Christopher J. Conover writes,
Between 1966 and 2007, the entire increase in the size of government relative to the economy resulted from growth in tax-financed health spending.
If you have not read it already, you might want to look at the piece that Nick and I wrote on The New Commanding Heights.
Jul 20 2011
John Taylor writes, In my view, rigidities exist in the real world and to describe accurately how the world works you need to incorporate such rigidities in your models, which of course Keynes emphasized. But you also need to include forward-looking expectations, incentives, and growth effects--which Keynes usually ig...
Jul 19 2011
I'm slowly working my way through the select group of empirical papers on signaling. One of the neatest so far: Paco Martorell and Damon Clark's 2010 working paper, "The Signaling Value of a High School Diploma." Background: There are quite a few papers on the "sheepskin effect" - the discrete earnings bump...
Jul 19 2011
Christopher J. Conover writes, Between 1966 and 2007, the entire increase in the size of government relative to the economy resulted from growth in tax-financed health spending. If you have not read it already, you might want to look at the piece that Nick and I wrote on The New Commanding Heights.
READER COMMENTS
Mike Rulle
Jul 21 2011 at 2:44pm
This essay is superb. Simplicity of presentation is remarkable. But I am biased toward your views generally. I have trouble undertanding how elite economists (think Brad Delong and Paul Krugman) who believe in the GDP factory (what a great phrase) can respond to this critically with a coherent economic argument.
Having said that, my critique comes from the efficiency improvement side of the equation. While the Baumol disease may apply here, it is significantly enhanced by government subsidies and regulations as you point out. And it is certainly true that some activities seem more leverageable than others in producing productivity gains, but I remain cautiously critical of even that statement. I believe we always underestimate potential productivity gains in all fields. (How many actors do you need to play Resident Evil on Playstation?)
While the Baumol concept is logically coherent, high definition digital recordings of concerts mitigates his original example. I would say websites like Kahn Academy mitigate your grading example—it cannot be that grading papers is the roadblock to increased educational efficiency! Further, the costs of Lasik and cosmetic surgeries continue to drop as their effectiveness go up. Why shouldn’t this apply generally in health care?
A tendency of governmental control—or intereference—in Education and Health Care (from the “commanding heights”) have probably been supported in elite circles for longer than socialism has existed generally—and certainly before Lenin. In the US, one can point to certain turning points in our history (wage and price controls in WWII for example, leading to the tax subsidized third party payment system, for example) these are two areas government has always seemed to want to exert control. Can it just be random that this is so? Maybe.
Perhaps there may be something about perceived risk reward (like some probability of a personal black swan left tail—-don’t really know) that has made these two “industries” prone to the people ceding control to the “commanding heights” despite seemingly no utilitarian reason to do so. It is also the most intractable—and its not politicians and unions per se (they make it harder to change of course) but the public itself which keeps this going.
The result is that a certain political genius (generally, not just a single individual) will be required to change our paradigm in these areas. I believe the government is blocking even more potential productivity gains in education and health care than is even implicit in your essay. I also think the group of politicians or public persuaders in general who can swing public opinion in the direction of this essay will not be easy to come by.
But your essay is a great contribution.
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