago
Anyone who identifies the problem and the solution is labeled a free market ideologue and ignored. This is the solution: http://www.ncpa.org/pdfs/st349.pdf http://www.ncpa.org/pdfs/st349.pdf It's not a mystery why all of the industries suffering the cost disease are dominated by government.
- sigstoat 10y ago
  For those not following the link, that paper is entitled "The Market for Medical Care Should Work Like Cosmetic Surgery". Having briefly skimmed it, it points out that the costs for cosmetic surgery have not grown nearly as fast as the costs for medical care in general. The article certainly has its own opinion about why that's the case, but regardless, anyone trying to explain the increase in medical costs should have to address the facts. Cosmetic surgeons still need liability insurance, nurses, office space, medical training, operating room time, etc, etc. So the likelihood that any of those are contributing to rising medical costs is reduced.
- justinlaster 10y ago
  >Cosmetic surgery provides price competition because patients pay the bills. Is this supposed to be satire? Do I even need to explain how ridiculous this stance is? I'll save my energy until I get a resounding "yes."
  - loeg 10y ago
    Yes, it seems clear from the downvotes that you need to explain your dismissal.
    - justinlaster 10y ago
      It's at -1. I really should not need to explain why a luxury service is not at all analogous to a service that deals with life-threatening, chronic conditions with a population that may not always have the means to pay especially when that payment amount is built off of a shadow market place and several entities which are notorious for not giving a flying shit about people. Don't be silly.
earljwagner 10y ago
We see similar phenomena in software: "software bloat", "feature creep", the "second system effect" (see Wikipedia for details). Linux provides the same basic functionality as Unix in 1980 but has orders of magnitude more lines of code. Why? It's more complicated because the world is more complicated, and we have higher (and more detailed) expectations for that functionality. Basically, once you have a lean MVP that works, all social and economic pressures are to add new features with decreasing marginal gains, support standards of interest to fewer and fewer users, handle increasingly obscure edge cases, etc.
- RobertKerans 10y ago
  Yeah, I think this provides a useful analogy at the very least. The cost of new features increases over time (it is much easier to add/change/swap out features at an earlier point). Razing something to the ground and starting again can often produce better systems, but at that point the external world depends upong the systems already in place, so any efficiency you gain by reconstructing is bled away almost immediately. Coupled to that is this idea that automation always simplifies, make things more efficient. Whereas in practise it often does the opposite: it works well _if_ you can control the environment, simplify the interface to the external world. But reality isn't that clean; in education, health, infrastructure etc the external world becomes so complex that only aspects of it can be controlled, thus you only get very partial, focussed solutions that are sold as complete solutions (and fail). Maybe..
brilee 10y ago
My take on it is, even if health costs were 30% of my cushy software salary, I'd pay them, because well, everyone wants to live. And so, prices continue rising to the point where people are willing to pay for them. I'm willing to pay 30% of my salary for healthcare. I'm willing to pay 20% of my salary to get a good education for my kids. I'm willing to pay 20% of my salary to live in a city with good culture. I'm willing to... oh wait, what's that? I ran out of money because 40% of my salary went to federal and state taxes? Oops!
rdiddly 10y ago
I suspect the hidden factor is population growth. You can find numerous examples of things that become less efficient (more difficult/costly yet also crappier) when more people are out there demanding that service. Or not even using the same service, but simply interfering with each other in ways unrelated - getting in each other's way, affecting each other. Cost is not in a linear relationship with population size, or maybe it's population density. There's a kind of friction that increases. Diminishing returns of scale & complexity, you could call it.
jchrisa 10y ago
So everything has been running in successively more nested layers of virtual machine, ever since the Magna Carta. What we need is for someone to start a "rust for civilization" project. Further thought: could the thing that's happening be that money is getting less real? So it takes more of it to "push the string." To me it seems that heavy redistribution, with high taxes and a basic income, could help make money more real. One has to trust the opportunity landscape has shifted due to the Internet, and now capital accumulation is not a requirement for innovation. Otherwise it looks really scary to tamp down on the idea of capital accumulation. Especially to the bankers, who might be out of a job.
abakker 10y ago
This article does a really nice job of laying out this issue, but avoids an explanation that is difficult to show in data, I think. Many of these issues he addresses - healthcare, housing, infrastructure, and education, are enabled by federally assumed debt. The core problem, I believe, is that federal debt is like a blank check that nobody is personally accountable to repay. The result is that people in charge of spending simply do not bargain well. There is no immediate incentive to drive cost down by forcing suppliers to deliver at a lower cost, or find the the real market equilibrium where nobody will offer a service. Loose spending from the government is a different problem than government spending in general. If the government were interested in getting the best deal, it has more bargaining power than most entities in the world. However, they frequently pay MORE for the same services. That alone should be a trigger. I think most people intuitively know this and rail against it when confronted by examples like student loans being spent on predatory for-profit colleges, but, in aggregate, I blame most of the problem here. The government has a nearly infinite potential for more debt, and as a result they have no incentive to get a good price. Things have spiraled out of control.
- Nacraile 10y ago
  I think your explanation is actually addressed, just not directly: the article touches on the "Government is inefficient" hypothesis (which might be fuelled either by taxes or debt; it's the incentive structure that matters, not the source of the money), but that hypothesis makes a number of predictions that are falsified: - If the increased cost is due to government inefficiency, there is opportunity for for-profit businesses to provide the same service at lower cost, and either capture the difference as profit or compete on cost for more business. However, in practice, for-profit hospitals and schools operate at similar cost. - If the increased cost is due to government inefficiency, then countries where the government enforces a monopoly over the service should have higher costs than countries where there is significant for-profit activity in the same sector. However, US costs are much higher and have increased much faster than in other developed countries, despite the US system being the most privatised by far.
  - arohner 10y ago
hiddencost 10y ago
Reasons I can't stand the rationalists: They pick an arbitrary objective metric for a topic about which they have no expertise, assume the metric is basically complete, and then draw ridiculous conclusions. You can have the best methods in the world, but if your prior is crap and your data collection is crap, your posterior estimate will be crap. ----- (sardonic paraphrase): "test scores aren't increasing, so objectively schools aren't better". and "I talked with my parents and their school experience seemed similar to mine". Hypothesis that they didn't seriously evaluate: "the spending went to things not related to test scores which still has value"
- yummyfajitas 10y ago
  If you think that's what happened, why don't you make that argument? What is that thing unrelated to test scores which still has value? (Similarly, what is the hidden thing in transit costs, in health care, etc?) "Maybe there's a hidden thing this guy missed, and I can't stand people like him" isn't really a counterargument.
  - hiddencost 10y ago
    SSC does this regularly: he'll take a problem, choose an arbitrary metric, and then run the whole way. It's a cultural rejection of expertise (especially expertise from the social sciences) which is endemic to tech and mathematics. It leads to terrible policy recommendations (c.f., the effect on education by the Gates Foundation and Zuckerberg's 100M to NJ). ("The Best and the Brightest" is a good book that talks about this phenomena in another context.) As a starting point, we can talk about issues related to: -- increasing prevalence of mental health issues -- the expanding nature of school populations (a lot more students, coming often from much more disadvantaged backgrounds) -- shifts from off-campus housing to on-campus housing which have necessitated a massive expansion of facilities staff, security, dining halls, etc. -- changes in the legal burden that schools need to reach (e.g., title 9)
    - yummyfajitas 10y ago
      You are still not arguing that he's wrong. You're merely arguing that if he were wrong, he might be wrong at other times for similar reasons.
deleted 10y ago
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mindslight 10y ago
Most of this "cost disease" is simple inflation. But we've been fooled into thinking that "inflation" is a single number defined by a government committee, when really it's a general concept applicable to any sector where currency is infused. For instance housing valuations haven't outpaced inflation, they are inflation!
- metaphorm 10y ago
  this is explicitly wrong. monetary inflation is about the size of the money supply over time. "correcting for inflation" means multiplying the prices of things out by an adjustment factor that accounts for changes in the size of the money supply relative to an index (a specific starting point). when the price of something in particular (home prices, college tuition, etc.) changes at a rate vastly different than the rate of monetary inflation you're looking at a price phenomenon in that specific thing.
  - mindslight 10y ago
    You're qualifying inflation with "monetary". Note that the government committee disagrees with your measure of inflation, as well. When people casually toss out "adjusted for inflation", they aren't talking about M2/M3, but committee-accepted price inflation. But even analyzing in terms of monetary inflation, the size of the money supply used to buy houses is basically the money that can be borrowed from banks to buy houses, which roughly matches their valuation (as the house is used as collateral).
    - metaphorm 10y ago
      I'm discussing monetary inflation because that is the "inflation adjusted dollars" unit that is used in the article. the relationship you're trying to examine between home prices and monetary inflation is an indirect one at best. the banks that lend home mortgages are retail banks. the banks that lend to other banks (and borrow from the Federal Reserve) are investment banks. they are related but not identical.
      - 10y ago
yummyfajitas 10y ago
I think this post is fundamentally wrong. I left a comment there explaining, but I'll also paste it here. Note that my critique is an attempt at Feynmaning this theory. Stylized fact 1: Income has remained flat after adjusting for chained CPI. Stylized fact 2: costs have gone way up adjusting for chained CPI. Conclusion: Consumption must have gone down, since consumption = Income/Cost. The problem is that this simply hasn’t happened. People live in bigger homes. They visit the doctor more, and have all sorts of medical procedures that didn’t exist in the past. More people are attending college and receiving degrees than ever before. People just have more of everything. If you want to argue with this point, I challenge you: find a major category of consumption that has gone down in material terms over a long period of time. The most I can think of is obsolete goods like land lines, or inferior goods like homed cooked meals (relative to restaurant meals). That’s exactly the opposite of what this theory predicts! Therefore, although I can’t identify exactly where things go wrong, they must go wrong somewhere.
- SilasX 10y ago
  Did you see the part where he addressed that? If your only option is a bigger house you don't want but have to pay for anyway, that's an excess cost. If these operations don't actually extend life or quality but you have to buy insurance with them, that's an excess cost. And likewise, if your compensation has "increased" but it's only to cover health care that's pointlessly more expensive, that's not really an increase in compensation. Alexander very specifically addresses the tradeoff in "would you rather have 70s health care plus $8000/years cash" etc.
  - yummyfajitas 10y ago
    I agree that there is excess cost relative to a counterfactual where smaller/cheaper houses are legal. That's not what I'm disputing. What I'm disputing is whether, overall, we are actually worse off. Fundamentally here's where I claim SA is wrong: 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? But in reality, this is not an accurate analogy to the modern world. I'm claiming a better analogy would be this: Imagine if tomorrow, the price of water dectupled. Furthermore, people's income and ability to purchase water remained flat. Yet somehow people started taking longer showers, drinking 10 glasses/day rather than 8, having greener lawns, and just generally staying very well hydrated. In this latter scenario, I'd tell you that somewhere along the way you messed up. Water consumption = money spent on water / price per gallon - if water consumption went up, either the numerator increased or the denominator decreased. If you think I'm wrong, tell me what we have less of.
kbenson 10y ago
> I don’t know why more people don’t just come out and say “LOOK, REALLY OUR MAIN PROBLEM IS THAT ALL THE MOST IMPORTANT THINGS COST TEN TIMES AS MUCH AS THEY USED TO FOR NO REASON, PLUS THEY SEEM TO BE GOING DOWN IN QUALITY, AND NOBODY KNOWS WHY, AND WE’RE MOSTLY JUST DESPERATELY FLAILING AROUND LOOKING FOR SOLUTIONS HERE.” State that clearly, and a lot of political debates take on a different light. Well, politicians don't get elected for saying "I don't know", especially when the competition says "It's simple, we stop doing X and start doing Y." I mean, they should get elected for saying they want to really understand the problem, so they can actually fix it, but that's not what the public likes to hear. :/
- marvy 10y ago
  Not sure I agree with you. Suppose I want to fix this problem, and I decide I need political power to do it. Which of the following strategies would you recommend? Option A: get elected, spend first few years of my time in office trying to understand what's going on. By the time I achieve enlightenment, my term is over and I will not be reelected because I have nothing to show for my time in office. Option B: study the problem first. It may take longer this way, because politicians have access to resources that not everyone has. Eventually understand the problem well enough to propose a solution I think will help, and then run on a platform advocating that solution. (There is also option C: make up a plausible sounding solution without even caring whether it works or not; but then you're just seeking power and don't care about the problem at all. Let's ignore that for now, despite the fact that I sometimes worry that this may account for a large fraction of politicians.)
  - kbenson 10y ago
    > Option A: get elected, spend first few years of my time in office trying to understand what's going on. By the time I achieve enlightenment, my term is over and I will not be reelected because I have nothing to show for my time in office. I don't think we are really disagreeing... The electorate is just stuck in a loop in this case where their own impatience (no doubt stirred by those looking to challenge the status quo) works against them. > Option B: study the problem first. It may take longer this way, because politicians have access to resources that not everyone has. Eventually understand the problem well enough to propose a solution I think will help, and then run on a platform advocating that solution. Likely the only solution that will work, but it's hard, and you have the problem of convincing people that your understanding and solution is correct. I suspect being correct might even be an impediment to being elected, because you'll likely have some hard truths to swallow for the electorate, which some other less robust solutions can likely sidestep - or safely target towards only a specific segment of the electorate - since they don't have the added burden of actually having to solve the problem. > (There is also option C: make up a plausible sounding solution without even caring whether it works or not; but then you're just seeking power and don't care about the problem at all. Let's ignore that for now, despite the fact that I sometimes worry that this may account for a large fraction of politicians.) Well, I think we can't ignore that, because that's almost exactly what I was referring to. :) The main difference being that the politicians may not be purposefully - or at least not consciously - trying to put forth solutions that are incorrect or at least very poorly researched and understood. It's expedient to their worldview to not look too closely at whether their "hunches" about the problem and solution stand up under scrutiny, and confirmation bias takes care of the rest. Combine this with an electorate that is increasingly upset about the problem and wants a solution ASAP, and you get a revolving door of politicians that espouse their pet solutions to the problem, possibly alternating between opposing extremes that can both be incorrect.
johngalt 10y ago
Two gut feelings about this. 1. Progress/inflation doesn't scale as homogeneously as we think. Producing a consumer good such as a car or computer is easier to optimize than providing healthcare, or an education. It also scales differently with globalization. A global economy competing to produce the best car at the lowest cost, is also a global population competing for the same limited slots in top universities. 2. Costs have a way of cascading through a system. Double the price of oil and it doesn't only mean more expensive plane tickets. It means more expensive everything. This article paints the picture of several costs increasing, but it could just be education. What happens to healthcare costs if medical school costs 20k rather than 200k? Of course this doesn't explain all of it. The subway instance is probably the strongest counter argument.
- tomjen3 10y ago
  1) Would explain stagnent prices, not prices going up as a percentage of total income. And I am about as convinced that there is a massive difference in how much things inflate as I am that the sun will rise tomorrow (one example: compare how much better an iphone you get in 17 vs 07 when they launch with how much gas you can buy for a set amount of hours worked). 2) I am not sure how that would work. If we take gas as an example, then if that is 10% of the cost to produce a good intuitively it should be at most 20% of the cost to produce a good even if it doubles (and might be a lot less, if the new higher cost of gas means it is cheaper to produce closer to the consumer).
imh 10y ago
This makes me think of charities. Suppose I'm trying to raise money for cancer research. Maybe I tell my friends and raise $100k. I then give that $100k to a research lab. The next year I raise $100k again, except that this time, I spend that money on advertisements telling people to donate to my charity. I raise $300k that way, netting me $200k which I give to the lab. My contribution to cancer research has doubled, yay! But this time, I raised a total of $400k, so for the donors (consumers), a dollar of cancer research now costs two dollars. I (the firm) became more sophisticated and in some ways more efficient, but in other ways less efficient. Costs to the consumer went up, but now I'm the dominant cancer charity. Other charities trying to raise money can't compete since nobody has heard of them, and their message isn't crafted by highly-paid marketers. To compete, they have to raise prices too! I remember this being a big controversy in charities a few years ago. The analogous scenario with for-profit firms making widgets is straight-forward. I wonder what role this kind of mechanism could be playing in cost disease?
woodandsteel 10y ago
Interesting article. I think, however, if we are doing to do anything effective about the problem, it will happen only if we examine in detail those countries that don't have the same problems. For instance, many Western European countries have very good health care for far less expense, and besides that the doctors enjoy their work. What we need to do is compare in detail how those health care systems work differently such that there are such good results, and then figure out how to make something similar in this country. Ditto for the other areas. I can think of no sensible reason for not doing such studies. Of course, various groups wouldn't want this because it would run counter to their ideology or financial interests, but this is the right way to go about it.
jger15 10y ago
Any book recommendations that go more in-depth on this that you're aware?
omgwtfbyobbq 10y ago
My guess is that the increases in college costs are coming from for-profit universities and other "value" adds (student housing, etc...). Inflation adjusted tuition costs in the UC system have apparently dropped by 40% or so since 1960 (~$2200 now compared to ~$3700 in 1960s dollars). Granted, the tuition costs for students have increased substantially, since the state used to cover most of it, but the total cost has still dropped a fair bit. http://ucpay.globl.org/funding_vs_fees.php http://ucpay.globl.org/funding_vs_fees.php I wouldn't be surprised to see the same in healthcare. An outpatient CTA at a local hospital is something like $3500+ through my insurance, but the cash price at a local radiology clinic is $550. Don't even get me started with housing. The markups are ridiculous in some places, although not in all places. If I had to guess, I'd say that at least some of these examples of cost-disease are really symptoms of excesses that weren't as common in the past and market/regulatory capture.

369 points by apsec112 10y ago

For schools and healthcare I'd like to see total FTE across every employment category in the sector per student and per capita respectively. I'd guess that even if the teacher and doctor ratios are staying the same or going down the overall ratios are shooting up. If so, the missing money isn't mostly being siphoned off to a few people but is going to enormous new workforce that didn't exist in the medical and education systems of the 1970s.

lend000 10y ago

Diseconomies of scale is a very real phenomenon, and it makes a pressing argument for decentralizing by giving power back to the states. Was that a foreseen side effect the founders wanted to avoid with the 10th amendment? Probably not, but freedom is inherently a decentralized proposition, and tends to be more efficient in many cases as a result. https://en.wikipedia.org/wiki/Diseconomies_of_scale https://en.wikipedia.org/wiki/Diseconomies_of_scale > Cowen assumes his readers already understand that cost disease exists. I don’t know if this is true. Unfortunately, "cost disease" has become politicized, so just like some won't accept global warming, others deny basic realities about economics.

_bpo 10y ago
> "cost disease" has become politicized Citation needed. Where is this term common and where is it broadly discussed?
- lend000 10y ago
  It's not; I've never heard of the term before the article. I'm referring to the phenomenon itself. For example, Elizabeth Warren was recently quoted as measuring success in dollars spent: http://reason.com/blog/2017/01/19/on-entitlements-elizabeth-warren-says-th http://reason.com/blog/2017/01/19/on-entitlements-elizabeth-...
  - _bpo 10y ago
    "Entitlement programs" is politicized as a term, certainly. "Cost disease", though... possibly in search for a new keyword? > I'm referring to the phenomenon itself. From your example, Elizabeth Warren and Tom Price are looking at the same appearances (phenomena) and deriving different "noumena".
    - deleted 10y ago
      [deleted]
    - _bpo 10y ago
      Lots of downvotes here – any explanation? The GP uses the phrase "the phenomenon itself" referring to the Kantian term "Ding an sich", which (as applied to phenomena) is just a logical error...
      - lend000 10y ago
        I have nothing against being the guy who spends time pointing out small, or even irrelevant errors, but there is no error to correct. I think this is just a misinterpretation on your part, either stemming from not reading the article to understand what the author described as 'cost disease,' or perhaps you did not understand my use of quotation marks around cost disease in my original post.
    - SilasX 10y ago
      I don't understand the hate for "entitlement programs"; it's a precise, common, useful category with no better suggestion offered.
- metaphorm 10y ago
  citation: https://web.archive.org/web/20110724151936/http://publishing.eur.nl/ir/repub/asset/782/TOWSE%20EBOOK_pages0103-0113.pdf https://web.archive.org/web/20110724151936/http://publishing... it's been a heavily discussed subject amongst economists. it has not fully passed into mainstream conversation. I'm not an economist but I first encountered the term about 10 years ago while reading economists.
js8 10y ago
But is it really diseconomy of scale and not just increases in profits? While the difference is fuzzy, they are not really the same thing. I would say most large companies have economies of scale that make them so much more efficient that they can have (a little bit of) diseconomy of scale and yet rake in enormous profits. At the end, though, I think people (like doctors mentioned in the article) are unhappy because they don't want to be just cogs in a very efficient machine, despite this being a libertarians' dream.
- lend000 10y ago
  > But is it really diseconomy of scale and not just increases in profits? While the difference is fuzzy, they are not really the same thing. The concept of diseconomies of scale applies just as much to government bureaucracies as it does to private for-profit organizations. We see public education costs have skyrocketed for no return on investment; did they make profit? Well, perhaps, there are more uselessly employed school administrators and other bureaucrats "profiting." So yes, it is indeed diseconomies of scale at work.
  - js8 10y ago
    It seems to me then your definition of "diseconomy" is pretty arbitrary - I mean, do you include private profits of the owners? Presumably not.. but why not? What's the difference between renter raking in profit, between CEO having bonuses and golden parachutes, and between a bureaucrat creating useless work for himself? Aren't all these diseconomies? And if you accept that, then eventually whole human existence becomes one big "diseconomy".. To me, "diseconomy of scale" is a weird concept, and I think it's because it actually has to be normative. This is unlike "economy of scale", which is well-grounded; if I want to make one car, it's not efficient to build a production line first, but for million cars, it can be. So when something is subject to "economy of scale", it is because there are more possible economic solutions; however, I fail to see how something could be (in the physical, and non-normative, sense) subject to "diseconomy of scale" - surely you could in that case just duplicate the original small-scale process as needed (in other words, why would the corresponding "reduction of possible solutions" happen?).

struppi 10y ago

Ok, maybe I'm getting this wrong, but to me, it's not entirely surprising that those costs have been rising, even when adjusted for inflation. AFAIR, we spend a lot of money on food, transport, holidays, electronic devices, ... All of which have become cheaper over the last few decades. The consumer price index reflects this. So, if a lot of items have become cheaper, even adjusted for inflation, others must become more expensive, adjusted for inflation. The article even mentions this effect: First, can we dismiss all of this as an illusion? Maybe adjusting for inflation is harder than I think. Inflation is an average, so some things have to have higher-than-average inflation; maybe it’s education, health care, etc. Or maybe my sources have the wrong statistics. But: Maybe this does not explain the whole effect, and maybe I am missing something important. I am not an economist, after all.

Scaevolus 10y ago
You don't have to use CPI-- just compare percentages of income spent on expenses for people performing the same job over time. If the price of basic goods became cheaper, you might expect people to invest more of their money or buy more luxury goods. You wouldn't expect basic necessities like health care or education to increase their total cost percentage vs income. FTA: "The average 1960 worker spent ten days’ worth of their yearly paycheck on health insurance; the average modern worker spends sixty days’ worth of it, a sixth of their entire earnings."
- Sacho 10y ago
  There's an implicit assumption that the health care coverage a person recrived is roughly the same as it was in 1960, or at the very least that the expansion of health benefits is smaller than the possible price decrease due to improvements and commoditization. I'm not sure this assumption holds.
  - WaxProlix 10y ago
    That assumption is addressed in the article.
  - 10y ago

_bpo 10y ago

Tangential, but why do people write things like "even after adjusting for inflation" when discussing long timespans (40 years in this case)? Is there any reason to not adjust for inflation? The "even..." in the sentence suggests that the author is being liberal with potential critics when it would seem only rudimentary to acknowledge inflation when discussing a 40-year timespan. A typical (new) car cost ~$4.5k in 1977 in the US....

venomsnake 10y ago
> Is there any reason to not adjust for inflation? Lies, damned lies and statistics. It is easier to mislead if you don't adjust.
petters 10y ago
I agree but I think it is just a way to explicitly state that this adjustment was performed and not forgotten. Better would be: "Per student spending has increased about 2.5x in the past forty years (after adjusting for inflation)."
nabla9 10y ago
It's a common idiom used when writing for general audience. Distinction between real and nominal is not at all clear to the public.
Tenoke 10y ago
Because news articles often don't adjust for it when making their arguments, and savvy readers are used to thinking "yeah, this argument only sounds right because they don't adjust for inflation".
- matt4077 10y ago
  [citation needed]
  - Tenoke 10y ago
    I really hope that this is a bot making that comment, and not someone asking me for a citation on why I think the author has used a certain wording.

BrailleHunting 10y ago

In the US, education, military and other budgets are seen as sacred cows as proxy signals for the emotional investment in their missions, such that insisting on service value for budget outlay is viewed as "social treason." The US needs to do more of what Robert Reich ("Inequality for All"), Michael Moore ("Where to Invade Next?"), Bernie Sanders and Plato suggest: copy what works from elsewhere in the world (which others often copied from elsewhere including the US in the past), strengthen unions and get people more engaged in all levels of politics. (The US isn't a special snowflake, policy prescriptions can be tried and customized for commonwealth utility. But first, get money out of politics.) "The price good men pay for indifference to public affairs is to be ruled by evil men." -Plato

trome 10y ago
The DOD's budget is much more of a sacred cow than the Dept of Education's, Lockheed Martin is much better at lobbying than Pearsons. Plus, entrenched interests like CoreCivic are actively lobbying against effective education as it creates a cash cow down the line for them.
- zeveb 10y ago
  > The DOD's budget is much more of a sacred cow than the Dept of Education's Well, the Department of Defense is an actual constitutional branch of the executive, whereas there is nothing whatsoever in the Constitution which grants the United States authority over the education policies of the several states.
matt4077 10y ago
I don't quite understand how you jump from "sacred cow / cannot be cut" to "insisting on service value is viewed as treason". I'm firmly in the camp that wouldn't cut education, but does consider the state of the system somewhat prolematic. Those two opinions aren't in conflict. But, having experienced both the US and the German school systems, they were ultimately pretty similar: put 20-something children in a room with a teacher (where variability seems to be extremely high everywhere). Do calculus for 45min, repeat. Even though outcomes are quite similar as measured by PISA, there is a lot around the margins even these countries could learn from each other: extracurricular are virtually nonexistent in Germany and added so much, at least to my experience. OTOH I felt US high schools tended to be too large.

venomsnake 10y ago

I think I can explain the subway costs - the construction itself is relatively cheap - tunneling and excavating is something mine companies do regularly on a bigger scale. It is the NIMBY, regulations and not breaking anything. Unlike China you cannot rule by decree - there be subway here - dig.

mahyarm 10y ago
But how about spain, france & the UK?
- venomsnake 10y ago
  Different culture. People like, use, and depend on subways so they like the extensions and expect their governments to get shit done. And in Europe the power of a single individual to block major project is limited.
  - matt4077 10y ago
    Well in France any hamster is basically empowered to stop a project... While we're guessing, this may just be due to the very special environment that is Manhattan. It's been a few years since I read about it, but I seem to remember that they had to fight some quite unusual challenges, including skyscrapers, the constant influx of water, and both granite and basically liquid sediments. Manhattan probably also has an insane amount od existing, badly documented underground infrastructure.
- tomarr 10y ago
  The UK also has problems with particularly expensive infrastructure projects. They tend to cost magnitudes more in common law countries (USA, Canada, UK, Australia, NZ. This is generally down to the land and legal costs, with the dispute framework becoming much more expensive. Land and property rights are much more extensively protected in common law countries.
  - xioxox 10y ago

deleted 10y ago

[deleted]

rjeli 10y ago

I vaguely remember someone saying the #1 doomsday scenario that keeps them up at night is complex systems collapse: that everything just starts to fail and no one knows why. Anyone have a link?

imh 10y ago
Sounds like a Strogatz kind of thing. I seem to remember him talking about it somewhere, but can't find it either.

martinpw 10y ago

For the specific case of public university tuition costs, this analysis from the UC system suggests the increase it is primarily due to reduced government funding, requiring students to make up the difference: http://www.ppic.org/main/publication_quick.asp?i=1119 http://www.ppic.org/main/publication_quick.asp?i=1119 It also suggests that increasing administrative costs are not a significant contributor, but that there is some effect from increased student services.

jimhefferon 10y ago
I'm a prof at a private college, no state funding. When I ask our president he says, "80% of costs are personnel and the driver there is health care." Certainly I don't make what it says on the chart and have not had a raise since 2008; in fact, my overall compensation has fallen. (I don't know about doctors but I can absolutely testify that the satisfaction in being a professor has plummeted, particularly since 2008. I have a son who graduated a couple of years ago and considered graduate school, which I did my best to warn him about.)

aidenn0 10y ago

Elizabeth Warren gave a talk about this about a decade ago (before becoming a senator): https://www.youtube.com/watch?v=akVL7QY0S8A https://www.youtube.com/watch?v=akVL7QY0S8A For a family of 4 compared 1975 to 2005, all inflation-adjusted: Median housing went up by 76%, median number of rooms only went from 5.8 to 6.1 (5% increase), and the house is older. 74% increase in median health-care costs for a family of 4 with employer sponsored health-care. 52% increase in spending on cars, but cars are cheaper; many more families have 2+ cars. Childcare went from the median family of 4 spending $0 to being a significant expense. Tax liability went up by 21%

aaron-lebo 10y ago
That's a remarkable criticism for someone who: She earned about $165,300 from September 2010 through August 2011 as a special adviser to President Obama, setting up the consumer protection agency she helped establish. Before that, she collected a total of $192,722 for leading the congressional panel that oversaw the US bank bailout. That government salary covered a period that began before her latest disclosure report, spanning from November 2008 through September 2010. Elizabeth Warren, the Harvard Law School professor and consumer advocate challenging Republican Senator Scott Brown, took home more than $700,000 in compensation from teaching and consulting fees over a two-year period from 2010 to 2011, according to her most recent financial disclosure form. I don't understand how you can in good conscience make criticisms like that while collecting millions of dollars serving the American people and working in academia. https://www.bostonglobe.com/metro/2012/01/13/elizabeth-warren-salary-topped-over-two-years/pRhtt3yITonYDO7SXiongJ/story.html https://www.bostonglobe.com/metro/2012/01/13/elizabeth-warre...
- onion2k 10y ago
  Her argument isn't that no one should be well paid, but that poor people shouldn't get screwed over. You don't have to be poor to recognise that poor people have a bad time and pay a disproportionate amount of the cost of running society.
- simonbyrne 10y ago
  > Elizabeth Warren gave a talk about this about a decade ago (before becoming a senator)

justcommenting 10y ago

The question I'd ask in response to this post is "So where did the money actually go?" I suspect inequality and wealth transfer explains much more of the observed trends than the author acknowledges at the end. In each of the verticals discussed, there have been strong (albeit sometimes less obvious) trends for consolidation among institutions and organizations. This includes companies, government contractors, and even vendors in ecosystems we tend to think of as decentralized like local schools, where significant consolidation might be occurring over time at the level of food suppliers like Aramark, utility companies, or diesel fuel suppliers for school buses. These organizations' compensation and capital structures, in turn, likely grew increasingly unequal over time. Stockholders, stakeholders like executives, and intermediaries like insurance companies in those organizations likely extracted more and more capital relative to traditional stakeholders like the college students, physicians, and teachers addressed in the post. Wealth transfer from traditional stakeholders (college students, physicians, teachers) to organizational stakeholders (execs, stockholders, suppliers in consolidating markets) seems like both a cause and a consequence of the 'cost disease' discussed in the post.

oli5679 10y ago
I think he's trying not to be too opinionated about the cause of the problem, mainly highlighting that the problem exists. Amongst people who are aware of cost-disease, conservatives and libertarians normally see the cause as excessive regulation and occupational licencing, whilst liberals jump to increasing corporate power and market failure. Determining which if these is the true cause is tricky, and can quickly become political. However, it is important for everyone to acknowledge the problem.
- deleted 10y ago
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- pjc50 10y ago
  The original formulation of Baumol's cost disease is that it's a relative effect caused by increasing efficiency in automatable fields making non-automatable fields look bad. If a job has to be done by a human in the West, of course it's expensive compared to those that have either been outsourced to cheaper humans or turned over to machines. The "exchange rate" between human-produced goods and machine-produced goods looks worse and worse over time. The classic example is whenever you hear someone describing "flatscreen TVs" as a lavish expense. They're not. All TVs are flatscreen and you can get perfectly adequate ones for under $100. Whereas ladies' haircuts can easily exceed that - after all, it's a job you can't export to the Far East. And a college education costs several hundred televisions.

ekianjo 10y ago

good article but it should look at who profits from increased revenues and why instead of focusing only on costs increasing.

misja111 10y ago

I'm probably biased because I'm from Europe but to me it seems that the decreasing cost effectiveness for health care and schooling in the USA is due to the capitalist philosophy that is so strong in USA politics. For instance in health care, in the USA pharmaceutic companies have much more opportunity to sell or advertise their products directly to consumers. This is because as a consumer in the USA you have more influence in the choice of medicine or medical care you receive; as long as you are willing to pay for it, you can get almost anything. In many European countries it is not like that, it is many times the doctor who decides what is the most appropriate cure for you and even he can not always decide which medicine to use, many times this is regulated by the state or by health insurance companies. In schooling there is a big competition in the USA between universities to have the best ratings; this competition drives up salaries of top professors to a level that does not reflect the extra benefits that they bring to their students. All of this can happen because universities are pretty much free to ask whatever fee they desire to students. Again in many European countries it is not like that, universities have only limited freedom to determine their tuition fees by themselves.

adrianN 10y ago
I don't think Professor's compensation makes up a big chunk of universities' spending. Administration seems to be the biggest and fastest growing cost.
lojack 10y ago
> pharmaceutic companies have much more opportunity to sell or advertise their products directly to consumers. This is true, but I don't think its for the reasons you described. The cause is actually simply that they are legally allowed to advertise. I don't believe there's a single European country that allows pharmaceutical companies to advertise directly to consumers. Consumers actually have a lot less choice than you'd imagine. You can request prescription medication from a doctor, but they won't necessarily prescribe it. Doctors can prescribe for off label usage, but the pharmaceutical companies are strictly forbidden from advertising that, and often even mentioning it. Doctors only really follow your request if its for an alternative treatment that they agree with. Similar to what you describe, insurance companies can also refuse to pay for drugs with generic alternatives, or request that the doctor follows other forms of treatment first. Some of the advertising is to drive consumer choice, but it actually may be more for the doctor. Even if they don't prescribe a medication requested by the patient, they're forced to consider the drug, and they'll have the name in their head when reading journals and publications.

fnord123 10y ago

This is a 3% compounded increase in cost YoY. Not bad seeing at the population about doubled in the same time (2.5% YoY): http://www.censusscope.org/us/chart_popl.html http://www.censusscope.org/us/chart_popl.html

hamilyon2 10y ago

Underpaid/free labour (by women and black) that was very common back then. Much less now. This sosiety shift alone could double every price in economy, while keeping wages stagnant. I.e. household income rose even if wages did not.

laurent123456 10y ago
If people were underpaid back then, wouldn't the average salary have raised significantly over the past decades? However his article shows that it's pretty much stagnant.
- chongli 10y ago
  wouldn't the average salary have raised significantly over the past decades? Not if those people were previously excluded from salary calculations. If they were unpaid, it's definitely true that they weren't included in the average salary figures.

John_Innocent 10y ago

Isn't it obvious? All of the fields experiencing the cost disease are dominated by government. Either through massive funding, or vast numbers of regulations. Even within sectors, we see the pattern. For example, the two fields of medicine which have seen the least cost growth are cosmetic [1] and laser eye surgery. Not only have costs risen the least, but the quality of some procedures in these fields has improved tremendously over the last two decades. Both are electives, so there are fewer mandates requiring that they be covered by insurance and fewer redistributive programs to subsidise them. The source of the complex system dysfunction is the political and social system, which enables special interests to mislead the public in order to implement policies that benefit themselves but have a negative-sum impact on the economy as a whole. One of the 'big lies' that these special interests have succeeded in convincing the public of is that the free market is a misguided ideology that is promulgated by the rich in order to exploit the poor, when in reality it is a basic rule-set necessary for economic development in complex systems (due to properties like the rule-set enabling effective large-scale coordination of economic resources through price signalling, aligning private incentives with the public interest through laws granting and protecting the right to property produced through one's own efforts, or acquired through trade (and inversely, prohibiting acquisition of property through theft, armed robbery and other non-voluntary and predatory means), etc). [1] http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06-17-2013.jpg http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06...

pjc50 10y ago
> Both are electives This is critical, because it makes them actually price-sensitive. You can't choose not to have heart disease, though. Free markets have a bunch of conditions on their efficiency that are often ignored by advocates and don't always apply: must be plurality of non-coordinated buyers and sellers, must be feasible for participants to determine quality of goods (Akerloff's "lemons"), must be low barriers to entry, must be feasible for participants to choose not to do a transaction, and so on.
- John_Innocent 10y ago
  >This is critical, because it makes them actually price-sensitive. You can't choose not to have heart disease, though. But the sectors experiencing the cost disease do not universally share the property of having inelastic demand. In fact, inelastic demand alone will not make a field price-insensitive. One can still be price conscious when purchasing a non-elective service. Only in the case of an emergency service, where the consumer is not capable of shopping the market is price sensitivity lost. The biggest source of price insensitivity is government coverage, which eliminates all incentive for a consumer to shop around to find the lowest cost product/service. >must be plurality of non-coordinated buyers and sellers, must be feasible for participants to determine quality of goods (Akerloff's "lemons"), must be low barriers to entry, must be feasible for participants to choose not to do a transaction, and so on. Collusion-prone industries are the edge case, not the norm. We have levels of government intervention far in excess of what's needed to prevent abuse in these sectors. Moreover, many of these sectors are collusion-prone due to artificial regulatory costs imposed by government, as well as the intellectual property system created by government, which create barriers to entry that benefit larger economic entities, and lead to many sectors being dominated by a handful of large companies that are in a position of being able to collude with one another. >must be feasible for participants to determine quality of goods (Akerloff's "lemons"), Akerloff's lemons have many market solutions.

jasonmorton 10y ago

Imagine a distant future where advances in technology makes everyone fantastically wealthy in modern terms. Material goods are as cheap as digital storage feels now. What would spend money on in this utopia? My guess would be extending our time and quality of life (health care) and improving our minds (education).

tptacek 10y ago

Nominal teacher salaries may be reverting back towards the mean salary, but teacher compensation is not. Public school teachers in the US have a unique compensation structure: 1. They're salaried at a middle-class level (in a major metro like Chicago, the median teacher salary is $70k). 2. The get an extraordinary amount of time off. There are large public school districts where teachers have a contractual maximum of 190 work days. 3. Most importantly, many (most?) receive a defined-benefit pension plan. During the period of time this piece documents the teacher salary decline, virtually all competing jobs of every status lost defined-benefit pensions and switched to defined-contribution plans. Further, the trend over the last 10 years has been towards tonier school districts paying spectacularly high teacher salaries. The perception in those districts is that a dollar spent on the schools (in any way) pays back more than a dollar in increased property values. So my kids at Oak Park River Forest high school have teachers --- not assistant principals, not coaches, not LD/BD specialists, just teachers --- making over $100,000. And bear in mind, if you normalize this back to a 50 week work year, that's closer to $140,000. With a defined-benefit pension. And we're pikers compared to Buffalo Grove, which has several teachers making over $150,000.

jonstewart 10y ago
Compared to 1975, though, women are far more engaged in the broader labor force. Back then, if you were a woman and you wanted to work, you could be a nurse or you could be a teacher, and that was about it. Yet teaching and nursing are skilled professions--your school district pays teachers quite a bit more these days in order to attract good teachers. There used to be more good teachers, so teacher costs were lower. So, too, with nurses. I don't expect that labor force engagement by women is the sole factor in "cost disease", but I bet it's one factor of several. There are a lot of teachers in small towns in poor states making below-average money to offset the above-average costs in your [Animal name] [Nature feature] Chicago suburb.
- tptacek 10y ago
  My point doesn't hinge on Buffalo Grove teachers making 150k per year, although the trend towards suburban school districts paying this much (which was not the case 20 years ago) does offset some of Alexander's claims about teachers. Even in rural school districts, teachers likely have a pretty reasonable deal: a reliably middle-class (for whatever region) salary, lots of time off, and a defined-benefit pension plan.

John_Innocent 10y ago

Anyone who identifies the problem and the solution is labeled a free market ideologue and ignored. This is the solution: http://www.ncpa.org/pdfs/st349.pdf http://www.ncpa.org/pdfs/st349.pdf It's not a mystery why all of the industries suffering the cost disease are dominated by government.

sigstoat 10y ago
For those not following the link, that paper is entitled "The Market for Medical Care Should Work Like Cosmetic Surgery". Having briefly skimmed it, it points out that the costs for cosmetic surgery have not grown nearly as fast as the costs for medical care in general. The article certainly has its own opinion about why that's the case, but regardless, anyone trying to explain the increase in medical costs should have to address the facts. Cosmetic surgeons still need liability insurance, nurses, office space, medical training, operating room time, etc, etc. So the likelihood that any of those are contributing to rising medical costs is reduced.
justinlaster 10y ago
>Cosmetic surgery provides price competition because patients pay the bills. Is this supposed to be satire? Do I even need to explain how ridiculous this stance is? I'll save my energy until I get a resounding "yes."
- loeg 10y ago
  Yes, it seems clear from the downvotes that you need to explain your dismissal.
  - justinlaster 10y ago
    It's at -1. I really should not need to explain why a luxury service is not at all analogous to a service that deals with life-threatening, chronic conditions with a population that may not always have the means to pay especially when that payment amount is built off of a shadow market place and several entities which are notorious for not giving a flying shit about people. Don't be silly.

earljwagner 10y ago

We see similar phenomena in software: "software bloat", "feature creep", the "second system effect" (see Wikipedia for details). Linux provides the same basic functionality as Unix in 1980 but has orders of magnitude more lines of code. Why? It's more complicated because the world is more complicated, and we have higher (and more detailed) expectations for that functionality. Basically, once you have a lean MVP that works, all social and economic pressures are to add new features with decreasing marginal gains, support standards of interest to fewer and fewer users, handle increasingly obscure edge cases, etc.

RobertKerans 10y ago
Yeah, I think this provides a useful analogy at the very least. The cost of new features increases over time (it is much easier to add/change/swap out features at an earlier point). Razing something to the ground and starting again can often produce better systems, but at that point the external world depends upong the systems already in place, so any efficiency you gain by reconstructing is bled away almost immediately. Coupled to that is this idea that automation always simplifies, make things more efficient. Whereas in practise it often does the opposite: it works well _if_ you can control the environment, simplify the interface to the external world. But reality isn't that clean; in education, health, infrastructure etc the external world becomes so complex that only aspects of it can be controlled, thus you only get very partial, focussed solutions that are sold as complete solutions (and fail). Maybe..

brilee 10y ago

My take on it is, even if health costs were 30% of my cushy software salary, I'd pay them, because well, everyone wants to live. And so, prices continue rising to the point where people are willing to pay for them. I'm willing to pay 30% of my salary for healthcare. I'm willing to pay 20% of my salary to get a good education for my kids. I'm willing to pay 20% of my salary to live in a city with good culture. I'm willing to... oh wait, what's that? I ran out of money because 40% of my salary went to federal and state taxes? Oops!

rdiddly 10y ago

I suspect the hidden factor is population growth. You can find numerous examples of things that become less efficient (more difficult/costly yet also crappier) when more people are out there demanding that service. Or not even using the same service, but simply interfering with each other in ways unrelated - getting in each other's way, affecting each other. Cost is not in a linear relationship with population size, or maybe it's population density. There's a kind of friction that increases. Diminishing returns of scale & complexity, you could call it.

jchrisa 10y ago

So everything has been running in successively more nested layers of virtual machine, ever since the Magna Carta. What we need is for someone to start a "rust for civilization" project. Further thought: could the thing that's happening be that money is getting less real? So it takes more of it to "push the string." To me it seems that heavy redistribution, with high taxes and a basic income, could help make money more real. One has to trust the opportunity landscape has shifted due to the Internet, and now capital accumulation is not a requirement for innovation. Otherwise it looks really scary to tamp down on the idea of capital accumulation. Especially to the bankers, who might be out of a job.

abakker 10y ago

This article does a really nice job of laying out this issue, but avoids an explanation that is difficult to show in data, I think. Many of these issues he addresses - healthcare, housing, infrastructure, and education, are enabled by federally assumed debt. The core problem, I believe, is that federal debt is like a blank check that nobody is personally accountable to repay. The result is that people in charge of spending simply do not bargain well. There is no immediate incentive to drive cost down by forcing suppliers to deliver at a lower cost, or find the the real market equilibrium where nobody will offer a service. Loose spending from the government is a different problem than government spending in general. If the government were interested in getting the best deal, it has more bargaining power than most entities in the world. However, they frequently pay MORE for the same services. That alone should be a trigger. I think most people intuitively know this and rail against it when confronted by examples like student loans being spent on predatory for-profit colleges, but, in aggregate, I blame most of the problem here. The government has a nearly infinite potential for more debt, and as a result they have no incentive to get a good price. Things have spiraled out of control.

Nacraile 10y ago
I think your explanation is actually addressed, just not directly: the article touches on the "Government is inefficient" hypothesis (which might be fuelled either by taxes or debt; it's the incentive structure that matters, not the source of the money), but that hypothesis makes a number of predictions that are falsified: - If the increased cost is due to government inefficiency, there is opportunity for for-profit businesses to provide the same service at lower cost, and either capture the difference as profit or compete on cost for more business. However, in practice, for-profit hospitals and schools operate at similar cost. - If the increased cost is due to government inefficiency, then countries where the government enforces a monopoly over the service should have higher costs than countries where there is significant for-profit activity in the same sector. However, US costs are much higher and have increased much faster than in other developed countries, despite the US system being the most privatised by far.
- arohner 10y ago

hiddencost 10y ago

Reasons I can't stand the rationalists: They pick an arbitrary objective metric for a topic about which they have no expertise, assume the metric is basically complete, and then draw ridiculous conclusions. You can have the best methods in the world, but if your prior is crap and your data collection is crap, your posterior estimate will be crap. ----- (sardonic paraphrase): "test scores aren't increasing, so objectively schools aren't better". and "I talked with my parents and their school experience seemed similar to mine". Hypothesis that they didn't seriously evaluate: "the spending went to things not related to test scores which still has value"

yummyfajitas 10y ago
If you think that's what happened, why don't you make that argument? What is that thing unrelated to test scores which still has value? (Similarly, what is the hidden thing in transit costs, in health care, etc?) "Maybe there's a hidden thing this guy missed, and I can't stand people like him" isn't really a counterargument.
- hiddencost 10y ago
  SSC does this regularly: he'll take a problem, choose an arbitrary metric, and then run the whole way. It's a cultural rejection of expertise (especially expertise from the social sciences) which is endemic to tech and mathematics. It leads to terrible policy recommendations (c.f., the effect on education by the Gates Foundation and Zuckerberg's 100M to NJ). ("The Best and the Brightest" is a good book that talks about this phenomena in another context.) As a starting point, we can talk about issues related to: -- increasing prevalence of mental health issues -- the expanding nature of school populations (a lot more students, coming often from much more disadvantaged backgrounds) -- shifts from off-campus housing to on-campus housing which have necessitated a massive expansion of facilities staff, security, dining halls, etc. -- changes in the legal burden that schools need to reach (e.g., title 9)
  - yummyfajitas 10y ago
    You are still not arguing that he's wrong. You're merely arguing that if he were wrong, he might be wrong at other times for similar reasons.

deleted 10y ago

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mindslight 10y ago

Most of this "cost disease" is simple inflation. But we've been fooled into thinking that "inflation" is a single number defined by a government committee, when really it's a general concept applicable to any sector where currency is infused. For instance housing valuations haven't outpaced inflation, they are inflation!

metaphorm 10y ago
this is explicitly wrong. monetary inflation is about the size of the money supply over time. "correcting for inflation" means multiplying the prices of things out by an adjustment factor that accounts for changes in the size of the money supply relative to an index (a specific starting point). when the price of something in particular (home prices, college tuition, etc.) changes at a rate vastly different than the rate of monetary inflation you're looking at a price phenomenon in that specific thing.
- mindslight 10y ago
  You're qualifying inflation with "monetary". Note that the government committee disagrees with your measure of inflation, as well. When people casually toss out "adjusted for inflation", they aren't talking about M2/M3, but committee-accepted price inflation. But even analyzing in terms of monetary inflation, the size of the money supply used to buy houses is basically the money that can be borrowed from banks to buy houses, which roughly matches their valuation (as the house is used as collateral).
  - metaphorm 10y ago
    I'm discussing monetary inflation because that is the "inflation adjusted dollars" unit that is used in the article. the relationship you're trying to examine between home prices and monetary inflation is an indirect one at best. the banks that lend home mortgages are retail banks. the banks that lend to other banks (and borrow from the Federal Reserve) are investment banks. they are related but not identical.
    - 10y ago

yummyfajitas 10y ago

I think this post is fundamentally wrong. I left a comment there explaining, but I'll also paste it here. Note that my critique is an attempt at Feynmaning this theory. Stylized fact 1: Income has remained flat after adjusting for chained CPI. Stylized fact 2: costs have gone way up adjusting for chained CPI. Conclusion: Consumption must have gone down, since consumption = Income/Cost. The problem is that this simply hasn’t happened. People live in bigger homes. They visit the doctor more, and have all sorts of medical procedures that didn’t exist in the past. More people are attending college and receiving degrees than ever before. People just have more of everything. If you want to argue with this point, I challenge you: find a major category of consumption that has gone down in material terms over a long period of time. The most I can think of is obsolete goods like land lines, or inferior goods like homed cooked meals (relative to restaurant meals). That’s exactly the opposite of what this theory predicts! Therefore, although I can’t identify exactly where things go wrong, they must go wrong somewhere.

SilasX 10y ago
Did you see the part where he addressed that? If your only option is a bigger house you don't want but have to pay for anyway, that's an excess cost. If these operations don't actually extend life or quality but you have to buy insurance with them, that's an excess cost. And likewise, if your compensation has "increased" but it's only to cover health care that's pointlessly more expensive, that's not really an increase in compensation. Alexander very specifically addresses the tradeoff in "would you rather have 70s health care plus $8000/years cash" etc.
- yummyfajitas 10y ago
  I agree that there is excess cost relative to a counterfactual where smaller/cheaper houses are legal. That's not what I'm disputing. What I'm disputing is whether, overall, we are actually worse off. Fundamentally here's where I claim SA is wrong: 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? But in reality, this is not an accurate analogy to the modern world. I'm claiming a better analogy would be this: Imagine if tomorrow, the price of water dectupled. Furthermore, people's income and ability to purchase water remained flat. Yet somehow people started taking longer showers, drinking 10 glasses/day rather than 8, having greener lawns, and just generally staying very well hydrated. In this latter scenario, I'd tell you that somewhere along the way you messed up. Water consumption = money spent on water / price per gallon - if water consumption went up, either the numerator increased or the denominator decreased. If you think I'm wrong, tell me what we have less of.

kbenson 10y ago

> I don’t know why more people don’t just come out and say “LOOK, REALLY OUR MAIN PROBLEM IS THAT ALL THE MOST IMPORTANT THINGS COST TEN TIMES AS MUCH AS THEY USED TO FOR NO REASON, PLUS THEY SEEM TO BE GOING DOWN IN QUALITY, AND NOBODY KNOWS WHY, AND WE’RE MOSTLY JUST DESPERATELY FLAILING AROUND LOOKING FOR SOLUTIONS HERE.” State that clearly, and a lot of political debates take on a different light. Well, politicians don't get elected for saying "I don't know", especially when the competition says "It's simple, we stop doing X and start doing Y." I mean, they should get elected for saying they want to really understand the problem, so they can actually fix it, but that's not what the public likes to hear. :/

marvy 10y ago
Not sure I agree with you. Suppose I want to fix this problem, and I decide I need political power to do it. Which of the following strategies would you recommend? Option A: get elected, spend first few years of my time in office trying to understand what's going on. By the time I achieve enlightenment, my term is over and I will not be reelected because I have nothing to show for my time in office. Option B: study the problem first. It may take longer this way, because politicians have access to resources that not everyone has. Eventually understand the problem well enough to propose a solution I think will help, and then run on a platform advocating that solution. (There is also option C: make up a plausible sounding solution without even caring whether it works or not; but then you're just seeking power and don't care about the problem at all. Let's ignore that for now, despite the fact that I sometimes worry that this may account for a large fraction of politicians.)
- kbenson 10y ago
  > Option A: get elected, spend first few years of my time in office trying to understand what's going on. By the time I achieve enlightenment, my term is over and I will not be reelected because I have nothing to show for my time in office. I don't think we are really disagreeing... The electorate is just stuck in a loop in this case where their own impatience (no doubt stirred by those looking to challenge the status quo) works against them. > Option B: study the problem first. It may take longer this way, because politicians have access to resources that not everyone has. Eventually understand the problem well enough to propose a solution I think will help, and then run on a platform advocating that solution. Likely the only solution that will work, but it's hard, and you have the problem of convincing people that your understanding and solution is correct. I suspect being correct might even be an impediment to being elected, because you'll likely have some hard truths to swallow for the electorate, which some other less robust solutions can likely sidestep - or safely target towards only a specific segment of the electorate - since they don't have the added burden of actually having to solve the problem. > (There is also option C: make up a plausible sounding solution without even caring whether it works or not; but then you're just seeking power and don't care about the problem at all. Let's ignore that for now, despite the fact that I sometimes worry that this may account for a large fraction of politicians.) Well, I think we can't ignore that, because that's almost exactly what I was referring to. :) The main difference being that the politicians may not be purposefully - or at least not consciously - trying to put forth solutions that are incorrect or at least very poorly researched and understood. It's expedient to their worldview to not look too closely at whether their "hunches" about the problem and solution stand up under scrutiny, and confirmation bias takes care of the rest. Combine this with an electorate that is increasingly upset about the problem and wants a solution ASAP, and you get a revolving door of politicians that espouse their pet solutions to the problem, possibly alternating between opposing extremes that can both be incorrect.

johngalt 10y ago

Two gut feelings about this. 1. Progress/inflation doesn't scale as homogeneously as we think. Producing a consumer good such as a car or computer is easier to optimize than providing healthcare, or an education. It also scales differently with globalization. A global economy competing to produce the best car at the lowest cost, is also a global population competing for the same limited slots in top universities. 2. Costs have a way of cascading through a system. Double the price of oil and it doesn't only mean more expensive plane tickets. It means more expensive everything. This article paints the picture of several costs increasing, but it could just be education. What happens to healthcare costs if medical school costs 20k rather than 200k? Of course this doesn't explain all of it. The subway instance is probably the strongest counter argument.

tomjen3 10y ago
1) Would explain stagnent prices, not prices going up as a percentage of total income. And I am about as convinced that there is a massive difference in how much things inflate as I am that the sun will rise tomorrow (one example: compare how much better an iphone you get in 17 vs 07 when they launch with how much gas you can buy for a set amount of hours worked). 2) I am not sure how that would work. If we take gas as an example, then if that is 10% of the cost to produce a good intuitively it should be at most 20% of the cost to produce a good even if it doubles (and might be a lot less, if the new higher cost of gas means it is cheaper to produce closer to the consumer).

imh 10y ago

This makes me think of charities. Suppose I'm trying to raise money for cancer research. Maybe I tell my friends and raise $100k. I then give that $100k to a research lab. The next year I raise $100k again, except that this time, I spend that money on advertisements telling people to donate to my charity. I raise $300k that way, netting me $200k which I give to the lab. My contribution to cancer research has doubled, yay! But this time, I raised a total of $400k, so for the donors (consumers), a dollar of cancer research now costs two dollars. I (the firm) became more sophisticated and in some ways more efficient, but in other ways less efficient. Costs to the consumer went up, but now I'm the dominant cancer charity. Other charities trying to raise money can't compete since nobody has heard of them, and their message isn't crafted by highly-paid marketers. To compete, they have to raise prices too! I remember this being a big controversy in charities a few years ago. The analogous scenario with for-profit firms making widgets is straight-forward. I wonder what role this kind of mechanism could be playing in cost disease?

woodandsteel 10y ago

Interesting article. I think, however, if we are doing to do anything effective about the problem, it will happen only if we examine in detail those countries that don't have the same problems. For instance, many Western European countries have very good health care for far less expense, and besides that the doctors enjoy their work. What we need to do is compare in detail how those health care systems work differently such that there are such good results, and then figure out how to make something similar in this country. Ditto for the other areas. I can think of no sensible reason for not doing such studies. Of course, various groups wouldn't want this because it would run counter to their ideology or financial interests, but this is the right way to go about it.

jger15 10y ago

Any book recommendations that go more in-depth on this that you're aware?

omgwtfbyobbq 10y ago

My guess is that the increases in college costs are coming from for-profit universities and other "value" adds (student housing, etc...). Inflation adjusted tuition costs in the UC system have apparently dropped by 40% or so since 1960 (~$2200 now compared to ~$3700 in 1960s dollars). Granted, the tuition costs for students have increased substantially, since the state used to cover most of it, but the total cost has still dropped a fair bit. http://ucpay.globl.org/funding_vs_fees.php http://ucpay.globl.org/funding_vs_fees.php I wouldn't be surprised to see the same in healthcare. An outpatient CTA at a local hospital is something like $3500+ through my insurance, but the cash price at a local radiology clinic is $550. Don't even get me started with housing. The markups are ridiculous in some places, although not in all places. If I had to guess, I'd say that at least some of these examples of cost-disease are really symptoms of excesses that weren't as common in the past and market/regulatory capture.