Considerations On Cost Disease by Scott Alexander
I would make the case for the cost disease in the sectors Tyler mentions– health care and education– plus a couple more.
EDUCAZIONE, SANITÀ… E NON SOLO. PERCHÈ I COSTI ESPLODONO?
Per student spending has increased about 2.5x in the past forty years even after adjusting for inflation. At the same time, test scores have stayed relatively stagnant… reading scores went from 285 in 1971 to 287 today– a difference of 0.7%….
I discuss this phenomenon more here and here, but the summary is: no, it’s not just because of special ed; no, it’s not just a factor of how you measure test scores; no, there’s not a “ceiling effect”. Costs really did more-or-less double without any concomitant increase in measurable quality.
SPIEGAZIONI CHE NON REGGONO
So, imagine you’re a poor person. White, minority, whatever. Which would you prefer? Sending your child to a 2016 school? Or sending your child to a 1975 school, and getting a check for $ 5,000 every year?
PRIMA PROPOSTA INDECENTE
college is even worse… Do you think that modern colleges provide $ 18,000/ year greater value than colleges did in your parents’ day? Would you rather graduate from a modern college, or graduate from a college more like the one your parents went to, plus get a check for $ 72,000?…
UNIVERSITÀ… ANCORA PEGGIO
The cost of health care has about quintupled since 1970… an increase of about 800% in those fifty years….
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.
COSTO REALE DELLA SANITÀ
a lot of people think that life expectancy depends on other things a lot more than healthcare spending. Sanitation, nutrition, quitting smoking, plus advances in health technology that don’t involve spending more money.
L’ AUMENTO DELLA VITA MEDIA È SPIEGATO DA ALTRI FATTORI
ACE inhibitors (invented in 1975) are great and probably increased lifespan a lot, but they cost $ 20 for a year’s supply and replaced older drugs that cost about the same amount.
SPESSO I MIGLIORAMENTI REALI SONO POCO COSTOSI
Countries like South Korea and Israel have about the same life expectancy as the US but pay about 25% of what we do….
CFR INTERNAZIONALI. CONFERMATA LA SPESA INUTILE
If these numbers seem absurdly low, remember all of those controlled experiments where giving people insurance doesn’t seem to make them much healthier in any meaningful way.
RINFORZINO: L’ASSICURAZIONE SANITARIA NON MIGLIORA LA NOSTRA SALUTE.
a) Get modern health care b) Get the same amount of health care as their parents’ generation, but with modern technology like ACE inhibitors, and also earn $ 8000 extra a year
SECONDA PROPOSTA INDECENTE
we se similar effects in infrastructure. The first New York City subway opened around 1900. Various sources list lengths from 10 to 20 miles and costs from $ 30 million to $ 60 million dollars– I think my sources are capturing it at different stages of construction with different numbers of extensions. In any case, it suggests costs of between $ 1.5 million to $ 6 million dollars/ mile = $ 1-4 million per kilometer… Vox notes that a new New York subway line being opened this year costs about $ 2.2 billion per kilometer, suggesting a cost increase of twenty times– although I’m very uncertain about this estimate….
INFRASTRUTTURE. METRO DI NY
The same Vox article notes that Paris, Berlin, and Copenhagen subways cost about $ 250 million per kilometer, almost 90% less. Yet even those European subways are overpriced compared to Korea, where a kilometer of subway in Seoul costs $ 40 million/ km (another Korean subway project cost $ 80 million/ km)… It suggests that the 1900s New York estimate above may have been roughly accurate if their efficiency was roughly in line with that of modern Europe and Korea….
CFR TRA PAESI
just ask yourself: do you think most poor and middle class people would rather: 1. Rent a modern house/ apartment 2. Rent the sort of house/ apartment their parents had, for half the cost
CASE: TERZA PROPOSTA INDECENTE
in the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent.
I worry that people don’t appreciate how weird this is. I didn’t appreciate it for a long time. I guess I just figured that Grandpa used to talk about how back in his day movie tickets only cost a nickel; that was just the way of the world. But all of the numbers above are inflation-adjusted.
COME MAI LA GENTE NON SI CHIEDE PERCHÈ?
And this is especially strange because we expect that improving technology and globalization ought to cut costs. In 1983, the first mobile phone cost $ 4,000– about $ 10,000 in today’s dollars. It was also a gigantic piece of crap. Today you can get a much better phone for $ 100.
LA TECNOLOGIA NON DOVEVA ABBASSATE I COSTI?
Patients can now schedule their appointments online; doctors can send prescriptions through the fax, pharmacies can keep track of medication histories on centralized computer systems that interface with the cloud, nurses get automatic reminders when they’re giving two drugs with a potential interaction, insurance companies accept payment through credit cards– and all of this costs ten times as much as it did in the days of punch cards and secretaries who did calculations by hand.
TUTTO PIÙ EFFICIENTE… EPPURE PIU’ COSTOSO
It’s actually even worse than this, because we take so many opportunities to save money that were unavailable in past generations. Underpaid foreign nurses immigrate to America and work for a song.
E IN PIÙ ABBIAMO UN ESERCITO DI BADANTI A BUON MERCATO CHE CI FANNO RISPARMIARE
Doctors used to make house calls; even when I was young in the ’80s my father would still go to the houses of difficult patients who were too sick to come to his office. This study notes that for women who give birth in the hospital, “the standard length of stay was 8 to 14 days in the 1950s but declined to less than 2 days in the mid-1990s”. The doctors I talk to say this isn’t because modern women are healthier, it’s because they kick them out as soon as it’s safe to free up beds for the next person.
IL PASSATO CI SEMBRA UN LUSSO: NELL’ERA DEL BABY BOOM IL MEDICO DI FAMIGLIA PASSAVA A VISITARTI… I GIORNI DI RICOVERO DELLA PARFTORIENTE ERANO RADDOPPIATI
Suppose in some underdeveloped economy, people can choose either to work in a factory or join an orchestra, and the salaries of factory workers and orchestra musicians reflect relative supply and demand and profit in those industries. Then the economy undergoes a technological revolution, and factories can produce ten times as many goods. Some of the increased productivity trickles down to factory workers, and they earn more money. Would-be musicians leave the orchestras behind to go work in the higher-paying factories, and the orchestras have to raise their prices if they want to be assured enough musicians.
If technology increases productivity for skilled laborers in other industries, then less susceptible industries might end up footing the bill since they have to pay their workers more. There’s only one problem: health care and education aren’t paying their workers more; in fact, quite the opposite… teacher salaries relative to other occupations’ salaries are actually declining….
BAUMOL NON SPIEGA NIENTE
This seems to me a lot like the case of the hospitals cutting care for new mothers. The price of the service dectuples, yet at the same time the service has to sacrifice quality in order to control costs.
IL COSTO ESPLODE E GLI STIPENDI STAGNANO
The overall pictures is that health care and education costs have managed to increase by ten times without a single cent of the gains going to teachers, doctors, or nurses. Indeed these professions seem to have lost ground salary-wise relative to others.
DOTTORI E INSEGNANTI NON BECCANO
Wall Street Journal: Why Doctors Are Sick Of Their Profession… The Daily Beast: How Being A Doctor Became The Most Miserable Profession… Forbes: Why Are Doctors So Unhappy?–… Vox: Only Six Percent Of Doctors Are Happy With Their Jobs. Al Jazeera America: Here’s Why Nine Out Of Ten Doctors Wouldn’t Recommend Medicine As A Profession….
Meanwhile, I also see articles like this piece from NPR saying teachers are experiencing historic stress levels and up to 50% say their job “isn’t worth it”. Teacher job satisfaction is at historic lows.
LO STRESS DELL’ INSEGNANTE
can we dismiss all of this as an illusion? Maybe adjusting for inflation is harder than I think.
POSSIBILI SPIEGAZIONI. È SOLO UN’ ILLUSIONE
Second, might markets just not work? I know this is kind of an extreme question to ask in a post on economics, but maybe nobody knows what they’re doing in a lot of these fields and people can just increase costs and not suffer any decreased demand because of it.
ALTRA RISPOSTA: SCARSA INFO
Suppose that people proved beyond a shadow of a doubt that Khan Academy could teach you just as much as a normal college education, but for free. People would still ask questions like– will employers accept my Khan Academy degree? Will it look good on a resume? Will people make fun of me for it?
This can’t be pure price-gouging, since corporate profits haven’t increased nearly enough to be where all the money is going.
I PROFITTI NON GIUSTIFICANO QUESTA SPIEGAZIONE
Some of it is the administrative bloat that you would expect. But a lot of it is fun “student life” types of activities like clubs, festivals, and paying Milo Yiannopoulos to speak and then cleaning up after the ensuing riots.
LA QUOTA DI RETTA UNIVERSITARIA CHE PIÙ È AUMENTA
This kind of suggests a picture where colleges expect people will pay whatever price they set, so they set a very high price and then use the money for cool things and increasing their own prestige.
A QUALSIASI PREZZO
Or maybe clubs/ festivals/ Milo become such a signal of prestige that students avoid colleges that don’t comply since they worry their degrees won’t be respected?
Third, can we attribute this to the inefficiency of government relative to private industry? I don’t think so. The government handles most primary education and subways, and has its hand in health care. But we know that for-profit hospitals aren’t much cheaper than government hospitals, and that private schools usually aren’t much cheaper (and are sometimes more expensive) than government schools.
IL PUBBLICO È INEFFICIENTE?
Fourth, can we attribute it to indirect government intervention through regulation, which public and private companies alike must deal with?
PESANO LE REGOLE?
This seems to be at least part of the story in health care, given how much money you can save by grey-market practices that avoid the FDA.
AL MERCATO NERO PREZZI DIMEZZATI
One factor that seems to speak out against this is that starting with Reagan in 1980, and picking up steam with Gingrich in 1994, we got an increasing presence of Republicans in government who declared war on overregulation– but the cost disease proceeded unabated.
CONTRO LA SPIEGAZIONE DELLE REGOLE
what about pet health care? Veterinary care is much less regulated than human health care, yet its cost is rising as fast (or faster) than that of the human medical system (popular article, study).
COSTI DI VETERINARIA
Fifth, might the increased regulatory complexity happen not through literal regulations, but through fear of lawsuits? That is, might institutions add extra layers of administration and expense not because they’re forced to, but because they fear being sued if they don’t and then something goes wrong?
PROCESSI FACILI. PARARSI LE SPALLE. EFFETTI COLLATERALI DELLA MARGINALIZZAZIONE DEL CAVEAT EMPTOR
A patient goes to the hospital with a heart attack. While he’s recovering, he tells his doctor that he’s really upset about all of this. Any normal person would say “You had a heart attack, of course you’re upset, get over it.” But if his doctor says this, and then a year later he commits suicide for some unrelated reason, his family can sue the doctor for “not picking up the warning signs” and win several million dollars. So now the doctor consults a psychiatrist, who does an hour-long evaluation, charges the insurance company $ 500, and determines using her immense clinical expertise that the patient is upset because he just had a heart attack. Those outside the field have no idea how much of medicine is built on this principle.
STORIELLA PER CAPIRE
Sixth, might we have changed our level of risk tolerance? That is, might increased caution be due not purely to lawsuitphobia, but to really caring more about whether or not people are protected?
SIAMO DIVENTATI DEI FIFONI
I read stuff every so often about how playgrounds are becoming obsolete because nobody wants to let kids run around unsupervised on something with sharp edges. Suppose that one in 10,000 kids get a horrible playground-related injury. Is it worth making playgrounds cost twice as much and be half as fun in order to decrease that number to one in 100,000?
CON I BIMBI LA COSA È CHIARA
To bring back the lawsuit point, some of this probably relates to a difference between personal versus institutional risk tolerance. Every so often, an elderly person getting up to walk to the bathroom will fall and break their hip. This is a fact of life, and elderly people deal with it every day. Most elderly people I know don’t spend thousands of dollars fall-proofing the route from their bed to their bathroom, or hiring people to watch them at every moment to make sure they don’t fall, or buy a bedside commode to make bathroom-related falls impossible. This suggests a revealed preference that elderly people are willing to tolerate a certain fall probability in order to save money and convenience. Hospitals, which face huge lawsuits if any elderly person falls on the premises, are not willing to tolerate that probability. They put rails on elderly people’s beds, place alarms on them that will go off if the elderly person tries to leave the bed without permission,
RISCHIO PERSONALE E RISCHIO STITUZIONALE
Eighth, might total compensation be increasing even though wages aren’t? There definitely seems to be a pensions crisis, especially in a lot of government work, and it’s possible that some of this is going to pay the pensions of teachers, etc. My understanding is that in general pensions aren’t really increasing much faster than wages, but this might not be true in those specific industries.
EXTRA COSTO E EXTRA COMPENSI
“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.”
My uncle paid for his tuition at a really good college just by working a pretty easy summer job– not so hard when college cost a tenth of what it did now.
PAGARSI L’ UNIVERSITÀ COL LAVORETTO ESTIVO
some people get upset about teachers’ unions, saying they must be sucking the “dynamism” out of education because of increasing costs. Others people fiercely defend them, saying teachers are underpaid and overworked. Once again, in the context of cost disease, both are obviously true.
TUTTI HANNO RAGIONE SE I COSTI SONO MALATI: SIA CHI INVITA A NON REGALARE SIA CHI INVITA AD AIUTARE
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?
ANALOGIA DELL’ ACQUA
In 1930, economist John Maynard Keynes predicted that his grandchildrens’ generation would have a 15 hour work week. At the time, it made sense. GDP was rising so quickly that anyone who could draw a line on a graph could tell that our generation would be four or five times richer than his. And the average middle-class person in his generation felt like they were doing pretty well and had most of what they needed. Why wouldn’t they decide to take some time off and settle for a lifestyle merely twice as luxurious as Keynes’ own?… Even if you’re making twice as much money, if your health care and education and so on cost ten times as much, you’re going to start falling behind. Right now the standard of living isn’t just stagnant, it’s at risk of declining, and a lot of that is student loans and health insurance costs and so on. What’s happening? I don’t know and I find it really scary….
IL SOGNO DI KEYNES SI INFRANGE SUL COST DISEASE
Probabilmente parte del problema è dovuto al fatto che diversi fattori si intersecano e hanno un peso. Se dovessi isolarne uno prevalente, la mia intuizione è che questi settori siano preda della loro funzione segnaletica. Un “signalling” inerente il conformismo domina, per esempio, nell’istruzione superiore: sottopormi con successo a corsi difficili e sempre più lunghi comunica indirettamente a terzi la mia attitudine a raccogliere sfide impegnative che richiedono autocontrollo e soprattutto l’accettazione di un ruolo ben preciso nella gerarchia del sistema (oggi di quello formativo, domani di quello aziendale). Un segnale inerente la “cura” domina invece nella sanità e nell’istruzione inferiore: con il mio atteggiamento voglio comunicare a chi mi sta attorno la mia affidabilità, il fatto che nel bisogno mi prendo cura di me e dei miei cari in modo sollecito e senza risparmiarmi in nulla. Quanto alla casa, è sempre stata un indiscusso fattore di prestigio sociale, senza dire che nel settore immobiliare le regole hanno pesato eccome nell’impennata dei prezzi. E’ chiaro che quando questi fattori diventano importanti non si badi a spese, specie se a pagare sono altri.