Cost Divergence

Source: Marginal Revolution

This lovely film is from Initial post,  Bloat does non explicate the rising cost of education, together with an upcoming summary on wellness care.)

Bottom line: objects got cheap, people got expensive. Technology, automation, globalization (thank yous China), together with lineament improvement made goods cheaper. People, particularly skilled people, got to a greater extent than expensive. All of which should brand yous experience practiced if you're a mortal together with particularly a skilled person.

The source of the relative ascent inwards the cost of teaching together with wellness attention is less clear. Looking only about at  a typical university,  school system, or infirmary suggests massive bloat together with inefficiency. Alex suggests  not:

I assumed that regulation, bloat together with bureaucracy, monopoly ability together with the Baumol lawsuit would each explicate some of what is going on. After looking at this inwards depth, however, my determination is that it’s almost all Baumol effect. 

In instance yous remove to look it upward (Wikipedia),

Baumol's cost illness (or the Baumol effect) is the ascent of salaries inwards jobs that bring experienced no or depression increment of task productivity, inwards reply to rising salaries inwards other jobs that bring experienced higher task productivity growth.... 

The ascent of reward inwards jobs without productivity gains is from the requirement to compete for employees amongst jobs that bring experienced gains together with thus tin naturally pay higher salaries, only every bit classical economic science predicts.... 

The classic example:

the same position out of musicians is needed to play a Beethoven string quartet today every bit was needed inwards the 19th century; the productivity of classical music surgical physical care for has non increased. On the other hand, the existent reward of musicians (as inwards all other professions) bring increased greatly since the 19th century.

The basic idea, if productivity of skilled people rises inwards 1 place, together with thus yous bring to pay to a greater extent than to the skilled people who rest behind fifty-fifty inwards an manufacture similar teaching that has had no alter inwards technology. In education, where it's pretty clear that engineering has non improved, they notice that nosotros role fewer teachers per student, together with teachers are paid more. Most of the rise inwards the cost of wellness care, they claim, is greater medico salaries. My personal observation of the massive growth of schoolhouse bureaucracies, together with astonishing together with growing waste product inwards our wellness organization is denied past times their data.

I intend the inquiry is soundless open, but theirs is a challenging persuasion which is why I betoken to it inwards the blog. They closed amongst a proffer that teaching together with medicine are ripe for a big technological disruption.

As they betoken out,  "The cost illness is non a illness but a blessing." It is the termination of the tremendous increment inwards productivity of skilled people over the concluding few decades. Compared to stagnant periods of human history, a jeopardy to struggle most divvying upward a bountiful pie is non the worst affair that could tumble out to us.

Two fry quibbles: We should non nation the "cost disease" proposition reward bring increased patch productivity has non increased. In the Baumol proposition, together with to a practiced approximation inwards the huge alter inwards participant reward from 1826 to now, musicians are paid their marginal products.  The physical marginal production of string-quartet playing is the same, every bit (apparently) is the physical marginal production of teaching, but the value marginal production has risen, which is why reward rise.

When skilled people exit music playing for other fields, music playing contracts, together with people are willing to pay to a greater extent than to listen music played. (All of this may or may non hold upward truthful most music. I'm only using it to illustrate the theorem.) You tin accuse to a greater extent than for a string quartet performance, thus the amount of (real) dollars produced past times playing a string quartet rises inwards parallel amongst the productivity of potential musicians inwards other fields.

The pure "cost disease" phenomenon, then, should accompany a dramatic reduction inwards the physically unchanged technology. And indeed, a few Equus caballus shoers together with arts and crafts blacksmiths soundless exist, together with accuse modern prices to wealthy Equus caballus owners.

But wellness attention together with teaching bring quickly expanded, non contracted. We remove a dissimilar source for the fact that the value marginal production has risen patch the physical marginal production has non done so.   Evidently, demand for wellness attention together with teaching has risen every bit well. We remove both observations to concern human relationship for the rising relative cost.

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