I'm incredulous. I know that rational argument should lead the comment, but the idea that the dramatic cost increases in healthcare and education are primarily caused by them being human service intensive is absurd! In a world without regulation (everyone who teaches my 5 year old requires a MA of Education!) and standard capitalist incentives, I think these services could be delivered for an order of magnitude less.

Here are a couple things:

* Cosmetic surgery (especially Lasik) has demonstrated amazing productivity, low cost, and they have the same staffing requirements, afaik. If their explanation were correct, we would also see this show the same cost escalation, and we haven't seen that.

* Daycare for my 4 year old is affordable and does not take enormous numbers of extra days off like the (2.5 weeks for winter break instead of 2, early dismissal Tuesday before Thanksgiving instead of Wed, Diwali off). Why would something classified as daycare be so much cheaper and better than the essentially same service classified as school? Baumol does not explain it, since the ratio of adults to children is certainly not worse.

* Education and Healthcare seem to have many avenues by which technology could improve productivity. Yes, there is still a facetime requirement, but that could be scaled, and facetime exists to varying degrees in every business (retail, account managers, customer service, sales, tech support!).

As with anything complex, there is rarely a single cause, but if we have to pick a primary one I find all of the above arguments strong evidence that Baumol would not be the winner.

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Seems like there ought to be something in the Myth of the Rational Voter about this. When we buy goods we use one set of criteria, when we approve of policy we use ideology or seek status.

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Instructive to plot the cost increases over time among industries relative to each other and inflation. Big surprise: prices in industries with most government funding and regulation far outstrip inflation while those with least involvement have falling prices.

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I think you are rather too soft on this paper. The section on educational bloat is very weak. How one follows up "enrollment in public institutions is about three times as high as ... private" with "Higher education is produced in a competitive market with substantial competition and market pricing. K–12 education is produced by government monopolies with little competition or market pricing" is beyond me. So higher education, 75% of which is provided by public state funded schools, with student loans issued by the government paying most of the short term* cost, that is produced in a competitive market with substantial competition and market pricing? They even seem to misunderstand the points they cite about amenities competition between colleges, being that the education value of the schools isn't what is being competed over, but rather all the non-education aspects of the schools. That isn't competition in the education market. Mixing up their actual market services they are measuring is part of their problem.

They almost connect the necessary dots when they lament briefly the lack of standardized testing when it comes to university outcomes, but fail to notice that if they can't measure the value of the education there is little reason to expect others to be able to do so as well. So the just assume quality is constant, and that those competitive markets for services provided and paid for by the state are competing over the efficiency of what can not be measured instead of what can easily be measured, e.g. how nice the campus is.

Strangely, they also seem to ignore the massive increase in the ratio of administration to students, both in K-12 and higher ed, despite that being the key aspect of bloat. Writing off administration bloat because the ratio of administration to plant and research costs has remained relatively stable is nuts when the total costs have been rising so quickly. The ratios staying the same doesn't mean there isn't bloat, but that the bloat gets spread around between divisions fairly evenly. Worse, if one is going to argue that cost disease is the entire reason, one should expect to see those ratios diverge wildly as the price of the labor intensive administration increases and the physical intensive plant decreases over time.

*because of course students pay off the loans in the long term, but based on expected future returns.

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I had a conversation with Alex on my podcast, and he didn't seem to strongly push back against my similar objections: https://open.spotify.com/episode/472XmRU4HiHNvJwjvaSxFk?si=0bed88b6474f4f6a

The way I put it: The Baumol effect is an "analytic" truth, but doesn't explain the specific data / counterfactuals.

There is no inherent reason that education or healthcare should rise more in costs, other than things like "the share of inputs that can't be substituted by technology", like the human presence of the string quartet musicians.

Alex seemed to me to want to give more attention to the Baumol effect, and show data to back it up - but I agree this is conceptually confused.

My alternative hypothesis would be: government regulation or subsidies reduce the substitution of labor by technology, i.e. the target industry will get the most Baumol effect price increases.

"Reduce substitution of labor by technology" simply means it's harder for tech solutions (e.g. AI teachers) to replace real teachers that opposed those solutions through unions/government.

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Dec 3, 2023·edited Dec 3, 2023

> If paying customers bore the full financial burden of education and health care, prices could easily fall by 50% or more.

Political problem with this concept is that your average modern American communist fiercely does not believe it and thus will do everything in his power to avoid bearing the full financial burden of education and health care (and probably anything else for that matter).

Health care, at least, you can somewhat pay-for yourself, and there's even things like Crowdhealth and Medishare which are sort of like "health insurance" but legally aren't and therefore pay cash immediately and do price negotiation on your behalf.

Education, on the other hand; everyone pays property taxes for the government's product which is so thoroughly inferior that it is arguably the reason we're all so dumb today in the first place.

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Dumb is safe. Do you want to end up like Socrates?

"Property" taxes are really the leasing cost of govt-owned property. Try not paying them.

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Too optimistic. Leases are not so unilateral.

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WHAT is a "lazy river"? Google tells me nothing. At first, I thought it was a typo.

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“price growth would have slowed if Medicare hadn’t happened. “Unfalsifiable”? No, but it is an application of a general principle so well-established that it’s crazy to doubt it now.”

Maybe should have been, [“Unfalsifiable”? <<Maybe>>, but it is an application of a general principle so well-established that it’s crazy to doubt it now.]

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"Education has not become more dominated by administrative costs"...

This article claims that "Half the states now have more noninstructional personnel than teachers," and proceeds to outline the relative increase in administrators vs teaching staff.


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The Fed's socialist counterfeiting of money and credit increases prices directly. But, Mises says, the most destructive effect is the indirect effect of the Fed shifting control of production from producers to anti-production govt.

Also, the effect of other govt controls may not be clearly and precisely known via short-range, narrow, cherry-picked statistics. Maybe all we can know is a general, long-range price rise. And thats all we need to judge the effect of govt controls on the individual. Is the vast increase in production from 300 years of the capitallst respect for and protection of mans independent mind coincidental? Including the last 30 yrs of the global spread of capitalism.

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The "Baumol effect" seems to be a variation on the old saw that rising prices cause rising prices, the old "cost-push" doctrine. This appears to be a completely circular argument. If the quantity of goods/services sold is not declining, only higher demand can increase prices. If physical goods and services are not decreasing, only an increase in the quantity of money can explain the higher economy-wide demand. In the case of regulated goods and services, such as healthcare and education, technological progress is not allowed to lower the average cost of goods and services. So, more money will cause the prices of those goods to rise more than goods on the unregulated side.

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