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One big source of regulation-induced cost: Excess credential requirements.

For example, in the UK, people can start med school in undergrad.

That shaves of years and many thousands from the cost of an education -> more doctors -> you don't have to pay them as much -> lower costs.

This credentialism is ensured by the established doctor cartel (AMA.)

Similar problem with pharmacists.

In general when looking for more costly regs, I'd look at why Silicon Valley has basically not been able to break into the space and make it more efficient, like it's done in other sectors. And I know you quickly run into licensing rules, but I'm sure there are other reasons as well.

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Oct 18, 2021Liked by Noah Smith

The problem with "negotiating" for more efficient parts of the BBB plan is that the obstructionists (Manchin and Sinema are not representing any honest "centrist" positions) are mostly not doing it out of policy or political goals, but out of corruption. Sinema has gotten a substantial amount of money from the pharmaceutical industry and that is presumably underlying her opposition to price negotiations. Manchin and his family get a lot of income from the coal business and that's why he opposes clean energy initiatives, which must stop coal use first and foremost. The only obstruction which seems honest is Manchin's demand for tight means testing on child credits, which is probably good politics in super-conservative West Virginia.

I don't see any way to "negotiate" with that other than counter-corruption, which isn't really available to the Dems. Manchin could possibly be bought off with a "clean coal" boondoggle with enough plausible deniability but there's nothing the Dems can do to buy off Sinema. Since she's not already wealthy like Manchin and his family they can't offer a boondoggle to benefit her business and they can't give her or her campaign money directly. She could get many times as much money being a darling of the grassroots left, but she apparently isn't bright enough to realize that.

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Noah: You're really badly wrong about education. The reason for high costs there is that the regulatory bodies - accreditation commissions - essentially behave like cartels.

The professionalization of the administrative class which started in the 50's, led to a takeover in the 70's and 80's of the commissions. From there, it became a spiral of circular logic: "Why do we need a huge student health center?" "Because otherwise we'll lose our accreditation! The commission said so." "Who's on the accreditation commission?" "Our university's president and all the other major university presidents in the state."

In fact, aggregate professor salaries adjusted for population and inflation haven't actually changed since the 80's; administrative costs are what exploded. You're not paying for your professor, you're paying for the student health center, a dozen or so "cultural houses", a huge football stadium and fitness center with a rock wall and lazy river, and the salaries for all the administrators who need to administrate these amenities - as well as the university president's salary, which is the most bloated of all because "look at all these amenities I have to administrate!".

It's not exactly the Cost Disease, but it's VERY regulatory.

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Supply-side progressivism/liberalism seems like really bad marketing since the left has spent like 40 years trying to make "supply-side" a trigger word.

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I can't find the source, but I remember reading a claim on Twitter that in countries where the government pays for college (Germany was the example used, I believe), colleges have less luxurious amenities and cost less as a result, because the difficulty of passing a law to obtain more funding leads to fiscal discipline.

This would seem to cut directly against the "Cost Disease Socialism" argument, so it's probably worth looking into whether it's actually true or not. It shouldn't be that hard to compare colleges in the US to colleges in Germany or any other country that already has government-funded college.

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"Star Trek or Brazil" will be my shorthand for this debate from now on

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But what if instead of material abundance, we mixed cost disease socialism with a jobs guarantee so we could create a society of party loyalist clock punchers? I mean, it’s worked so well in the Middle East!

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Noah, how much do you think the underlying issue is tied in with broader political dysfunction vs. a systemic, economic issue?

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Any time you have a procedure or test at a hospital, it will cost a fortune because of the way hospitals amortize costs.

Get your doctor to write the prescription to a stand alone imaging center and call them before you have it to find out cost.

BTW, I bet you the hospital won't be able to tell you beforehand what a CT costs....I tried it, on phone for an hour or so, transferred a bunch of times, no quote after all that.

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I have no proof but I am fairly confident that one reason for ballooning health care costs is an unintended consequence of a well intentioned piece of the Affordable Care Act. Insurance company profits were capped at 20%, but the golden rule of capitalism is that you have to grow your profits substantially in each quarter. With an essentially fixed customer base, the only way insurance companies can grow their profits is to pay out more. I believe they are doing this on purpose, especially soaking the better policies with higher prices and sometimes nonessential testing and treatment. Also doctors should be strictly forbidden from owning testing facilities. Many of them derive exorbitant profits from prescribing unnecessary testing. (Just to be sure,,,, ha)

As the insurance companies pay out more profits rise and policy costs balloon. This is why many nations do better with a fee for our ones model than a fee for service model.

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The cost problem is a consequence of expanding cartelization and associated conduit schemes:

https://www.economic-undertow.com/2011/10/18/enter-mr-conduit/

"Where Ponzis involve the transfer of savings, Conduits are debt transfer machines. Repayment obligations are assigned to the conduit with the benefits directed from the lender to third-party recipients. The conduit is responsible for servicing and retiring the debt: it’s his debt, someone else’s benefit."

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I've been thinking about this a lot. Cost disease is such an intractable problem because it's linked to the ascendance of the "professional-managerial" class in the west after WWII. We send an ever greater proportion of people into university and the accredited professions, and these clever people find more work for themselves. Ask anyone who works in a large institution what frustrates them and the answer is always the same - no one charge, there's no plan/strategy, most of their job is bullshit. This won't change unless we disempower the administrative class to which most of us belong - the 10% - that runs western democracies. It's extremely depressing. The top 10% have more wealth (39.4%) than the 1% (30.4%).

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Using healthcare in these examples is always tough. Probably a big reason your CT scan was so expensive is you probably got it at a hospital, and hospitals "overcharge" for those kinds of services to make up for other services they are forced to perform but don't get enough revenue for, like running an ER or dealing with Medicaid patients. Your standalone CT shop doesn't have that issue.

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Two questions on the $20,000 CT scan:

a. What did your insurer actually pay? The initial medical bills are often severely discounted later.

b. Why is whoever pays for your insurance not insisting on reference pricing? In this approach, very common in Germany, the insurance pays the cost of reasonably priced care. Extra costs hit the patient.

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High US medical costs have a number of explanations. Just as wealthier people spend spend larger shares of their incomes on health care, wealthier countries spend larger shares of their GDP on health care. The gap between the US and "other rich countries" is exaggerated by comparing the US to countries that are significantly less affluent; Switzerland and Luxembourg are probably the fairest comparisons. Culturally Americans are more defiant and disbelieving in the face of death than Europeans and so Americans spend especially more on health care in the last year of life. Insurance fraud is more rife in the US, which is what your CT scan case sounds like, and insurance-funded health-related court awards and out-of-court settlements are larger. The US has vastly greater military health costs. US health-care education is more extensive (especially for doctors) and expensive, and whereas European medical healthcare education is paid more out of the general tax pool, US healthcare education is paid more with higher doctor and other medical worker pay that pays off the student loans. The US has stricter barriers to medical worker immigration, reducing supply and driving up pay. The US is not less regulated; actually public systems are typically more self-regulated than private systems (and that's often not a good thing - public institutions often get away with worse abuses). The US system has a complex mix of public, private non-profit and private for-profit components that invites corruption and makes cost-control somebody else's problem. In short a whole lot of unpopulist technocrat work that our political system is uniquely incapable of addressing.

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The tweet that kicked off the storm of tech bros feeling superior and patting each other on the back was in response to a stupid tweet from Amy Klobuchar. It labeled the graph as a demonstration of how politicians/government cause price inflation and the awesome tech sector disrupts and reduces prices.

To me the funny thing about the graph in that context is it's pure infographics as propaganda. Take a bunch of stuff where we've outsourced production and a few things that were emerging tech at the beginning of the period (cell phones and software) and compare against a few things where outsourcing is not possible and a handful of other things where prices are insane in the US but in every other rich country prices are reasonable and government is if anything more deeply involved (health and higher education sectors). Then conclude that the one thing common between the US and all other rich countries (government involvement in the sector) is what explains the US being a price outlier in those sectors.

Sound, principled analysis as always from AEI.

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