But I say that supply in health care IS heavily restricted!
As for accreditation boards, whatever they do isn't managing to prevent supply expansion. For-profit universities had no problem starting up quickly in large numbers, and state universities had no trouble expanding enrollment (the latter doesn't even require an accreditation board).
As for land use, obviously that's a big problem in America, but day care's price has gone up much faster than the price of housing has...
1. Agreed; my point was merely that the specific doctor thing is a bigger problem than it's given credit for.
2. The accreditation cartel isn't preventing expansion of the *quantity* of supply, but they ARE driving up the *price* of supply, so the supply curve still goes up.
3. True; as Belisarius and I discussed below, it's a smaller component than labor, but it's still the second-largest component after labor.
1. Yeah the doctor thing is bad, but the requirements for onerous paperwork and unnecessary procedures are probably even worse!
2. A supply curve shift isn't really about either "quantity" or "price", it's about the relationship between quantity and price. I'm sure accreditation cartels do make it more expensive to open new schools. But if that effect had gotten more severe in the last 2 or 3 decades, we'd probably expect to see new schools get harder to open; instead, thanks to the boom in for-profits, they got easier. Meanwhile, accreditation cartels don't say anything about scaling up the number of spots at existing colleges, and this increase was even bigger than the for-profit boom! So I just don't see a lot of reason to think that without accreditation cartels, we'd have a lot more college spots than we do...
But I'm not arguing that they drove up the cost of opening new schools, or restricted the availability of *slots*; I'm saying that they drove up the cost of the *product*.
In the last half-century, accreditation commissions rubber-stamped every major expansion of college administration. Every student health center, every university police department, every marginal service, every absurdly overpaid Assistant Vice Dean Of Cat Herding, every absurdly overpaid football or basketball coach, every bloated athletic center, every luxury dorm... you get the picture.
It's rampant featherbedding. The professional administrative class don't want to restrict slots, and they don't even need to eliminate competition outright, they just need to attract students by being all things to all customers. Even when there's high differentiation between different universities, the selling point is always that This University Has Everything You Need.
The logic of a cartel isn't necessarily *only* to restrict the quantity sold or raise barriers to entry. It's to push the curve up, because that means more money for everyone to do their different things. And as they've proven, they can push the curve up by offering a more comprehensive product.
That's why college rankings are worthless as informational tools. They aren't there to communicate to you that any one college is The Best College That Ever Colleged. They're there to create the impression that everyone else in the country -- including employers -- believes in those rankings, and uses them in economic decisions like hiring and salary.
To use an analogy, a drug cartel doesn't JUST have to control the number of heroin shipments in order to profit. If they develop a more addictive form of heroin that also keeps you alive longer and has lower overdose risk, then they can dip into your pockets for longer and much more reliably. And if the government is happily handing people loans for drug money, then there's no need to profit by restricting the supply - you give the people the heroin they want.
The AMA does not. Medicare and Congress control doctors training spots. If you wanted to wholesale import another country's trained physicians, you are limited by the lack of residency spots to train them.
And whose advice does Congress listen to most when they set the number of spots? When Congress chooses -- year after year, budget after budget -- not to untether the number of spots from Medicare funding?
The AMA, of course.
Even if the AMA has long since diversified its lobbying spending to address other concerns, controlling the number of training spots is its number one lobbying priority. Whenever an increase is suggested by anyone *but* the AMA, the AMA treats it as an existential threat and goes to Defcon 1.
Your information is stuck in the 1990s, as I've pointed out to you before.
All the stakeholders in medical education favor expanding residencies.
"The AMA supports the bipartisan Resident Physician Shortage Reduction Act of 2021 (S. 834/H.R. 2256) that would annually create 2,000 new Medicare-supported GME positions across seven years."
"What is the problem?
Despite the value of training physicians for our communities, Congress repeatedly considers cuts to GME. The current law put caps on the number of federally funded residency training positions, freezing the number available to that which existed in 1996. This lack of funding limits physician training, hindering access to care."
"The concern stems from a two-decade long congressionally imposed cap on federal support for graduate medical education (GME) through the Medicare program, which is the largest public contributor to GME funding for residencies. The Medicare cap effectively freezes a teaching hospital’s Medicare GME support at 1996 levels — despite efforts by teaching hospitals, medical schools, physicians, and the AAMC, among others, to get Congress to raise the cap to fund more graduate training slots and help meet the health needs of the U.S aging population.
“The federal cap on GME is the main driver of the concern over insufficient residencies,” Dill says."
You’re missing the point, as I’ve pointed out to YOU before.
1. An increase of 2000 is a pittance compared to the growth we’ve missed out on for the last 30+ years.
2. Congress still refuses to untether the spots from Medicare. Medicare is a political target for reasons that have nothing to do with the supply of doctors, which is why cuts are so frequently threatened. That’s convenient for the AMA to shift the blame away from itself, and obscures the fact that whatever micro-level reasons there might be for having Medicare fund training spots, they’re not nearly enough to justify having such a silly restriction on macro supply in the first place.
Not to be too pompous about it, but I’m tossing the ball into YOUR court to prove that there’s a good reason why we should keep the training spots tethered to Medicare like this.
I'd just point out that even assuming the AMA has restricted doctor training to capture more rent, the doctor share of health care costs has gone down. Adjusted for inflation doctors make what they did in the 1970s with the downside of a much higher loan burden.
There should be more of us, but I doubt it'd move prices anything more than at the margins based on decreasing wages.
Decreasing ED utilization and maybe more appropriate subspecialist referral/reducing mistakes/over referrals made by mid-level are the channels where I could see cost savings.
I think in net you'd save a lot more money by increasing access to care and reducing addiction/crime/lost work days as well as improving the capacity of the public health system. That wouldn't show up in the health care cost graph except maybe as an added cost.
Same as other licensing schemes, the primary purpose is to protect against increased supply of doctors. Congress does this for the AMA by restricting residency slots. The AMA also devises admissions policies for medical schools which further restrict entry into the field. Noah mentions other countries as being more regulated, but in the UK for example MDs require 5 total years of medical school and two years clinical experience with no undergraduate degree required, compared to 4 years plus BS plus 3-7 year’s residency. USA has double the requirements and UK has more doctors per capita than America.
Countries vary, and the 4+4 model is common internationally. In much of continental Europe, post residency independence is more graduated as well.
The US has many 6 ywar BS/MD programs which have pluses and minuses. Honestly though, there has been a slight decrease in this due to perceived immaturity of the med students at some places.
But the chief inputs to daycare are... labor and facilities. Labor's already been discussed as hampered by regulation. That's clear as day.
But facilities are ALSO subject to regulation. There are square-footage-per-child requirements, and more, which mean you have to invest a lot in your facilities. And also spend more on real-estate than you might otherwise be able to get away with. I'll admit that this isn't exactly what I explicitly nor implicitly intended, but it at least somewhat counts towards "land use" as a cost problem.
Zoning in general, of course, means that real estate is an outsized cost of childcare operations. I wouldn't be surprised if many of them are forced to compete in the *commercial* real estate markets, since some places probably zone or regulate them *out* of residential ones -- or even out of just being *adjacent* to many residential areas, which are cheaper. But again, in general, if it's difficult to build in America, then it's difficult to build childcare.
Not to mention, as is typical of America, our land use and facilities-relevant childcare regulations are an utter patchwork. While this may mitigate the obvious problems of a one-size-fits-all approach, it also makes it difficult for conglomerates to establish economies of scale.
Finally, high real estate costs mean that (1) you have less revenue for paying workers, and (2) the workers have higher housing costs to contend with.
Okay, I understand, but I do think that labor dominates (by a significant margin) the total cost of childcare.
With younger kids especially (toddlers and especially infants), mandating a 2:1 or 4:1 ratio means that there is just no getting around a relatively high cost for the average family.
Even with an exceptionally low $30k/yr total cost of employment, if that can only be divided by 4, you are looking at $7.5k/yr for each toddler.
And then you have to factor in the building and insurance and other miscellaneous costs.
$10k/yr is about the best we can probably expect under those conditions. (It gets better as kids get older and the allowable ratio rises)
It would be interesting to see data by states since they are the ones regulating the carer:child ratio. For preschool, the OECD average is 1:15 while America is 1:10, but California requires 1:8 and some are higher.
I had a long talk - stuck in traffic - with a Somali immigrant taxi driver in Seattle whose wife was trying to set up a day care center. There is a lot of regulation. His wife's big hangup was getting a second exit fire door installed in the face of zoning and landlord restrictions. I got the impression that he and a friend could grab a door from Home Depot or the like and bang it into place in a day or so. There are probably good arguments for having a second door as an emergency exit, but it costs money and the town and the property owner have to approve the modification. Then traffic moved a little and he started explaining the insurance situation which sounded nightmarish and incredibly expensive. Apparently, parents will sue if their children get hurt, though I suppose having an extra egress might help with this.
I think you might have missed the impact of location and consequently the price of real estate (purchase or renting). The services you mentioned can only be produced close to their market. Most physical goods can be produced in a location that is far cheaper in real estate and then shipped to the market cheaper than if it was produced closed to the market.
Hospitals, universities/colleges, child care has to be close to either were people live, people work or along the path between the two. That in general means higher cost base due to real estate and also higher cost base for works (pushing up their salary demands).
It also largely goes for restaurants as well. They have to be in costly locations. Dark kitchens and the like would put downward pressure on prices since those can be located away from were people congregate.
Other services such as laundry and hair cutting I suspect you are seeing the impact of smaller popup stores, door-to-door service (laundry pickup/dropoff and hair cutting at home etc) and other ways of reducing the reliance on expensive real estate.
My hypothesis is that you reduce the real estate costs (purchase, rent and business rates) would make a significant impact on the costs of these services. Add in reducing zoning restrictions (why can't people run a laundry or hair cutting service from home like in Japan?) would also go a long way to reducing the costs of the services.
Being back and forth for a while between UK and Poland, I've always been struck by how much the cost of real estate (purchase, rent, development) impacts the cost of living/cost of business.
I'm as sympathetic as anyone to the idea of land costs as the ultimate problem for America's economy, but how does this square with the fact that these services' prices rose so much faster than the price of housing??
I would expect this to be more driven by commercial real estate costs (purchase, rent, maintenance, regulatory compliance, zoning restrictions etc). Residential drives salary demands of the employees on top of the commercial real estate costs.
It is a hypothesis that I've not tried to prove or disprove.
This doesn't seem like it tracks for higher education. Well-regarded universities and colleges outside of not merely capital cities but (especially for colleges) outside of cities of any description are a staple of the American higher educational scene. Indeed, at least the top four American SLACs (Williams, Amherst, Swarthmore, Carleton) and one Ivy Leave University (Dartmouth) are in nothing anything like a major urban center. Also while it is admittedly at least a city, I think no one thinks of, like, New Haven as a hot, hip, up-and-coming place to move as opposed to "a broadly disparaged / joked about part of Connecticut that happens to contain Yale." Plus like half of Maine is well-regarded SLACs in (comparatively speaking) the middle of nowhere....
Narrowly on the higher ed point: my mental model has been that there is a wage premium for the degree, and the college price is a market negotiation of how to split that surplus between supplier and customer? Fair?
I think that the availability of and widespread dependence on loans has made it easier for colleges to eat into the wage premium by amortizing tuition into workers’ earning years.
I think this issue could be addressed with a compromise that limits borrowing to the expected earnings for a degree from the institute in question. Say we expect that a student should be able to pay off their degree within 5 years of graduation at a cost of at most 10% of disposable income. With those constraints, and historical data for earnings, we can work out the maximum borrowing limit for a given degree.
That would force exploitative programs, like Columbia’s 10-month journalism master’s degree for $70k, [1] to adapt or die. They either need to increase the financial value of the education to the student or massively cut the costs. If they can offer the program for $7k, great. Alternatively, maybe they can adapt the curriculum to substantially boost graduates' wages. Barring that, the program will be eliminated, or least disqualified for educational borrowing.
We actually had something like in the gainful employment regulations. [2] Unfortunately the Obama administration only applied it to for-profit institutions, despite the fact that many nonprofit and public colleges failed the test. [3] A scam is a scam, and it was disgraceful for us to sanction those cloaked in better branding. And then Trump threw out the rule entirely. [4]
While I think your idea is technocratically correct, I just don't think it goes far enough or addresses enough of the fundamental drivers of the problem.
It's fine as an incremental step, one that can be done mainly through executive branch wrangling. Perhaps it'll inch us closer to some broader goals.
But we should make no mistake about those broader goals. The accreditation cartel needs to be broken. University administration needs to be handed back to the professoriate.
And most importantly, debt is fundamentally an inappropriate model for financing education. An education is not a securable asset. There's literally no other financial product where we target large unsecured loans at the middle class. Sure, some super-rich people occasionally use large unsecured loans. And the middle class commonly uses small unsecured loans for things like vacations and weddings.
IBR, which is basically an equity model, is far more appropriate. From a technocratic standpoint, it's the best conceptual fit *by a country mile*. We should convert the entire market to IBR with strict regulatory limits: No more than 10-15% of income, no terms longer than 15-25 years (I'm open to debate there). Large institutional investors are MUCH better equipped to hold universities accountable for performance.
It's not that I disagree in principle, but I have doubts about making this work without people finding ways to game the system. I also feel like people would still complain about "indentured servitude" etc.
But give this thought a test drive: if we would collect higher progressive income taxes and increase funding for public universities, wouldn't we accomplish a similar thing to your equity plan? Sure we would be collecting taxes from some folks who didn't actually get the degrees - but would it be that many, and would we care?
Though sadly this idea crashes into the rocks of "our country can't have nice things because we hate taxes" :(
I mean sure, the customer always wants a lower price & therefore more of the surplus! From an economics standpoint, that is an un-interesting observation. (No offense.)
[Ed: None taken! You're arguing the merits and return-on-debate, which is a specialty of mine. Thank you for the honest-but-tough engagement.]
From an economics standpoint, it's *BAD*, because we WANT there to be a wage premium.
Left to its own devices, the accreditation cartel will suck up pretty much all of the consumer surplus for itself. That may be good for them, but it's undeniably bad for a society that wants to (1) maintain a meritocracy, and (2) maintain a healthy level of aggregate demand.
In theory no, right? Like enrollment should drop off as the returns disappear?
If I try to make your argument, I think you'd want to show a combo of
1. The kids NEED the degrees because too much employment is gated by the degree credential, so demand is not as elastic as one might expect
2. The colleges constrain supply, effectively. Especially at the top schools, I think we can agree this is true, even if we have difficulty proving the motivations.
3. Colleges effectively collude on price - or at least, they refuse to compete on list price.
Those things do have some merit, but at least where I am there's still enough capacity and price difference that the state schools provide a viable alternative. My kids are high achievers, but when the time comes I'll at least suggest they *consider* getting a SUNY degree debt-free...
PS: just to be clear, I think state universities are GREAT and should get more support. "Public Option" for higher education, to keep the market on its toes!
One reason it is hard to shop around for childcare is that there is a shortage of open spots in the existing supply. My niece told me she quit her job when she found out she was pregnant and started a daycare because she did research on childcare resources in her area (Nashville area) and found that the going rate for full time childcare for infants was $1500/month. She said she would be basically working to pay for childcare (she has a 5 year old who would need after school care as well). She and her husband make about $5K a month and their mortgage is $2K/m. It didn't make sense to pay for care that was really out of her control in regards to quality. Here in central NY, one of our nurses is about to come off maternity leave. She has not been able to find childcare for her infant in her community (close to home). As a result, she is coming back half-time and her husband is going to provide care for the baby while he is working from home. Of course this puts us short a nurse (another nurse is taking maternity leave for a newborn she is caring for as a foster).
$1500/month is $18K/year, so daycare costs about the same as a daycare worker's salary. I'm not sure of the economics, but I can understand why it is hard to find daycare workers and therefore slots in daycare facilities.
I really love your work Noah. So. I had to subscribe. My profession for 45 years essentially, is Product commercialization, market, product, pricing Customer development. Here's my take.
Healthcare. Health is not a fungible product. There is no Ford or Chevy choice for your wife, daughter or son. We pay 2x 20% GDP for 1/2 half the Healthcare outcomes. The absolute proof that we need national Healthcare came from the Universal Test of the World's Healthcare - Covid-19. It stress tested them all. The US placed 170th out 200 nations in Deaths/GDP. We were only better than some pretty poor nations. M4A.
The difference between PCs and Autos versus Hospitals with higher price increases than inflation, is simple. Mass production lends to ongoing productivity. Who drives productivity in small service businesses? No one effectively. People don't scale well. But..Healthcare Insurance is useless and redundant.
One of my major clients is in the Veterinary space. Think of it as the 2nd sister to human health. Vets get zero new drugs mostly and zero new diagnostic equipment. Repurposed and hand me down Xray, Ultrasound. Also the number of pet owners grows. Pets are are analog to family. While we euthanize animals gracefully, people will spend major money to extend quality of life. Example. TPLO. Tibial Plateau Leveling Ostoetomy. Knee surgery to cure something like an ACL with plates installed. Ultra high success rate. 90M dogs. Over 1M a year surgeries. $5,000 each. New and growing over the last 10 years.
But if you overlay Veterinary Services with the graph above, it has risen with inflation. Not greater. ~74% at 2023.
There is less mystery to me in these.
Mass production - think semis
Labor units of a few - vets
Labor generally rises close to inflation
Non products - Healthcare is not compliant with mormal macroeconomics because People are not fungible. Cleary profit gouging and non value add from the useless insurance scheme. Never existed before late 80s.
Dogs and cats, are fungible. Vet services rise as inflation.
"The absolute proof that we need national Healthcare came from the Universal Test of the World's Healthcare - Covid-19. It stress tested them all. The US placed 170th out 200 nations in Deaths/GDP. We were only better than some pretty poor nations. M4A."
We had vaccines before almost anyone else. There never was any substantial ventilator shortage or anything similar.
Once vaccines were available, cost was basically no impediment to getting one.
The reason our death rate was relatively high was largely due to a) having a relatively old society, and b) being a relatively obese society, and c) not locking down or mandating vaccines as stringently as other countries.
Based on all of this, I'd say that covid is an exceptionally -poor- standard, all things together.
We did have lying Trump and all the BS thrown at Fauci and scientists and wearing masks.
It's just a fact that Covid-19 tested as a summation of all factors....that Healthcare system in the US is overall, allowing more people to die than most other nations.
Obesity in part also stems from the lack of free and frequent doctor visits. Lack of nutrition education by physicians. Lack of ongoing testing and physician warnings.
Covid-19 is the single best test for a nations Healthcare and it is immune from excuses.
To quote a famous guy... we are what are record says we are.
That’s true in urban areas where most people live, but also in suburban and rural areas where driving is still the most common way to get around. Diet is also important and much healthier there.
Japan has 3% obesity rate vs over 30% in the USA. The median age is 48 in Japan vs 38 here. They spend 11 % of GDP on healthcare vs 17% in the US. Covid also has behavioral aspects in addition to demographics and I don’t think correlation of Covid deaths to health spending is aligned across nations.
I was reading that in the US dogs are living as long as cats nowadays. I gather a lot of this is improved veterinary medicine and that people are willing to pay for it.
I would house cats live longer still. We had 5 cats. All but one lived to 18. Our longest living of 5 dog, so far is about 13 14.
You are right. The human-animal bond is a real factor here in the US and elsewhere. The animal health industry is about $45 billion here, growing at 8 to 9% annually. Its solid investment amd especially for private firms like the Mars Family and the Rheimann family in Europe.
The chart from Timothy B Lee in Noah’s post shows veterinary services up 75% since 2000 versus 40% for medical care services and 55% CPI over that same period.
Thanks! I can write that up at some point (previously I did it as a Twitter thread). Basically, he fits a very nonlinear functional form to the relationship of health spending (as a % of GDP) and per capita consumption. He uses this functional form to argue that the U.S. isn't an outlier. The nonlinear function predicts that health spending (as a % of GDP) keeps exploding at an increasing rate as GDP (and thus consumption) increases. At about $200k of per capita GDP -- about 3x as rich as the U.S. is now -- this would predict that a country would spend 100% of its GDP on health care, leaving nothing for food or housing or anything else. That's obviously not going to happen.
So we know that the curve has to roll over somewhere. RCA assumes that the curve DOESN'T roll over before it gets to the U.S. level of consumption (which is much higher than any other country's level). This allows him to conclude that the U.S. is on the curve instead of an outlier. But since the U.S. is the one and only data point in that region of the graph (since our consumption is so much higher than anyone else's), RCA is just assuming his conclusion.
He's fitting a curve to the single data point of the U.S. and then concluding that the U.S. is not an outlier on that curve. Well of course it isn't -- he fit the right part of the curve to a single data point, and that data point was the U.S.! It's an assumption engineered to produce the desired conclusion. That doesn't mean he's wrong; it just means he assumed the conclusion.
From my non-economist eyes, it seems like the difference between things that outpaced infllation versus the things that didn't is the clarity of the price. I was very recently in college, 2016-2021, and I could not tell you how much it cost me on the whole. I had large scholarships, small scholarships, large loans, big loans, work-study programs, etc., that totaled up to a big ?? in terms of the real actual cost for my degrees. There's a similar problem with healthcare. I have no idea how much something is going to cost when I go to urgent care, the ER, or a specialist. I can't make a cost-benefit calculation because I don't know the cost.
For most things, I think uncertainty about the price would reduce consumption but higher ed and healthcare are things that are generally considered very important so people (well, probably middle class and up) err on the side of accepting the cost, which the industries have exploited to continually raise the price. I suspect that if families knew for certain the total cost of attendance when choosing which schools to apply to and if they knew for certain the cost of medical care, there would be much more frugality and price shopping.
This is absolutely a major part; I'm sure of that. With college you don't really know how much you're actually going to pay until you've already applied and that makes it really hard to tell how much things actually cost
Most of the people I knew applied to more than one college and usually made their decision after reviewing the aid package that was offered. That gave a pretty good sense of what it was going to cost and so on. A few really wanted to get into a particular school, but they weren't constrained by money.
I agree that health care costs are opaque, but when one needs medical care in a hurry, one is rarely in a good bargaining position. How do you, when you arrive at the ER unconscious, tell them that you only want to pay for one dose of antibiotics or to provide a particular brand of oxygen noted for its high quality and low cost?
Part of explanation for college is also that what you mean by “college” today isn’t quite what was meant by “college” 20, 30 or 40 years ago. I am a physicist spending the day writing a lecture on quantum computing for my class at a large state university tomorrow - a subject that didn’t exist when I was in graduate school, was esoteric speculation 20 years ago, and is now must include material. The students get more bang for their tuition dollar now.
I see this on the consumer side as well. My son’s chemistry education at a fancy private college is way beyond what kids got in my college years. I’m amazed at what they are learning already as undergrads and the opportunities they have to do advanced lab work. The bar is continually raised.
For healthcare, one of the factors that we overlook is that hospitals have incredible market power, especially in rural communities. They also often face an inelastic demand curve.
Emergency rooms in particular can often function as outright monopolies. If you have a heart attack and someone calls an ambulance, you don’t get to pick a hospital or compare prices, or even compare quality. The ambulance simply takes you to the nearest emergency room and they treat you and then charge you whatever they like.
Mostly you can't even choose the hospital ER when using an ambulance because most of them (in my area anyhow) are on diversion because they are full. When all the hospitals are on diversion, they take turns taking patients. The hospital ERs don't/can't turn anyone away walking in though. Of course, after triage, the wait is very long so make sure you have an actual emergency before calling 911 or walking in to an ER. If you waited 2 weeks, you can most likely safely but uncomfortably wait until your doctor's office opens in the morning. An emergency is anything heart related (chest pain, syncope/loss of consciousness, shortness of breath, severe abdominal pain, fracture, stroke, sepsis (infection), no urinary output, severe pain such as that can be caused by kidney stones, altered mental status and/or psychiatric emergencies--usually go to a psychiatric crisis emergency room and of course Traumas like car accidents, gun shot wounds, stabbings, falls)
Interesting piece... On education, it is an area which I have studied quite a bit.. even did a Ted talk on it (https://www.ted.com/talks/dr_rahul_razdan_sir_ken_robinson_was_right_about_the_symptom_now_let_s_talk). Anyway, government involvement is ABSOLUTELY the issue. There is NO reason that education has to be as expensive as it is. Nearly all markets start with a "craftsmen" model and then evolve through injection of technology and process to deliver services with more capability and lower cost. Your assumption that education is human resource focused by definition is very limiting to innovation...however exposes the norms. These norms inform the compensation/incentive models built by government officials and then are supported by incumbents. The game in the halls of power in education is primarly to build mechanisms to capture public dollars.
Anyway, there is a recognition of these issues to some degree in the marketplace. The professional education sector (which is not regulated nor supported by government sources) is booming and providing a great deal of value. Youtube is likely the greatest educational institution in the world and interestingly substack information sources such as your column are a part of this picture. Credentialing is catching up and employers are recognizing the benefits. The "amazons" of education are forming right now with solutions from entities such as ASU, WGU, and Perdue Global. These are highly scalable model which don't require the level of human capital investment as the traditional classroom model. Isn't it amazing that today's model has not changed much since the 1800s.
Anyway, society's support for education is generally goodness. However, the mechanisms for this support should always be flexible to innovation and always empower the customer/consumer. After all, they have the greatest incentive to capture value and weigh price. This is not the case with education. I am not as familiar with medical world.. but this seems to be a similar situation.
Nannies and daycares draw from a similar labor supply. If you accept nannies as luxury, then an increase in nanny demand raises the price of childcare labor overall. And consider that nannies are generally much less efficient on a per-child basis than daycares.
Childcare may also be tied to wealth and housing. I have a hunch that wealthier households are less likely to be intergenerational. People who can afford not to live with their parents tend not to live with them. But that makes it harder to rely on them as a source of childcare!
Lastly, I'm not sure the idea that wealthier parents are more likely to be stay-at-home cuts that much against their demand on daycare services. Anecdotally, I've met a fair number of wealthy stay at home parents who have their nanny drop off their toddler at a daycare for socialization, early education, etc.
I'd make the cynical argument that the demand pressure is so great because of the number of dual-working households where it would make economic sense for one of the parents to stay home and care for the children, but they don't want to risk losing their spot on the career ladder or just prefer working to being with their children.
I'm not sure about many of the areas you covered, but I am convienced that the lack of transparency and competiton are big factors in driving up the cost of healthcare. I was once advised by a registered nurse to always get two or three opinions before undertaking any expensive medical proceedure. My reply was, "I am not a doctor, how can I know which opinion is the most correct?" Lack of knowledge is a big handicap when trying check prices.
Large sums are spent on advertising drugs on TV. The drug companies want you to ask your doctor for thse drugs if you think you have the problems they are addressing in their advertisement. Once again we are confronted with ignorance about things such as side-effects, interaction with drugs you are already taking, and possible long-term effects from this new drug. Finally, there are the large sums spent on doctors trying to get them to prescribe one drug over another. Many of these excesses are not allowed in Europe.
Our healthcare system works in a backward manner. Doctors should be paid to keep us healthy, not repair us when we get sick. What would happen if doctors made more money with healthy patients than they do with sick patients. Of course, this would require the cooperation of the patient, but it might be worth a try, at least with some peeople.
Then we have the patent system which keeps generic drugs from being produced for an unnecessarilty long period of time. This helps the drug companies make even more money and also creates situations such as what has recently happened to the price of insulin. Drug companies acting like organized crime, only instead of killing you with a gun, they can kill you by making a life-saving drug so expensive you can't afford it.
With all the excess cash in the coffers of the drug companies they can buy as many people in Congress as they need to protect themselves from cost saving measures - such as stopping the import of drugs from Canada or even keeping the government from getting competative bids on the drugs they buy.
Our healthcare system is a cesspool of corruption and not an example of free market capitalism.
The vet cost increase in part a function of the dearth of available vets. There are only 32 vet schools in the US, graduating ~3000 vets/year. We need more vet schools to train more vets in the same way we need more residency spots to train more docs.
I imagine a big factor in day care costs is that as 2 income families become more common less middle class families are able to forego an income during early childhood, boosting demand for daycares.
Likewise, as family units become smaller and have less children, daycare becomes less expensive as a total expenditure (ie cost of sending 1 or 2 children to daycare rather than 3), so it becomes an option for more families, boosting demand. (This might be related to the previous point too - need for a 2nd income prevents families from being as large as before).
There was a transition in housing prices in the late 1970s. One used to be able to work 600 hours at median wage to afford a median house. That went up to 800 hours in the 1980s. In a way, it came down to real estate. If you wanted a place to live, you were much more likely to need to have two wage earners. A lot of women chose shelter over children, and then came the daycare sex abuse trials and all the related child abuse anxieties what with clowns biting the heads off of chickens in the basements of buildings with not even a crawlspace. (Children can be very imaginative under torture.)
I think your list is unsatisfying because you don’t factor in actual supply restrictions.
The AMA restricts the supply of new doctors.
College accreditation boards have been captured by the professional administrative class and used as vehicles for abject featherbedding.
Day care seems cost-diseased by land use restrictions.
I think these really help explain the missing piece better. Not ALL of it, but MOST of what’s missing.
But I say that supply in health care IS heavily restricted!
As for accreditation boards, whatever they do isn't managing to prevent supply expansion. For-profit universities had no problem starting up quickly in large numbers, and state universities had no trouble expanding enrollment (the latter doesn't even require an accreditation board).
As for land use, obviously that's a big problem in America, but day care's price has gone up much faster than the price of housing has...
1. Agreed; my point was merely that the specific doctor thing is a bigger problem than it's given credit for.
2. The accreditation cartel isn't preventing expansion of the *quantity* of supply, but they ARE driving up the *price* of supply, so the supply curve still goes up.
3. True; as Belisarius and I discussed below, it's a smaller component than labor, but it's still the second-largest component after labor.
1. Yeah the doctor thing is bad, but the requirements for onerous paperwork and unnecessary procedures are probably even worse!
2. A supply curve shift isn't really about either "quantity" or "price", it's about the relationship between quantity and price. I'm sure accreditation cartels do make it more expensive to open new schools. But if that effect had gotten more severe in the last 2 or 3 decades, we'd probably expect to see new schools get harder to open; instead, thanks to the boom in for-profits, they got easier. Meanwhile, accreditation cartels don't say anything about scaling up the number of spots at existing colleges, and this increase was even bigger than the for-profit boom! So I just don't see a lot of reason to think that without accreditation cartels, we'd have a lot more college spots than we do...
But I'm not arguing that they drove up the cost of opening new schools, or restricted the availability of *slots*; I'm saying that they drove up the cost of the *product*.
In the last half-century, accreditation commissions rubber-stamped every major expansion of college administration. Every student health center, every university police department, every marginal service, every absurdly overpaid Assistant Vice Dean Of Cat Herding, every absurdly overpaid football or basketball coach, every bloated athletic center, every luxury dorm... you get the picture.
It's rampant featherbedding. The professional administrative class don't want to restrict slots, and they don't even need to eliminate competition outright, they just need to attract students by being all things to all customers. Even when there's high differentiation between different universities, the selling point is always that This University Has Everything You Need.
The logic of a cartel isn't necessarily *only* to restrict the quantity sold or raise barriers to entry. It's to push the curve up, because that means more money for everyone to do their different things. And as they've proven, they can push the curve up by offering a more comprehensive product.
That's why college rankings are worthless as informational tools. They aren't there to communicate to you that any one college is The Best College That Ever Colleged. They're there to create the impression that everyone else in the country -- including employers -- believes in those rankings, and uses them in economic decisions like hiring and salary.
To use an analogy, a drug cartel doesn't JUST have to control the number of heroin shipments in order to profit. If they develop a more addictive form of heroin that also keeps you alive longer and has lower overdose risk, then they can dip into your pockets for longer and much more reliably. And if the government is happily handing people loans for drug money, then there's no need to profit by restricting the supply - you give the people the heroin they want.
"The AMA restricts the supply of new doctors."
The AMA does not. Medicare and Congress control doctors training spots. If you wanted to wholesale import another country's trained physicians, you are limited by the lack of residency spots to train them.
And whose advice does Congress listen to most when they set the number of spots? When Congress chooses -- year after year, budget after budget -- not to untether the number of spots from Medicare funding?
The AMA, of course.
Even if the AMA has long since diversified its lobbying spending to address other concerns, controlling the number of training spots is its number one lobbying priority. Whenever an increase is suggested by anyone *but* the AMA, the AMA treats it as an existential threat and goes to Defcon 1.
Your information is stuck in the 1990s, as I've pointed out to you before.
All the stakeholders in medical education favor expanding residencies.
"The AMA supports the bipartisan Resident Physician Shortage Reduction Act of 2021 (S. 834/H.R. 2256) that would annually create 2,000 new Medicare-supported GME positions across seven years."
"What is the problem?
Despite the value of training physicians for our communities, Congress repeatedly considers cuts to GME. The current law put caps on the number of federally funded residency training positions, freezing the number available to that which existed in 1996. This lack of funding limits physician training, hindering access to care."
https://savegme.org/
"The concern stems from a two-decade long congressionally imposed cap on federal support for graduate medical education (GME) through the Medicare program, which is the largest public contributor to GME funding for residencies. The Medicare cap effectively freezes a teaching hospital’s Medicare GME support at 1996 levels — despite efforts by teaching hospitals, medical schools, physicians, and the AAMC, among others, to get Congress to raise the cap to fund more graduate training slots and help meet the health needs of the U.S aging population.
“The federal cap on GME is the main driver of the concern over insufficient residencies,” Dill says."
https://www.aamc.org/news-insights/medical-school-enrollments-grow-residency-slots-haven-t-kept-pace
You’re missing the point, as I’ve pointed out to YOU before.
1. An increase of 2000 is a pittance compared to the growth we’ve missed out on for the last 30+ years.
2. Congress still refuses to untether the spots from Medicare. Medicare is a political target for reasons that have nothing to do with the supply of doctors, which is why cuts are so frequently threatened. That’s convenient for the AMA to shift the blame away from itself, and obscures the fact that whatever micro-level reasons there might be for having Medicare fund training spots, they’re not nearly enough to justify having such a silly restriction on macro supply in the first place.
Not to be too pompous about it, but I’m tossing the ball into YOUR court to prove that there’s a good reason why we should keep the training spots tethered to Medicare like this.
RE #1: Your argument is basically the same as “well, the current housing construction bump oughtta be enough, let’s just stop now”.
I'd just point out that even assuming the AMA has restricted doctor training to capture more rent, the doctor share of health care costs has gone down. Adjusted for inflation doctors make what they did in the 1970s with the downside of a much higher loan burden.
There should be more of us, but I doubt it'd move prices anything more than at the margins based on decreasing wages.
Decreasing ED utilization and maybe more appropriate subspecialist referral/reducing mistakes/over referrals made by mid-level are the channels where I could see cost savings.
I think in net you'd save a lot more money by increasing access to care and reducing addiction/crime/lost work days as well as improving the capacity of the public health system. That wouldn't show up in the health care cost graph except maybe as an added cost.
Someone has to set up all those residencies, they don't just spring from the air with the stroke of a pen.
Same as other licensing schemes, the primary purpose is to protect against increased supply of doctors. Congress does this for the AMA by restricting residency slots. The AMA also devises admissions policies for medical schools which further restrict entry into the field. Noah mentions other countries as being more regulated, but in the UK for example MDs require 5 total years of medical school and two years clinical experience with no undergraduate degree required, compared to 4 years plus BS plus 3-7 year’s residency. USA has double the requirements and UK has more doctors per capita than America.
Countries vary, and the 4+4 model is common internationally. In much of continental Europe, post residency independence is more graduated as well.
The US has many 6 ywar BS/MD programs which have pluses and minuses. Honestly though, there has been a slight decrease in this due to perceived immaturity of the med students at some places.
Could you elaborate on 'cost-diseased by land use restrictions'?
Is day care supply really that constrained by land usage? That does not seem correct to me.
I'll admit it's a weak argument.
But the chief inputs to daycare are... labor and facilities. Labor's already been discussed as hampered by regulation. That's clear as day.
But facilities are ALSO subject to regulation. There are square-footage-per-child requirements, and more, which mean you have to invest a lot in your facilities. And also spend more on real-estate than you might otherwise be able to get away with. I'll admit that this isn't exactly what I explicitly nor implicitly intended, but it at least somewhat counts towards "land use" as a cost problem.
Zoning in general, of course, means that real estate is an outsized cost of childcare operations. I wouldn't be surprised if many of them are forced to compete in the *commercial* real estate markets, since some places probably zone or regulate them *out* of residential ones -- or even out of just being *adjacent* to many residential areas, which are cheaper. But again, in general, if it's difficult to build in America, then it's difficult to build childcare.
Not to mention, as is typical of America, our land use and facilities-relevant childcare regulations are an utter patchwork. While this may mitigate the obvious problems of a one-size-fits-all approach, it also makes it difficult for conglomerates to establish economies of scale.
Finally, high real estate costs mean that (1) you have less revenue for paying workers, and (2) the workers have higher housing costs to contend with.
Okay, I understand, but I do think that labor dominates (by a significant margin) the total cost of childcare.
With younger kids especially (toddlers and especially infants), mandating a 2:1 or 4:1 ratio means that there is just no getting around a relatively high cost for the average family.
Even with an exceptionally low $30k/yr total cost of employment, if that can only be divided by 4, you are looking at $7.5k/yr for each toddler.
And then you have to factor in the building and insurance and other miscellaneous costs.
$10k/yr is about the best we can probably expect under those conditions. (It gets better as kids get older and the allowable ratio rises)
It would be interesting to see data by states since they are the ones regulating the carer:child ratio. For preschool, the OECD average is 1:15 while America is 1:10, but California requires 1:8 and some are higher.
Agreed. But that just goes to show that housing costs are still a huge driver, through the workers' salaries.
I had a long talk - stuck in traffic - with a Somali immigrant taxi driver in Seattle whose wife was trying to set up a day care center. There is a lot of regulation. His wife's big hangup was getting a second exit fire door installed in the face of zoning and landlord restrictions. I got the impression that he and a friend could grab a door from Home Depot or the like and bang it into place in a day or so. There are probably good arguments for having a second door as an emergency exit, but it costs money and the town and the property owner have to approve the modification. Then traffic moved a little and he started explaining the insurance situation which sounded nightmarish and incredibly expensive. Apparently, parents will sue if their children get hurt, though I suppose having an extra egress might help with this.
And the whole system of certifications, etc that prevent practice by more foreign-born health professionals.
I think you might have missed the impact of location and consequently the price of real estate (purchase or renting). The services you mentioned can only be produced close to their market. Most physical goods can be produced in a location that is far cheaper in real estate and then shipped to the market cheaper than if it was produced closed to the market.
Hospitals, universities/colleges, child care has to be close to either were people live, people work or along the path between the two. That in general means higher cost base due to real estate and also higher cost base for works (pushing up their salary demands).
It also largely goes for restaurants as well. They have to be in costly locations. Dark kitchens and the like would put downward pressure on prices since those can be located away from were people congregate.
Other services such as laundry and hair cutting I suspect you are seeing the impact of smaller popup stores, door-to-door service (laundry pickup/dropoff and hair cutting at home etc) and other ways of reducing the reliance on expensive real estate.
My hypothesis is that you reduce the real estate costs (purchase, rent and business rates) would make a significant impact on the costs of these services. Add in reducing zoning restrictions (why can't people run a laundry or hair cutting service from home like in Japan?) would also go a long way to reducing the costs of the services.
Being back and forth for a while between UK and Poland, I've always been struck by how much the cost of real estate (purchase, rent, development) impacts the cost of living/cost of business.
I'm as sympathetic as anyone to the idea of land costs as the ultimate problem for America's economy, but how does this square with the fact that these services' prices rose so much faster than the price of housing??
I would expect this to be more driven by commercial real estate costs (purchase, rent, maintenance, regulatory compliance, zoning restrictions etc). Residential drives salary demands of the employees on top of the commercial real estate costs.
It is a hypothesis that I've not tried to prove or disprove.
Yeah, I suppose if commercial has risen a lot more than residential! I'll look into that.
And associated costs of maintenance etc. Our office building is horrid for maintenance/operation costs (leaky of heat, listed, old).
This doesn't seem like it tracks for higher education. Well-regarded universities and colleges outside of not merely capital cities but (especially for colleges) outside of cities of any description are a staple of the American higher educational scene. Indeed, at least the top four American SLACs (Williams, Amherst, Swarthmore, Carleton) and one Ivy Leave University (Dartmouth) are in nothing anything like a major urban center. Also while it is admittedly at least a city, I think no one thinks of, like, New Haven as a hot, hip, up-and-coming place to move as opposed to "a broadly disparaged / joked about part of Connecticut that happens to contain Yale." Plus like half of Maine is well-regarded SLACs in (comparatively speaking) the middle of nowhere....
Narrowly on the higher ed point: my mental model has been that there is a wage premium for the degree, and the college price is a market negotiation of how to split that surplus between supplier and customer? Fair?
I think that the availability of and widespread dependence on loans has made it easier for colleges to eat into the wage premium by amortizing tuition into workers’ earning years.
I agree that is the mechanism.
Which makes sense for the consumer - aligns the cash flow more with the gains from the degree.
But it’s also *BAD* for the consumer in the sense that it erodes the total lifetime wage premium.
I think this issue could be addressed with a compromise that limits borrowing to the expected earnings for a degree from the institute in question. Say we expect that a student should be able to pay off their degree within 5 years of graduation at a cost of at most 10% of disposable income. With those constraints, and historical data for earnings, we can work out the maximum borrowing limit for a given degree.
That would force exploitative programs, like Columbia’s 10-month journalism master’s degree for $70k, [1] to adapt or die. They either need to increase the financial value of the education to the student or massively cut the costs. If they can offer the program for $7k, great. Alternatively, maybe they can adapt the curriculum to substantially boost graduates' wages. Barring that, the program will be eliminated, or least disqualified for educational borrowing.
We actually had something like in the gainful employment regulations. [2] Unfortunately the Obama administration only applied it to for-profit institutions, despite the fact that many nonprofit and public colleges failed the test. [3] A scam is a scam, and it was disgraceful for us to sanction those cloaked in better branding. And then Trump threw out the rule entirely. [4]
[1] https://slate.com/business/2021/07/masters-degrees-debt-loans-worth-it.html
[2] https://www.naicu.edu/policy-advocacy/issue-brief-index/regulation/gainful-employment
[3] https://www.insidehighered.com/news/2020/01/16/profit-programs-not-only-ones-would-fail-gainful-employment-test
[4] https://www.washingtonpost.com/education/2019/06/28/trump-administration-formally-rescinds-rule-governing-career-training-programs/
While I think your idea is technocratically correct, I just don't think it goes far enough or addresses enough of the fundamental drivers of the problem.
It's fine as an incremental step, one that can be done mainly through executive branch wrangling. Perhaps it'll inch us closer to some broader goals.
But we should make no mistake about those broader goals. The accreditation cartel needs to be broken. University administration needs to be handed back to the professoriate.
And most importantly, debt is fundamentally an inappropriate model for financing education. An education is not a securable asset. There's literally no other financial product where we target large unsecured loans at the middle class. Sure, some super-rich people occasionally use large unsecured loans. And the middle class commonly uses small unsecured loans for things like vacations and weddings.
IBR, which is basically an equity model, is far more appropriate. From a technocratic standpoint, it's the best conceptual fit *by a country mile*. We should convert the entire market to IBR with strict regulatory limits: No more than 10-15% of income, no terms longer than 15-25 years (I'm open to debate there). Large institutional investors are MUCH better equipped to hold universities accountable for performance.
It's not that I disagree in principle, but I have doubts about making this work without people finding ways to game the system. I also feel like people would still complain about "indentured servitude" etc.
But give this thought a test drive: if we would collect higher progressive income taxes and increase funding for public universities, wouldn't we accomplish a similar thing to your equity plan? Sure we would be collecting taxes from some folks who didn't actually get the degrees - but would it be that many, and would we care?
Though sadly this idea crashes into the rocks of "our country can't have nice things because we hate taxes" :(
I mean sure, the customer always wants a lower price & therefore more of the surplus! From an economics standpoint, that is an un-interesting observation. (No offense.)
[Ed: None taken! You're arguing the merits and return-on-debate, which is a specialty of mine. Thank you for the honest-but-tough engagement.]
From an economics standpoint, it's *BAD*, because we WANT there to be a wage premium.
Left to its own devices, the accreditation cartel will suck up pretty much all of the consumer surplus for itself. That may be good for them, but it's undeniably bad for a society that wants to (1) maintain a meritocracy, and (2) maintain a healthy level of aggregate demand.
In theory no, right? Like enrollment should drop off as the returns disappear?
If I try to make your argument, I think you'd want to show a combo of
1. The kids NEED the degrees because too much employment is gated by the degree credential, so demand is not as elastic as one might expect
2. The colleges constrain supply, effectively. Especially at the top schools, I think we can agree this is true, even if we have difficulty proving the motivations.
3. Colleges effectively collude on price - or at least, they refuse to compete on list price.
Those things do have some merit, but at least where I am there's still enough capacity and price difference that the state schools provide a viable alternative. My kids are high achievers, but when the time comes I'll at least suggest they *consider* getting a SUNY degree debt-free...
PS: just to be clear, I think state universities are GREAT and should get more support. "Public Option" for higher education, to keep the market on its toes!
One reason it is hard to shop around for childcare is that there is a shortage of open spots in the existing supply. My niece told me she quit her job when she found out she was pregnant and started a daycare because she did research on childcare resources in her area (Nashville area) and found that the going rate for full time childcare for infants was $1500/month. She said she would be basically working to pay for childcare (she has a 5 year old who would need after school care as well). She and her husband make about $5K a month and their mortgage is $2K/m. It didn't make sense to pay for care that was really out of her control in regards to quality. Here in central NY, one of our nurses is about to come off maternity leave. She has not been able to find childcare for her infant in her community (close to home). As a result, she is coming back half-time and her husband is going to provide care for the baby while he is working from home. Of course this puts us short a nurse (another nurse is taking maternity leave for a newborn she is caring for as a foster).
$1500/month is $18K/year, so daycare costs about the same as a daycare worker's salary. I'm not sure of the economics, but I can understand why it is hard to find daycare workers and therefore slots in daycare facilities.
I think it's pretty clear that colleges like the Ivy League, at least, put their prices up to maintain exclusivity.
I have read that the second tier schools put their list prices up to match the top end in an effort to show they are equally premium.
And then everyone discounts. I hope the chart was using real prices not list prices...
The chart is using list prices, which means it exaggerates the increase in college prices.
Then the chart should be corrected. I
I really love your work Noah. So. I had to subscribe. My profession for 45 years essentially, is Product commercialization, market, product, pricing Customer development. Here's my take.
Healthcare. Health is not a fungible product. There is no Ford or Chevy choice for your wife, daughter or son. We pay 2x 20% GDP for 1/2 half the Healthcare outcomes. The absolute proof that we need national Healthcare came from the Universal Test of the World's Healthcare - Covid-19. It stress tested them all. The US placed 170th out 200 nations in Deaths/GDP. We were only better than some pretty poor nations. M4A.
The difference between PCs and Autos versus Hospitals with higher price increases than inflation, is simple. Mass production lends to ongoing productivity. Who drives productivity in small service businesses? No one effectively. People don't scale well. But..Healthcare Insurance is useless and redundant.
One of my major clients is in the Veterinary space. Think of it as the 2nd sister to human health. Vets get zero new drugs mostly and zero new diagnostic equipment. Repurposed and hand me down Xray, Ultrasound. Also the number of pet owners grows. Pets are are analog to family. While we euthanize animals gracefully, people will spend major money to extend quality of life. Example. TPLO. Tibial Plateau Leveling Ostoetomy. Knee surgery to cure something like an ACL with plates installed. Ultra high success rate. 90M dogs. Over 1M a year surgeries. $5,000 each. New and growing over the last 10 years.
But if you overlay Veterinary Services with the graph above, it has risen with inflation. Not greater. ~74% at 2023.
There is less mystery to me in these.
Mass production - think semis
Labor units of a few - vets
Labor generally rises close to inflation
Non products - Healthcare is not compliant with mormal macroeconomics because People are not fungible. Cleary profit gouging and non value add from the useless insurance scheme. Never existed before late 80s.
Dogs and cats, are fungible. Vet services rise as inflation.
"The absolute proof that we need national Healthcare came from the Universal Test of the World's Healthcare - Covid-19. It stress tested them all. The US placed 170th out 200 nations in Deaths/GDP. We were only better than some pretty poor nations. M4A."
We had vaccines before almost anyone else. There never was any substantial ventilator shortage or anything similar.
Once vaccines were available, cost was basically no impediment to getting one.
The reason our death rate was relatively high was largely due to a) having a relatively old society, and b) being a relatively obese society, and c) not locking down or mandating vaccines as stringently as other countries.
Based on all of this, I'd say that covid is an exceptionally -poor- standard, all things together.
I disagree.
Are we older than Japan? No.
We did have lying Trump and all the BS thrown at Fauci and scientists and wearing masks.
It's just a fact that Covid-19 tested as a summation of all factors....that Healthcare system in the US is overall, allowing more people to die than most other nations.
Obesity in part also stems from the lack of free and frequent doctor visits. Lack of nutrition education by physicians. Lack of ongoing testing and physician warnings.
Covid-19 is the single best test for a nations Healthcare and it is immune from excuses.
To quote a famous guy... we are what are record says we are.
A lot of obesity flows from our automobile driven society. The Japanese do a lot more walking.
That’s true in urban areas where most people live, but also in suburban and rural areas where driving is still the most common way to get around. Diet is also important and much healthier there.
Absolutely. I just figured I'd go off on one screed at a time.
Japan has 3% obesity rate vs over 30% in the USA. The median age is 48 in Japan vs 38 here. They spend 11 % of GDP on healthcare vs 17% in the US. Covid also has behavioral aspects in addition to demographics and I don’t think correlation of Covid deaths to health spending is aligned across nations.
I was reading that in the US dogs are living as long as cats nowadays. I gather a lot of this is improved veterinary medicine and that people are willing to pay for it.
I would house cats live longer still. We had 5 cats. All but one lived to 18. Our longest living of 5 dog, so far is about 13 14.
You are right. The human-animal bond is a real factor here in the US and elsewhere. The animal health industry is about $45 billion here, growing at 8 to 9% annually. Its solid investment amd especially for private firms like the Mars Family and the Rheimann family in Europe.
The chart from Timothy B Lee in Noah’s post shows veterinary services up 75% since 2000 versus 40% for medical care services and 55% CPI over that same period.
https://twitter.com/binarybits/status/1485994534446190603?s=20
I would be very interested in your rebuttal of Random Critical Analysis' argument.
Thanks! I can write that up at some point (previously I did it as a Twitter thread). Basically, he fits a very nonlinear functional form to the relationship of health spending (as a % of GDP) and per capita consumption. He uses this functional form to argue that the U.S. isn't an outlier. The nonlinear function predicts that health spending (as a % of GDP) keeps exploding at an increasing rate as GDP (and thus consumption) increases. At about $200k of per capita GDP -- about 3x as rich as the U.S. is now -- this would predict that a country would spend 100% of its GDP on health care, leaving nothing for food or housing or anything else. That's obviously not going to happen.
So we know that the curve has to roll over somewhere. RCA assumes that the curve DOESN'T roll over before it gets to the U.S. level of consumption (which is much higher than any other country's level). This allows him to conclude that the U.S. is on the curve instead of an outlier. But since the U.S. is the one and only data point in that region of the graph (since our consumption is so much higher than anyone else's), RCA is just assuming his conclusion.
He's fitting a curve to the single data point of the U.S. and then concluding that the U.S. is not an outlier on that curve. Well of course it isn't -- he fit the right part of the curve to a single data point, and that data point was the U.S.! It's an assumption engineered to produce the desired conclusion. That doesn't mean he's wrong; it just means he assumed the conclusion.
You're much nicer about the slapdash post from Marc "it's time to build (but not in my backyard)" Andreesen than I would be!
From my non-economist eyes, it seems like the difference between things that outpaced infllation versus the things that didn't is the clarity of the price. I was very recently in college, 2016-2021, and I could not tell you how much it cost me on the whole. I had large scholarships, small scholarships, large loans, big loans, work-study programs, etc., that totaled up to a big ?? in terms of the real actual cost for my degrees. There's a similar problem with healthcare. I have no idea how much something is going to cost when I go to urgent care, the ER, or a specialist. I can't make a cost-benefit calculation because I don't know the cost.
For most things, I think uncertainty about the price would reduce consumption but higher ed and healthcare are things that are generally considered very important so people (well, probably middle class and up) err on the side of accepting the cost, which the industries have exploited to continually raise the price. I suspect that if families knew for certain the total cost of attendance when choosing which schools to apply to and if they knew for certain the cost of medical care, there would be much more frugality and price shopping.
This is absolutely a major part; I'm sure of that. With college you don't really know how much you're actually going to pay until you've already applied and that makes it really hard to tell how much things actually cost
Most of the people I knew applied to more than one college and usually made their decision after reviewing the aid package that was offered. That gave a pretty good sense of what it was going to cost and so on. A few really wanted to get into a particular school, but they weren't constrained by money.
I agree that health care costs are opaque, but when one needs medical care in a hurry, one is rarely in a good bargaining position. How do you, when you arrive at the ER unconscious, tell them that you only want to pay for one dose of antibiotics or to provide a particular brand of oxygen noted for its high quality and low cost?
Part of explanation for college is also that what you mean by “college” today isn’t quite what was meant by “college” 20, 30 or 40 years ago. I am a physicist spending the day writing a lecture on quantum computing for my class at a large state university tomorrow - a subject that didn’t exist when I was in graduate school, was esoteric speculation 20 years ago, and is now must include material. The students get more bang for their tuition dollar now.
I see this on the consumer side as well. My son’s chemistry education at a fancy private college is way beyond what kids got in my college years. I’m amazed at what they are learning already as undergrads and the opportunities they have to do advanced lab work. The bar is continually raised.
For healthcare, one of the factors that we overlook is that hospitals have incredible market power, especially in rural communities. They also often face an inelastic demand curve.
Emergency rooms in particular can often function as outright monopolies. If you have a heart attack and someone calls an ambulance, you don’t get to pick a hospital or compare prices, or even compare quality. The ambulance simply takes you to the nearest emergency room and they treat you and then charge you whatever they like.
Mostly you can't even choose the hospital ER when using an ambulance because most of them (in my area anyhow) are on diversion because they are full. When all the hospitals are on diversion, they take turns taking patients. The hospital ERs don't/can't turn anyone away walking in though. Of course, after triage, the wait is very long so make sure you have an actual emergency before calling 911 or walking in to an ER. If you waited 2 weeks, you can most likely safely but uncomfortably wait until your doctor's office opens in the morning. An emergency is anything heart related (chest pain, syncope/loss of consciousness, shortness of breath, severe abdominal pain, fracture, stroke, sepsis (infection), no urinary output, severe pain such as that can be caused by kidney stones, altered mental status and/or psychiatric emergencies--usually go to a psychiatric crisis emergency room and of course Traumas like car accidents, gun shot wounds, stabbings, falls)
Interesting piece... On education, it is an area which I have studied quite a bit.. even did a Ted talk on it (https://www.ted.com/talks/dr_rahul_razdan_sir_ken_robinson_was_right_about_the_symptom_now_let_s_talk). Anyway, government involvement is ABSOLUTELY the issue. There is NO reason that education has to be as expensive as it is. Nearly all markets start with a "craftsmen" model and then evolve through injection of technology and process to deliver services with more capability and lower cost. Your assumption that education is human resource focused by definition is very limiting to innovation...however exposes the norms. These norms inform the compensation/incentive models built by government officials and then are supported by incumbents. The game in the halls of power in education is primarly to build mechanisms to capture public dollars.
Anyway, there is a recognition of these issues to some degree in the marketplace. The professional education sector (which is not regulated nor supported by government sources) is booming and providing a great deal of value. Youtube is likely the greatest educational institution in the world and interestingly substack information sources such as your column are a part of this picture. Credentialing is catching up and employers are recognizing the benefits. The "amazons" of education are forming right now with solutions from entities such as ASU, WGU, and Perdue Global. These are highly scalable model which don't require the level of human capital investment as the traditional classroom model. Isn't it amazing that today's model has not changed much since the 1800s.
Anyway, society's support for education is generally goodness. However, the mechanisms for this support should always be flexible to innovation and always empower the customer/consumer. After all, they have the greatest incentive to capture value and weigh price. This is not the case with education. I am not as familiar with medical world.. but this seems to be a similar situation.
Some ideas on childcare as luxury:
Nannies and daycares draw from a similar labor supply. If you accept nannies as luxury, then an increase in nanny demand raises the price of childcare labor overall. And consider that nannies are generally much less efficient on a per-child basis than daycares.
Childcare may also be tied to wealth and housing. I have a hunch that wealthier households are less likely to be intergenerational. People who can afford not to live with their parents tend not to live with them. But that makes it harder to rely on them as a source of childcare!
Lastly, I'm not sure the idea that wealthier parents are more likely to be stay-at-home cuts that much against their demand on daycare services. Anecdotally, I've met a fair number of wealthy stay at home parents who have their nanny drop off their toddler at a daycare for socialization, early education, etc.
Nannies and daycares don't really compete for workers.
I'd make the cynical argument that the demand pressure is so great because of the number of dual-working households where it would make economic sense for one of the parents to stay home and care for the children, but they don't want to risk losing their spot on the career ladder or just prefer working to being with their children.
That spot on the career ladder can be very expensive if lost and is usually impossible to recover.
I'm not sure about many of the areas you covered, but I am convienced that the lack of transparency and competiton are big factors in driving up the cost of healthcare. I was once advised by a registered nurse to always get two or three opinions before undertaking any expensive medical proceedure. My reply was, "I am not a doctor, how can I know which opinion is the most correct?" Lack of knowledge is a big handicap when trying check prices.
Large sums are spent on advertising drugs on TV. The drug companies want you to ask your doctor for thse drugs if you think you have the problems they are addressing in their advertisement. Once again we are confronted with ignorance about things such as side-effects, interaction with drugs you are already taking, and possible long-term effects from this new drug. Finally, there are the large sums spent on doctors trying to get them to prescribe one drug over another. Many of these excesses are not allowed in Europe.
Our healthcare system works in a backward manner. Doctors should be paid to keep us healthy, not repair us when we get sick. What would happen if doctors made more money with healthy patients than they do with sick patients. Of course, this would require the cooperation of the patient, but it might be worth a try, at least with some peeople.
Then we have the patent system which keeps generic drugs from being produced for an unnecessarilty long period of time. This helps the drug companies make even more money and also creates situations such as what has recently happened to the price of insulin. Drug companies acting like organized crime, only instead of killing you with a gun, they can kill you by making a life-saving drug so expensive you can't afford it.
With all the excess cash in the coffers of the drug companies they can buy as many people in Congress as they need to protect themselves from cost saving measures - such as stopping the import of drugs from Canada or even keeping the government from getting competative bids on the drugs they buy.
Our healthcare system is a cesspool of corruption and not an example of free market capitalism.
The vet cost increase in part a function of the dearth of available vets. There are only 32 vet schools in the US, graduating ~3000 vets/year. We need more vet schools to train more vets in the same way we need more residency spots to train more docs.
I imagine a big factor in day care costs is that as 2 income families become more common less middle class families are able to forego an income during early childhood, boosting demand for daycares.
Likewise, as family units become smaller and have less children, daycare becomes less expensive as a total expenditure (ie cost of sending 1 or 2 children to daycare rather than 3), so it becomes an option for more families, boosting demand. (This might be related to the previous point too - need for a 2nd income prevents families from being as large as before).
There was a transition in housing prices in the late 1970s. One used to be able to work 600 hours at median wage to afford a median house. That went up to 800 hours in the 1980s. In a way, it came down to real estate. If you wanted a place to live, you were much more likely to need to have two wage earners. A lot of women chose shelter over children, and then came the daycare sex abuse trials and all the related child abuse anxieties what with clowns biting the heads off of chickens in the basements of buildings with not even a crawlspace. (Children can be very imaginative under torture.)