Mike Beversluis

Thursday, September 10, 2009

service vs manufacturing: FIGHT!

An interesting article on why healthcare is expensive, and what can be done about it:

What I have yet to see (and apologies to those who have said it but I have not seen their doing so) is the simple and obvious explanation for why medical treatment costs keep going up. No, it is not because of insurance companies gouging us all, no, it is not the American Medical Association restricting the number of doctors. Nor even is it an aging population, a lack of government involvement, or too much of such—and it is not even the fact that good 5-cent cigars now cost $5.

It is because healthcare is a service, dunderheads. Services go up in cost relative to manufactures. That is just what they do. This does not contradict Robert Fogel's point in THE AMERICAN that we desire to spend more money on healthcare as our incomes rise, it is rather an explanation of why medical costs, rather than the amount of income we spend on them, rise over time.

The go-to economist here is William Baumol, who explained back in the 1960s that it is much more difficult to increase productivity in services—the productivity of labor, that is—than it is in manufacturing. His example was that we cannot make a symphony orchestra more productive by asking them to play faster: add to this the well-known idea (even New York Times columnist Paul Krugman has been known to make this point) that average wages in an economy are determined by average productivity, and it is possible to construct an argument that services will become more expensive relative to manufactures over time.

I for one welcome our future robot proctologists.

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1 Comments:

  • One of the interesting approaches to healthcare I've read. 50 million uninsured Americans seems to me to be a scandal. But solving it is trickier than I thought. Even though I live in Britain where health care costs half as much and where I've received some of the best treatment I've ever received in my long live on several continents.

    By Blogger Terry, at 11 September, 2009 17:34  

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