Last week, I was at an event in Washington, D.C. with about 20 other people–politicians, economists, journalists, and think tankers. One of the economists, Greg Mankiw, made a presentation in which he discussed the reasons for increasing health expenditures as a percent of GDP. One of the two reasons he gave is that improvements in technology have allowed us to do more, to do things we weren’t able to do in the past.

One of the other economists, Don Boudreaux, challenged Greg, saying:

Our usual view is that improvements in technology bring costs down. Computers today are much cheaper than they were a few years ago. Why should health care be different?

Greg had a beautiful answer:

Technology does bring costs down. What percent of his income did your grandfather spend on computers? I bet it was zero. Technology brings down the cost and price of health care too. How many hip replacements were done in 1950? None. So the price of a hip replacement was effectively infinity. It’s much lower now.