In industry and commerce, that may be optimizing for short-term cost-cutting over long-term efficiency.
In education, that might be standards and incentives that lead schools to "teach the test" so the teacher/school gets a positive evaluation this semester - rather than investing in teaching how to learn or instilling a love of learning.
In healthcare, that might be high costs and bureaucratic obstacles that deter people from seeking evaluative and preventative care - at the cost of much more expensive later-stage treatments down the line.
In real estate, it could be crappy building materials and lower standards of craftsmanship that help build faster and cheaper but result in more problems and higher utility and eventually maintenance costs down the line.
In infrastructure, it can be deferring maintenance so you can cut taxes - resulting in more expensive repairs when things fall apart completely for want of a bit of paint or grease.
And so on ad nauseum.
* Deming's chain reaction: *
One simple way to see this, really, is to consider a simple example (curiously omitted from economic textbooks) of a supply chain: You have two markets and three entities - producers, distributors and consumers, where producers sell to distributors and distributors sell to consumers. Now consider, in the case of competition, what should be the margin of the distributor in the equilibrium? That is, why should all the cost decrease be propagated to the consumers?
In reality, "equilibrium" prices are probably oligopolistic determined by some "relative market power", which is really about how much you can "screw" your customers. And health care and education are matter of life and death for most people, so yeah, high prices, unless there is a big factor that will put an end to that (which happens outside the U.S. through regulation and government price negotiation).
Food is also a matter of life and death.
The difference between food and healthcare/education is that the former is not as heavily subsidised as the latter.
>And health care and education are matter of life and death for most people, so yeah, high prices, unless there is a big factor that will put an end to that (which happens outside the U.S. through regulation and government price negotiation).
This is incorrect. The cost disease is a global phenomenon affecting most advanced economies.
And we have a pretty well established cultural understanding that you don't let people starve, no matter how poor they are. And yet somehow the equivalent understanding that you don't let people die of preventable diseases, no matter how poor they are, is somehow controversial.
I think that's because you can grow your own food, and you can also buy it from abroad. Not so much with health care or education (because it's a service, not a physical product).
So you can be (at least in the U.S.) screwed less over food than over health care.
I agree that I don't have a complete picture, but at least, people should consider evidence for this theory.
> The cost disease is a global phenomenon affecting most advanced economies.
The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less.
Your general assertion about competition not working proves too much. If true, it would affect all market economies all the time.
And there are other mechanisms, in play, too. For example, if there is friction in the market, and it often is, then the prices can be lower due to competition for market share.
One theory of economics is that it only actually works if very few of the market participants act like rational economic actors.
In the example of higher education, for instance, universities used to be a great value for students. Now they are approaching break-even on average in terms of cost-benefit for students, with some students losing and some winning.
That is a market based outcome and is exactly what a market should do but people don't like it.
In the past maybe professors and administers thought in non-market ways, such as that they should impart knowledge for the good of society, etc, etc, as opposed to rationally optimizing their income.
A more plausible theory is that cost disease is largely due to (1) regulatory capture and weak institutions, (2) coordination costs between various institutions and (3) what ultimately boils down to corruption (public officials acting with private interests). If you really want to understand rising costs in health-care, military, and construction you should pay close attention to the rise in outsourcing and pseudo-government agencies (eg US defense contractors, supposedly "private" corporations where 70%+ of revenue comes from the government).
France, Japan, China -- these are in fact highly centralized economies which means that they are able to operate national, robust healthcare and military systems with surprising efficiency. UK, Brazil, India and of course the USA (par excellence) -- these are highly decentralized and federalized economies which means large scale initiatives are very prone to succumbing to the dangers referenced above.
Agreed. These amateur ideologues latch onto anything that seems to support their beliefs with very little hard thinking.
> ultimately boils down to corruption ... highly decentralized and federalized economies
Maybe, but Western nations are arguably more centralized today compared to 50 years ago.
70 years ago the US won a world war and rebuilt Europe and Japan. 60 years ago the US built the interstate highway system. 50 years ago the US put people on the moon.
Can you imagine the US doing any of these things today? Today we can't win a war in one country (not to mention fighting in the Pacific and Atlantic simultaneously).
The space shuttle is gone with no replacement.
And we can't even maintain the roads and bridges that our grandparents built from nothing.
These were years with great decentralization and with no computers. Organized crime played a much larger role in the economy.
What's changed in the last 5 or 6 decades?
France and Japan are suffering from the cost disease. China's healthcare system is more private than the US system. It's also pretty primitive at the moment so not a great point of comparison.
I think your cursory analysis is sloppy.
>amateur (libertarian) bloggers
Ah the irony..
Salaries: 4.5m
Benefits: 3m
That's for ~220 students and ~30 full time teachers...
http://www.edline.net/files/stream/5D3207F7E11684C4-0000015B...
$51K is being spent per student per year? And $150K salary and $100K benefits per teacher? Even if there is a school district with that budget, it is hardly representative of most school districts.
they have some part time teachers - but that is about the gist of it...and the outcomes not super impressive for the money...
The source of the cost disease is the growing control of government over sectors of the economy.
In education:
https://academic.oup.com/qje/article-abstract/111/3/671/1839...
In healthcare, the cost disease began when Medicare programs began being created around the world.
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.
[1] http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06...
