What accounts for the cost disease?

by on February 21, 2017 at 12:31 pm in Economics, Education, Games, Medicine, Philosophy | Permalink

The basic post is too long, but some of it is interesting and here is the best part:

The pattern of Cost Disease seems to be related to things that inextricably require the unsubstitutable labour and attention not just of human beings but of human beings somehow comparable to the buyer. (Americans, for the US focus of most of this discussion.) Education not only requires teachers who are part of the same cultural milieu as their students, but it requires the attention of the students themselves, and attention is inherently expensive. As the only thing that can be expensive in the final Strong Heaven, attention predictably gets more expensive in a culture that moves more and more toward general post-scarcity. Health care similarly requires local human involvement.

That is from Ansuz, via Matthew Fairbank.  And here is Scott Alexander’s survey follow-up post.

1 prior_test2 February 21, 2017 at 12:41 pm

‘Education not only requires teachers who are part of the same cultural milieu as their students’

No wonder all those Jewish professors fleeing the Nazis were such failures teaching Americans.

Well, that could be a likely Straussian reading of the passage, at least. https://en.wikipedia.org/wiki/Leo_Strauss

2 Jason Bayz February 21, 2017 at 1:23 pm

Well, those Jewish professors may not have been part of American culture, but they understood it well, which is why they were so effective in undermining changing it. But there’s no reason why that should lead to increased costs. People like yourself, SJWs who want to be professors, are a dime in a dozen. It’s a stupid point, but I don’t think it’s a “Straussian” reference to anything. Just a stupid point.

3 The Centrist February 21, 2017 at 4:02 pm

It’s nice to be snide, Prior, but doing a little thinking might cause you to craft a thoughtful response instead.

Those teachers clearly both were and were not part of their students’ cultural milieu. They were outside it, insofar as they were extremely cultured and well educated scholar-mandarins. But they were part of that milieu inasmuch as they were classical liberals who valued freedom and democracy (we must exclude here the Frankfurt school Marxists, who sought to educate their students in order to radicalize them).

Strauss is a great example. He was a learned, scholarly genius who saw the greatness of the American political experiment and worried that it would be overthrown by totalitarians on the far left and right, as well as by relativists and historicists.

4 Boonton February 21, 2017 at 4:05 pm

I don’t recall Einstein teaching 3rd grade multiplication tables to American school children. If he did, I suspect he wouldn’t have been extremely effective.

5 Really? February 21, 2017 at 8:20 pm

A healthy percentage of those prof’s students were the children or grandchildren of European Jews. Also, interwar Berlin, Vienna or Zurich=/= 2017 Syria.

6 rayward February 21, 2017 at 1:01 pm

Of course, in education there’s been lots of cost shifting, to the students (in large part reflected in student debt). I attended a public university, including for law school. I never paid more than $1,000 per year in tuition. Never. Ever. And I attended my state’s flagship university. My law school now charges almost $25,000 per year for in-state students and almost $40,000 per year for out-of-state students. The most elite private law schools charge over $60,000 per year, and the most elite public law school charges about $54,000 per year for in-state students and about $57,000 per year for out-of-state students. But the application fee at that elite public law school is a bargain at $80.

7 maros February 21, 2017 at 5:53 pm

An explanation that seems missing is that of…mass hypocrisy.
We spend exorbitant amounts of money because we are culturally expected to display how much we care about our children, elderly, environment, pets,…

We lie to ourselves that $1000 / month kindergarten will make a difference to our kid’s life.

That elite universities provide better education.

That sport arenas and laptops for each kid provide better education that plain chalk and board.

That our pet will live a better life with frequent veterinary visits.

That the hairdresser will make us more likely to find a partner.

That we enjoy movies in cinemas more than at home…

8 taylor dudley February 21, 2017 at 1:28 pm

Cost disease also seems to be prevalent in areas that can be cheaply financed long term (education, housing, cars, infrastructure). Or, in the instance of health care costs, where the costs are not visible to the consumer.

9 JWatts February 21, 2017 at 2:13 pm

Is there evidence for cost disease for cars? Cars, in general, have increased at a rate faster than inflation, but their quality has increased much faster, leading to a drop in cost per mile driven.

Paying 25% more for a car that gets twice as many miles is not a bad deal.

10 msgkings February 21, 2017 at 2:24 pm

Yeah cars are a bad example. My father and I were just remarking how these days you very rarely see old junky cars that can barely run on the road. People used to drive cars until the wheels fell off, but now most folks can afford not to.

11 Daniel Weber February 21, 2017 at 2:56 pm

“Older junky cars” also hold up a lot better. This morning I was driving a 16 year old car. It squeaks and doesn’t have Bluetooth, but it’s really not that much worse than the newer cars my family has. We could easily get another 5 years out of it.

12 msgkings February 21, 2017 at 4:09 pm

My point is most folks don’t have to bother. So cars are not a cost disease problem.

13 The Centrist February 21, 2017 at 3:54 pm

Those cars could also be repaired by the owner, or a friend of the owner, and kept running. Until about what? the mid-90s? pick up trucks could be repaired by your average rural mechanic.

14 msgkings February 21, 2017 at 4:11 pm

Again, my point is, why bother?

15 Turkey Vulture February 21, 2017 at 6:58 pm

msgkings, some of us just appreciate the fine things in life, like a 2000 Chevy Prizm sitting in our muddy driveways.

16 maros February 21, 2017 at 5:09 pm

Cars are *significantly* cheaper than they used to be (relative to CPI). Since 1985, car prices increased by 40%, compared to 140% of general CPI. There is, however, car repair and maintenance, the price of which shot up inexplicably high and is indeed suffering from cost disease. Even as all there are several factors should drive the price down

17 JWatts February 21, 2017 at 6:32 pm

” There is, however, car repair and maintenance, the price of which shot up inexplicably high and is indeed suffering from cost disease.”

General maintenance hasn’t really gotten that much more expensive. I can change the oil and filter in my car for the same as I could 30 years ago.

18 maros February 22, 2017 at 3:18 am

True for Do It Yourself repair & maintenance. Not so if you pay an automechanic.

19 carlospln February 21, 2017 at 11:43 pm

“Paying 25% more for a car that gets twice as many miles is not a bad deal”. [SNIP]

The car that sits idle for 23 hours/d?

A great deal, indeed.

20 jonfraz February 22, 2017 at 3:43 pm

Your toilet likely is idle for the lions share of every day. Doesn’t mean it’s a bad deal.

21 Bryan Willman February 21, 2017 at 1:41 pm

Another Elephant – And are we sure we want to fix it? If so, how fast?

Suppose miraculous increases in both productivity, and ability to evaluate marginal return on spending, overwhelm both education and healthcare.

Meaning that teachers are vastly more successful and productive, with much less staffing per student, and when students have reached their practical maximum potential no more education resources are “wasted” on them (because it wouldn’t help, and we all agree on that.) But every student gets 95% or more of what they possibly *could get* from formal education.

Likewise for Healthcare.

Is this a good thing? The reductions in cost, and in particularly “waste cost”, would apparently be rather large – as in say 10% of GDP. Or it would it be 25%?

What would we do with those huge numbers of capable and useful people who are not needed anymore, because they’re not quite good enough teachers, or not quite good enough nurses or doctors?

Maybe some kind of “cost disease” is always necessary to suck up all the perishable resources of a rich economy? (Human time and attention being the ultimate perishable resource – if we don’t consume your possible output today, it is basically gone forever. Multiply by 330 million…)

This is not as far fetched as it sounds – it’s hard to get a “good job” in agriculture or manufacturing today, because so many great people do so much excellent work with so much wonderful capital. It’s a steep tall hill to climb to be competitive or participative.

Imagine the same things happen to education or healthcare – how does the economy work?

22 Turkey Vulture February 21, 2017 at 1:45 pm

Doesn’t the cost disease tend to strike in sectors where the typical mechanisms of a competitive market are most distorted? I would go ahead and suggest that as what accounts for it.

23 Rock Lobster February 21, 2017 at 3:19 pm

Or maybe the government is most inclined to get involved in these sectors because their normal laissez-faire functioning is the most dysfunctional.

I find it interesting that the list of industries in which developed countries interfere most heavily is remarkably consistent across countries. Heavy involvement, if not outright nationalization, in education, healthcare, and old-age pensions, for example, is almost universal. It could mean nothing, but maybe there’s more going on than a simple A to B causation.

24 Turkey Vulture February 21, 2017 at 4:16 pm

I think the consistency is that there is a notion that these involve things too important to be left to the vagaries of the marketplace, and that this belief stretches across cultures (or already ruled those spheres before there was much faith in the marketplace). I don’t think it was because of careful examination of market failures, and of those failures being more common in these sectors than in others.

Particularly since their extra-market status isn’t new. Education has been pretty far removed from the realm of normal competitive market mechanisms throughout modern American history. Health care has to a large extent as well, because of employer-provided health insurance, among other things.

I’m not saying the best system will be a laissez-faire free-for-all. There always need to be background rules (as there are in even the most “free” portions of our marketplace). But I believe that a large portion of the costliness of services in these sectors is related to our failure to construct systems that allow market mechanisms to incentivize consumers to find better deals and producers to create better deals.

25 Rock Lobster February 21, 2017 at 5:43 pm

Your take could absolutely be the case. In fact I probably agree with you that it’s a major contributor to the problem, depending on which industry we’re talking about. But I have seen this assertion made many times without sufficient attention being paid, in my opinion, to the possibility that the causality is more complicated or even reversed.

Unfortunately it’s difficult to tease out that causality because these industries never really existed in a pre-regulatory vacuum by which they might be judged. In fact most of them are a century or less old. There are also no proofs of concept in other countries that we might aspire to.

I’d like to see people making this argument explicitly argue for it instead of simply pointing out that the cost-bloated industries are the ones with the most government intervention and just assuming A caused B. I mean, the countries that have gone all the way and nationalized or price-controlled some of these industries seem to have largely solved the problem, so a casual look at correlations would suggest maybe we’re not intervening enough!

26 Turkey Vulture February 21, 2017 at 6:08 pm

That is all fair. My original comment was off-the-cuff and I was too lazy to really think it through (or read the full linked post). And I am thinking almost entirely of health care and education throughout this discussion, as that is where I have seen the issue brought up the most in contemporary discourse (plus they’re a huge part of the economy).

I actually think that in the short to intermediate term, price controls or nationalization might “solve” the cost disease problem to some degree (though at the same time I have to be skeptical of that, as I have great faith in the ability of interested parties to lobby their way to a better deal). And maybe the shortages and lack of innovation that would result in the intermediate to long term would be less harmful than the bloat under our current system. But I think a more market-oriented shift would do, at worst, a similar short and intermediate-term job of controlling costs, and through a relatively higher level of innovation, a better longer-run job of controlling costs (and causing productivity gains).

27 Tuvea February 21, 2017 at 9:28 pm

Healthcare and Public education are different situations.

Huge healthcare costs are driven by ‘edge cases’. Some diseases and maladies that affect very few people are hugely expensive to treat. But most problems can be treated by inexpensive medications. That is (was) the reasoning behind the affordable healthcare act. The problem is that healthy people have no incentive to buy insurance they don’t need. Sotheby’s few that have horrible situations are covered by fewer insured than needed.

Public education, however, is reversed. A very few children, those of the 1%, can go to exorbitantly expensive private schools. The other 99% of our still need to be educated. And that cost is spread over everyone. Homeowners have to pay property taxes. A proportion of one’s rent goes to paying the property taxes of the landlord.

Yet both areas seem to be affected by ‘cost disease’.

28 Tuvea February 21, 2017 at 9:30 pm

I HATE auto-complete.

Sotheby’s = so the few …

29 Stet February 22, 2017 at 4:02 am

I liked “sothebys” Something about unique items changing hands in contrived circumstances for staggering prices seemed apt.

30 Jon February 22, 2017 at 1:35 pm

Actually, I believe public education costs are also very much driven by edge cases. If you only cared about educating the “normal” students, you could do so quite cheaply on a per-student basis. But once you decide you want to teach the students with learning disabilities, the students with English as a second language, the students with disciplinary problems, the students with physical disabilites, etc., the cost of additional teachers, specialists, support staff, facilities and such explodes.

The best students are easy to educate, but once you’ve picked the low hanging fruit then the marginal cost of successfully educating each subsequent marginal student shoots way up. So a plausible hypotheses for the cause of Cost Disease in public education is that we’re attempting to educate more of the difficult-to-educate students than we used to. And indeed, when you look at graduation rates over time, this seems to be the case: http://www.supportingevidence.com/Education/H_S_Grad_Rates.html

Back in the 70s, only about 50% of adults had graduation college. That number is up something like 30 percentage points since then. So it seems we are getting something in return for our ten-fold increase in per-student cost. It’s not increased per-student achievment, but rather an increased percentage of students graduating.

31 Boonton February 21, 2017 at 4:10 pm

The original example of cost disease was barbers. A scissor factory has probably been able to expand its out put of scissors a hundred fold or more since 1950….yet a barber isn’t able to do any more haircuts in an hour than was done since then.

The attention demand not only by the producer but the customer seems to strike the issue square on the head. You can just buy a scissor, you don’t need to watch the factory make it. But you need to sit for the haircut.

Competition’s ability to help here is very limited because in order for competition to work you are going to have to demand yet more attention from the consumer and producer.

32 Turkey Vulture February 21, 2017 at 4:32 pm

Sure, that works as an explanation for some amount of the cost disease in some sectors. But I don’t see it explaining most of it in areas like healthcare and education.

Say I want to go to the doctor’s office because my tummy hurts. But I could also go to a clinic staffed by nurses for the same result. If I know the costs and am fully incentivized to seek the lowest cost (or to consider whether maybe the tummy ache will just go away in a day), I will follow the price signals and cause greater competition (or reduced demand) across the sector, driving cost-cutting and reducing prices. Yes, at some point we can’t go any lower on the expertise totem pole – maybe I don’t want a barber diagnosing my tummy ache – but I don’t think we’re anywhere near that point.

I think the equivalent for the barber cost disease story would be like if we required haircuts to be administered by MDs and had haircare covered by a network of third-party payors. Would “attention” still be part of the cost story? Yes, at some point – when we have eliminated these additional problems by eliminating the MD requirements and third-party payors – we find ourselves back in a world with a normal barber who can’t cut hair any faster. At that point, “attention” is the limiting factor. But before that, a lot of the story is a lack of normal competitive market functioning leading to administrative bloat, along with some perhaps well-intentioned but harmful regulations.

33 Turkey Vulture February 21, 2017 at 5:54 pm

Guess the better example than a nurse at a clinic would be a video chat with a nurse from wherever, as there are even more productivity gains to be realized there.

I think part of what I am saying can be told as an “attention” story. You could say, given the current regulatory (and incentive) framework in these areas, there are not a lot of productivity gains to be made because the level of attention is kept at an inefficiently high level. This “too much attention” is both in the form of attention from more-qualified people than are needed, and for more total time than is needed. If we removed these barriers, significant productivity gains would be possible up to a point, at which time we would again hit a new “attention” barrier, until the the time of robot doctors.

34 Boonton February 22, 2017 at 11:09 am

Actually I suspect this is not a huge cost in isolation. “Your tummy hurts, let me feel it, ahhh ok nothing that seems like an emergency, here’s a pepto pill”. If you work at a large company or school there’s probably a nurse on site who may do just this, and the cost is probably $50 or less. And that’s probably not too far off of what it cost back in 1960 once you adjust for inflation and everything else.

What’s not so clear is if you have diabetes. There is nothing to compare too. You could pluck a 1960 barber and have him cut hair today (perhaps you have to brief him on new hair gels but 95% of his job is the same). There is no 1960 doctor or nurse who could be plucked and care for a diabetic today.

And the amount of optimal care is much, much greater. Ideally you’d have to keep a log of your daily blood sugar readings, your caregiver would have to review with you and you’d need scripts for very advanced drugs, short or long acting insulin etc. The cost of this disease management in the past was giving you a comfortable place to die. Today it’s to keep you going for a long time keeping side effects from becoming too debilitating or damaging….perhaps even having to manage your behavior (are you going to insist on eating sweets? forgetting to do readings or take pills?).

35 Turkey Vulture February 22, 2017 at 11:51 am

Yeah a tummy ache was not a great example to discuss.

But even with something like diabetes, or any serious ailment, there is a lot of “over-attention” in the form of both attention from a more expensive/expert person than is necessary, as well as just more attention than would be optimal if the patient knew and was paying the full price for that attention. The former is, I think, primarily a regulatory issue, while the latter would be more a matter of normal market pricing signals often being absent.

The upshot is I think that features prevent productivity growth that would otherwise exist. Technology, and especially information technology, should make it to where ever-less-expert people (and eventually machines, presumably) can record symptom information, make treatment recommendations or decisions, and the like. But both regulations and a lack of normal pricing incentives can make it to where these productivity gains are not realized, creating a lack of productivity growth where there otherwise should be some, and leading certain parts of the system to see wage gains without corresponding productivity growth.

I think that the nature of healthcare means that, even if the reforms suggested by what I am saying were made, we would see some significant productivity growth followed again by eventual stasis, because of the “attention” problem. Eventually we hit the lowest level of expert attention that can be paid, and/or the lowest amount of attention fully-paying consumers are willing to spend. Once that point is reached, it would take a more fundamental change in technology and consumer demand (omnipresent robotic surgeons and the like) to increase productivity again. But I think there are a lot of productivity enhancements/cost reductions that can be achieved before we hit that point.

36 maros February 21, 2017 at 5:18 pm

No, the cost disease affects sectors where marketplace is sufficiently competitive, e.g. car repairs, dentists, wellness, tutoring/coaching, construction, even enterprise software development. The general unifying theme seems to be information asymmetry – customer not in control of what is billed and why.

37 Turkey Vulture February 21, 2017 at 6:10 pm

As you mention them I see that those are other examples, but when I heart “cost disease” discussed (and the source is probably mostly this website), it is usually in the context of education and healthcare. So that is what I am thinking of. Though your explanation would seem to potentially apply to education and healthcare too.

38 Hazel Meade February 21, 2017 at 1:49 pm

I strongly disagree. Both education and healthcare are services which can be improved massively with better technology. Robotic surgery and online learning are both in nascent stages and we can expect massive expansions thereof over the next generation. There’s still a long way to go before we run into a hard wall at which the attention of trained professionals cannot be further reduced.

39 Daniel Weber February 21, 2017 at 2:49 pm

If you read the linked essay (not blaming you if you didn’t, it’s long), the thing that will always be scarce is attention. And prestige is almost the same thing. Anyone can get a Harvard education. They give it away online. But not everyone can get the Harvard label. And that will get bid up to infinity as we get richer.

40 Dzhaughn February 21, 2017 at 4:18 pm

OK, in theory, in the long run, with luck, the thing that will ultimately always be scarce is attention. I contend we are nowhere near that in education, and that has to be the strong presumption in this day and age.

41 Hazel Meade February 21, 2017 at 4:36 pm

Yes, that is my point.
There may be scarcity of doctors time at the moment, but that’s not because we’ve exhausted the limits of technology, or even the number of people who could provide equivalent medical care.

42 Kevin- February 21, 2017 at 3:55 pm

In the world of health care, we’ve harvested most of the low hanging fruit. Technology like robotic surgery is at best a niche part of the picture, and will lead to incremental gains in limited areas, while introducing new costs that are likely to be out of proportion to their societal benefits. On the other hand, as modern antibiotics rapidly become ineffective for many easily communicated infectious diseases, we’re likely to be reentering a time when stays at hospitals and medical centers will be associated with increasing iatrogenic illness. Expenses will probably go up dramatically, while general health will probably decline. In the meantime, if you want to deal with cost disease in medicine, you should look at where the money really goes. It’s not going to incompetent surgeons, or to pay for expensive non-surgical treatments that will disappear with robotic surgery.

And we’ve had distance learning for as long as we’ve had mass produced books and mail. I’ve been teaching online for years, and regularly learn useful skills online — it’s great for discrete skills, but it’s not a substitute for general K-12 education nor higher education. Perhaps it will form part of the substitute for some of those who now go to college and get little benefit from it, so I think it will at best be a minor part of the solution to cost disease in education. The vast majority of those who engage in online learning get little or nothing from it, sad to say.

43 Hazel Meade February 21, 2017 at 4:42 pm

Distance learning isn’t the same thing as true online learning. The advantage of the internet over television and correspondence courses is that the internet is interactive in real-time. You can have real-time chat-rooms online, and we also have computers that are capable of automatically generating homework problems tuned to the students skill level. We could have entire courses that are essentially software programs with interactive tutorials designed to teach you the subject through a series of games where you progress at your own rate. You don’t get to unlock the next lecture until you’ve mastered the material from the previous one.

44 Kevin- February 21, 2017 at 9:27 pm

The internet is interactive the way a bricks-and-mortar school is interactive. In my online teaching, the most time consuming part is the one-to-one time and the live class discussion time, exactly the same as when I’ve taught in person. There is exactly the same problem with class size — if I have too many students, they get short shrift.

With online teaching, it’s possible to generate canned lectures and pdfs, allow students to text/email the instructor questions, and have online forums where students can help each other. All without the expenses of a physical school. But, just like learning from a book, it takes a dedicated and motivated student. I find a substantial number of students never watch the carefully crafted canned lectures, and they do their assignments at the last minute. And this is in a curriculum that has a very motivated student body. I’ve seen people doing online learning with chatting with friends, following facebook, and watching youtube videos. While it’s hard to motivate students in person, and to control their attention, it’s impossible with online learning. They’re either those rare individuals who really really want it, or it’s mostly a waste of time. Online learning becomes a fantastic boon to extremely motivated students who have limited access to other options, but it doesn’t seem to do much for the average student. I’ve taught myself fantastic things from gathering info and resources online. I find it easy. You’re right, it’s great — if you have the wherewithal and curiosity and drive.

And even without ‘gamification’ of education (much much harder than you seem to think, and very labor intensive), for online teaching to replace general education for even above average student has to be very good. Most of what is being passed off as online learning is garbage. Computers do not automatically generate homework or create courses. Someone has to write the software, and test it, and maintain it. Are there really any examples of that happening right now, where courses are running with minimal human teaching and getting any kind of decent results? I’ve been doing online teaching for 8 years, and the successful curricula don’t look much different than what my school pioneered a decade ago — very small classes, lots of one-on-one time.

We also haven’t mentioned cheating. It’s clear that a huge number of people taking online classes cheat like crazy. It’s extremely easy to game the system, making it almost impossible to give people a meaningful degree or certificate unless it’s one of those rare programs with a huge amount of one-on-one teaching and evaluation.

45 Hazel Meade February 21, 2017 at 11:13 pm

This is why I’m saying it’s in the nascent stages. I’m talking about online learning and gamification growing over the next generation. I didn’t say it was here now.
There is this massive potential, but yes the software needs to be developed and people need to figure out how to do it effectively. But there’s potentially a lot of money in developing gamified courses, so the profit motive is there.

46 mkt42 February 21, 2017 at 11:59 pm

“While it’s hard to motivate students in person, and to control their attention, it’s impossible with online learning.”

Precisely, Kevin- nails it. This is why online learning can replace face-to-face learning only in limited situations. It can only supplement it for most students through college age. (And even some post-baccalaureate education will always be difficult to accomplish online. I can’t imagine going through econ grad school online. Online med school also seems unlikely to be successful.)

And while online learning has some clear advantages in transcending the old obstacles of distance and sometimes time, the idea that it has lower costs is being found to be incorrect:

47 Shane M February 21, 2017 at 5:01 pm

Atul Gawande in his Checklist Manifesto talks about the success rate of his simple pre-surgery checklist (something like 36% reduction in major complications and 48% reduction in deaths), and notes that if those results were some medical technology or drug, health care providers would be falling all over each other to get it. Instead they fall all over each other to buy expensive surgery robots that have shown only marginal benefits at extremely high cost.

There’s an element of ego involved in this. Simple effective solutions can be too simple, as they don’t appeal to our sense that good solutions should be complicated, otherwise they reveal all of our expertise isn’t worth all that we’ve invested in it.

48 Kevin- February 21, 2017 at 9:37 pm


We’ve known for decades that most diagnoses (like 85%) are made with a 10 minute careful discussion with the patient, with the key being that the doctor must let the patient actually talk without interruption. Most of the remaining diagnoses are then made with a careful physical exam. And yet, try talking to a doctor for more than 20 seconds before you’re interrupted. Try to make eye contact. You can’t, because they’re busy reading the form that you filled out in the waiting room, and then they’re reading the notes from the nurse who didn’t listen to you either. And for a physical exam you get basically nothing.

CT scans and MRIs are incredibly amazing inventions, but the diagnostic skills of the average physician being trained today are far weaker than was the case 30 years ago, and they’re taught to rely on tests, labs, and specialists. Medical students come up in a system where an initial appointment and ‘complete physical’ with a new patient is booked for 15 minutes, maybe 20. And they’re trained to do all their charting with the patient, so the actual time spent listening, questioning, examining is even less.

But hey, as soon as we all get some great health monitoring app on our smart phones, and some robots doing surgery, medical costs will plunge and health outcomes will soar!

49 Hazel Meade February 21, 2017 at 11:15 pm

I was just throwing out robotic surgery as an example.My point isthat there’s plenty of room for technology to make health care much more effective and efficient.

50 carlospln February 21, 2017 at 11:54 pm

The biggest thing that would make health care much more effective and efficient is what my brother [surgeon] tells me:

‘Stay out of hospitals’.

Oh, if only people took better care of themselves, losing weight & getting fit!

ps robots will never ‘do’ surgery. I don’t think you how the da Vinci technology works.

51 Kevin- February 22, 2017 at 12:25 am

And I threw out two other technological examples, each of which is likely far far more valuable than robotically-assisted surgery (which is what we’re actually talking about) will ever be, and yet neither of these extraordinary diagnostic tools has actually lead to health care being much more effective and efficient.

Hell, we’re all in knots over the looming threat of widespread antibiotic resistance, and eagerly pouring billions into finding new antibiotics, and yet doctors and health care professionals continually and daily neglect to adequately wash their hands between patients, or practice very basic infection control techniques. And patients know that they don’t need an antibiotic for their cold or flu, and yet there they are, pestering their docs for those magic pills. As Shane M cited, we know, with absolute certainty, many many way to make medicine better, and cheaper, right now. And yet . . . we don’t do those things with sufficient diligence. Instead we look to science fantasy solutions.

There is no technological silver bullet for what ails the American medical system. In fact, that’s part of the problem, not the solution.

52 asdfG February 21, 2017 at 2:31 pm

“Health care similarly requires local human involvement.”

This seems rather thrown in at the end for something that seems non-obvious to me. Effective remote or robotic doctors seem a lot easier to see in the near and medium term than remote or robotic teachers.

53 Boonton February 21, 2017 at 4:19 pm

It seems to me we already have moved everything that doesn’t require the consumer’s direct attention out. Body scans are read by radiologists on the other side of the world overnight rather than by the place that does your scan. Blood is sent to huge labs operating on WalMart models of hyper-efficiency. Almost all doctor’s offices these days has a huge staff paid as little as possible to handle all back office functions that they can (billing, records, insurance, etc.) so the doctor can do nothing but patient consultations as many times as possible in an hour.

54 asdfG February 21, 2017 at 5:45 pm

Unlike the kids, the patients probably aren’t going to be so petulant as to actively frustrate the purpose of the visit if they don’t feel they are being paid sufficient attention from someone that shares their cultural milieu. People _want_ to spend time sharing their concerns, in person, with a doctor of their race without a foreign accident in a lab coat, but we probably don’t need to in order to have positive outcomes.

Much more of medicine can be outsourced and automated.

55 Velveteen Ambush February 21, 2017 at 2:40 pm

Scott’s cost disease post also indicates that it affects infrastructure spending — the cost of building a subway line in Manhattan is something like 10-50 times more expensive per mile than it is in Seoul. Not obvious how this explanation is relevant to subways.

56 Daniel Weber February 21, 2017 at 3:06 pm

How many parties are there who can either block a deal, or stall it indefinitely, in each case?

Someone said that when making a new highway from A to B, the engineers used to draw a straight line between A and B and “fuck you” to anyone whose home was in the way. These days everyone and his mother gets a hearing to see if their property rights have been impinged even if their home isn’t in the way. Those both sounds like too far in either direction.

57 Brian Donohue February 21, 2017 at 2:47 pm

Alexander’s thing was very good as usual.

58 Matthew Young February 21, 2017 at 3:02 pm

Politicians do not declare program losses. Hence we accumulate debt from recurring bailouts. The Texas S&L bailout was never repaid, and we are now rolling over that debt for the third or maybe fourth time.

That is why the US government defaults every generation, the politicians covering their ass eventually die as do all the special interest groups that got away with fraud. Then you are left with the next generation who never voted for the crap, never agreed to it and realize defaulting makes more sense then trying to slave away all your life for some bunch of government welfare bums.

Now we have the new money technology, an improvement over paper. The new technology allows the millennials to engineer a steady stream of US federal defaults without allowing hedge profits. The millennials intend to have Congress default on about 60% of its debt, the recurring losses part which millennials have no legal or moral obligation to pay.

59 Boonton February 21, 2017 at 4:13 pm

Defaults every generation? When was the last default on US bonds?

60 Matthew Young February 21, 2017 at 5:28 pm

1972 the Fed defaulted on its gold obligations, it exited the gold standard overnight and quite suddenly. Roosevelt did the same thing. going backwards, we redid money with the silver movement a generation earlier, going back, we defaulted on the US Bank of the US. In fact, go look, each generation has flown the helicopter.

The effect of the Nixon shock was to put gold holders in charge, folks who already owned gold at the time for the switch. Their value tripled, and they controlled the economy for years as we suffered a 10% inflation rate. Then during WW2, after the prior generational default when we all went on a killing spree, even then we had strict price controls a form of default.

Take a look at the ten year rate, the rate millennials pay to cover all the losses incurred by the boomers. Foreign creditors do not want the debt at leas than 2.1% rate, the Senate cannot afford anything more than 2.5 these days. Our ability to make interest payments is dwindling as the debt increase by 4% per year and growh is 1.5% per year. Mullenials will default if given a chance.

How can millennials default? Doing what they do, use only digital cash and monitor developments so the digital cash world offers hedges against the default. The hedges ate being put in place at a much faster rate since Trump signaled every intention of defaulting. The idea os to use the no arbitrage cash layer, the complete digital cash sandbox. Because it operates without arbitrage moments, there is no single person that has the best hedge against inflation, soi the new technology can create inflation directly via bond defaults. It is going to happen, it is the best way out and shares the pain equally

61 Reader February 22, 2017 at 7:59 am

Do you make your foil hat out of gold rather than aluminum?

62 jonfraz February 22, 2017 at 3:54 pm

Exiting a market is NOT defaulting.

63 Floccina February 21, 2017 at 4:28 pm

I think that one should consider that Utah has perhaps the least corrupt state Government in the country and spends about half per capita on healthcare as some other states and education and gets about as good results. (Also consider that Florida, full of old people not to concerned about college, educates a student in state schools Universities for about half the cost of some other states.)

What often seems to happen is that the Federal government subsidizes demand while the state governments restrict supply. Now if all spending on health care (for example) came from the federal government when the providers in a state went to state politicians with requests that they regulate without regard to costs one would I assume that state politicians would regulate with little thought to reducing cost or worrying about cost in the trade off between costs and safety.

If I am right:
1. All healthcare regulation should go to the Federal Gov.
2. All K-12 regulation should be done at the state and local level (eliminate the Dpt of education).
3. The Feds should take over the state universities or stop subsidizing demand for U ed. loans etc.
4. All environmental and safety regulation of subways and the like should be at the state local level.

The Government level that pays the most should do the regulation.

64 JWatts February 21, 2017 at 6:46 pm

“What often seems to happen is that the Federal government subsidizes demand while the state governments restrict supply.”

The state governments don’t restrict the supply. Not subsidizing something is not the same as restricting it.

65 Floccina February 21, 2017 at 10:03 pm

@JWatts They restrict supply through bad regulation. For example certificates of need, scope of practice rules and sub-optimal licensing.

66 Lord February 21, 2017 at 4:30 pm

Especially when we credential, license, and limit production and immigration of those willing and able.

67 Jack PQ February 21, 2017 at 4:33 pm

because I think the post is very poorly written and it misses the most important point about cost disease.
The post reads like a parody of bad academese.

68 Khalil Hegarty February 21, 2017 at 5:55 pm

These may see like dumb questions, but they’re genuine. What SSC and others are often referring to is the services sector, and those comparisons are being made with manufactured goods. On the SSC posts I noted that only Scott Sumner emphasised this distinction (others mentioned it). Is it possible that we’re only at the beginning of serious innovation and efficiency gains in the services sector (e.g. automation in accounting, financial and legal services)? There are a lot of resources put into business process management, for example, but is there evidence that this actually adds to the total cost of services at a broader level rather than just the firm level? Are the metrics for services productivity at all reliable?

69 Kevin- February 21, 2017 at 10:13 pm

This seems like a really good point to me. And the key service sectors that are under discussion (education, medicine/health car) aren’t just service sectors. They’re service sectors that are time intensive and expertise heavy.

There are service sectors where things don’t cost 10x as much. Not only has the cost of food come way down, but it’s relatively cheaper to eat out. As a result, people eat out far more than they did a few generations ago. The food services sector has seen some innovations (think fast food, and franchising), but also the actual service providers require minimal training, and there are relatively few regulations for those service providers, and minimal government subsidy.

The financial services sector also seems much cheaper. Vanguard, among others, has revolutionized that sector, and I have been able to invest the way only the very wealthy could have invested decades ago. That’s a sector where a relatively simple model (broad index funds, buy and hold) is cheap to apply, and requires minimal interaction between customer and provider, and minimal complex decision making by the provider.

70 Poor Bowen/Baumol February 22, 2017 at 9:41 am

Rising costs ≠ “Cost Disease”
This is driving me nuts.
Cost Disease is very specific to situations where you cannot increase productivity because of your definition of inputs.

71 JDR March 8, 2017 at 11:21 am

I don’t really think that the phrase ‘cost disease’ gets to the heart of the matter. I think that this is an indication of inflation. The requirement of local content/presence and an absence of economies of scale in these occupations makes it impossible to hide inflation in productive improvements, as is the case in mass produced consumer items. Someone once told me that you could measure inflation by the cost of a mid range Brooks Brothers suit. Since they are mostly hand made(or at least were up until recently) they have cost the same since the early 1900s: one ounce of gold. Healthcare and education might be special cases because there is greater government involvement.

72 Floccina March 13, 2017 at 9:58 am

Maybe it is because, we used to trust teachers and MD’s, now we want Government to watch them closely, and maybe that is caused by this international competition in PISA test and in life expectancy. Even though schooling above some low quality base does little to drive up PISA test scores and health care does little to drive up life expectancy.

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