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Forums - Politics - Baumol's cost disease: Anyone here not buy it?

richardhutnik on 28 February 2013
mrstickball said:
That can't be true of either health care or college.

Why? Virtualization. Colleges now offer online courses, which do away with a lot of the labor-intensive work (grading papers, giving the same lecture/course over and over again). Additionally, with health care, you have robotics and telemedicine which can decrease the amount of labor.

Even if the cost disease is correct, the problem is that it doesn't apply to those fields. Yes, they can be labor intensive, but technology can make them more productive - that is if they bother with it. In some cases, thanks to market distortion, that doesn't always happen, as the government doesn't care about efficiency or productivity increases.

For example, in Ohio, we have multiple K-12 virtual academies - all of them are cheaper than brick & mortar schools. Why? Costs are lower, as one teacher can handle more kids thanks to automation. Of course, the typical public schools hate this, because it takes away funding, regardless if there is a qualitative advantage via virtual education.

I think one thing not being accounted for is blue ocean alternatives that can happen.  I also see in the book, The Cost Disease, by Baumol that he does say there are ways to get health costs to go down, by doing certain things.  He even speaks about tort reform.  But I do need to read more on it.

The heart of Baumol's cost disease is there are some things you just can't automate out.  I could see software development fitting into it.  He also spoke on R&D to.    



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badgenome on 28 February 2013
mrstickball said:
Even if the cost disease is correct, the problem is that it doesn't apply to those fields. Yes, they can be labor intensive, but technology can make them more productive - that is if they bother with it. In some cases, thanks to market distortion, that doesn't always happen, as the government doesn't care about efficiency or productivity increases.

I think there is probably merit to the idea that, when the productivity in certain sectors of the economy progresses faster than in others, wages in those areas with stagnant productivity go up as well so that they can remain competitive. But if Baumol himself says that we needn't be worried about it insofar as things will continue to remain affordable, then costs spiraling out of control must be explained by something else. And in education and health care, government intervention seems to be the most obvious culprit.