Friday, May 31, 2019

The Baumol Effect on Schooling and Medicine

Alex Tabarrok with colleagues has done some research on the rising costs of healthcare and schooling and written a book available free online. Why Are the Prices so D*mn High.

He also did a blog post on the The Baumol Effect on Schooling and Medicine.

My comments:

What he says and seems correct to me is that the marginal cost of healthcare and schooling has gone up, and yes Government subsidies have made it worse. I think he is saying is that we are buying more healthcare beyond the growth in productivity. Some people assume that there is no productivity growth but there is, but we are spending more because we have more to spend and we desire to spend more so total spending is rising.

This hypothesis merges nicely with Robin Hanson's idea that we buy more healthcare in part to show how much we care, so we are now buying healthcare beyond the point where it even improves health, just because we want to spend more to show how much we care.

So in schooling, today we have youtube and easily available educational videos with great teachers available for free, which is great productivity growth, but if a live teacher helps even a tiny bit over an online lecture we are willing to pay for it and so spending is rising.

A few examples of this in action is:

The great economist Alan Bennett Krueger's research showed no benefit of Ivy league schools over state schools but parents are willing to pay big bucks to get there child in and through Ivy league schools. (I think so they can get a little more to brag about.)

Even in k-12 people spend more to get a home in a good school district even though it seems to make little difference in measurable educational attainment. 

In healthcare we'll pay a lot to get the MD we want, and if a live MD is perceived as giving any benefit at all over telemedicine we will pay for it.

Also they will screen fragile 85 year old women for breast cancer etc. even though any treatment is likely to kill the patient.

If you wanted to improve poor people's health there are much better places to do that more and better police, safer cars, than access to healthcare yet there is a big push for more healthcare.

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