The rising cost of education and health care

LafayetteBis · Jun 21, 2019

From the Economist: The rising cost of education and health care - excerpt:

Misunderstanding the problem, politicians often prescribe the wrong cures

Among the compensations of ageing is the right to bore youngsters with stories of the prices of yesteryear. Once upon a time a ticket to the cinema cost just five quid, and a hogshead of mead but a farthing. Of course, savvier youths know how to debunk such tales. Adjust for inflation and many things are cheaper than ever. Since 1950 the real cost of new vehicles has fallen by half, that of new clothing by 75% and that of household appliances by 90%, even as quality has got better. Tumbling prices reflect decades of improvements in technology and productivity. But the effect is not economy-wide. Cars are cheaper, but car maintenance is more expensive, and costs in education and health care have risen roughly fivefold since 1950. Though no mystery, this rise is often misunderstood, with serious economic consequences.

There are as many explanations for the ballooning cost of such services as there are politicians. But as a newly published analysis argues, many common scapegoats simply cannot explain the steady, long-run rise in such prices relative to those elsewhere in the economy. In “Why are the prices so damn high?” Eric Helland of Claremont McKenna College and Alex Tabarrok of George Mason University write that quality has improved far too little to account for it. Administrative bloat is not the answer either. In America the share of all education spending that goes on administration has been roughly steady for decades. Health-care spending has risen faster than GDP in rich countries, despite vast differences in the structure of their health-care systems.

The real culprit, the authors write, is a steady increase in the cost of labour—of teachers and doctors. That in turn reflects the relentless logic of Baumol’s cost disease, named after the late William Baumol, who first described the phenomenon. Productivity grows at different rates in different sectors. It takes far fewer people to make a car than it used to—where thousands of workers once filled plants, highly paid engineers now oversee factories full of robots—but roughly the same number of teachers to instruct a schoolful of children. Economists reckon that workers’ wages should vary with their productivity. But real pay has grown in high- and low-productivity industries alike. That, Baumol pointed out, is because teachers and engineers compete in the same labour market. As salaries for automotive engineers rise, more students study engineering and fewer become teachers, unless teachers’ pay also goes up. The cost of education has thus risen because of the rising pay needed to fill teaching posts. Other factors matter too, and can explain, for instance, why Americans pay more than Europeans for health care and higher education. But across countries, none is as important as the toll exacted by cost disease.
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The Real Culprit (IMO) is the Federal government* that should subsidize under Mandatory Spending the cost of a post-secondary education. The US is still stuck in a hole having taken almost 60 years (beginning in the 19th century) to have states fund secondary-schooling. State-funding of tertiary-education still requires (on average) students to pay $14K annually on average.

So why is it that only 45% of high-school graduates actually obtain a post-secondary degree? From the NCES here:

... the percentage who had received at least a high school diploma or its equivalent increased from 88 to 92 percent, the percentage with an associate's or higher degree increased from 38 to 46 percent, the percentage with a bachelor's or higher degree increased from 29 to 36 percent, and the percentage with a master's or higher degree increased from 5 to 9 percent.
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And if your existence is anywhere below the Poverty Threshold ($24K annual earnings for a family of four), there is no way in heaven-or-hell you are likely to go on to a postsecondary educational degree (vocational, associates, bachelors, masters, doctorate) to get out.

*In terms of Discretionary Spending, the Federal government spends just less than half the entire budget on the DoD (and has been doing so a great long time), with a measly 6% going to Education. (See here, if you don't believe it.

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The rising cost of education and health care

LafayetteBis Well-Known Member Past Donor

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The rising cost of education and health care

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