The Curse of Material Progress

Baumol’s cost disease to include any sector of the economy where demand is inelastic (goods and services that most consider “essential), and supply/productivity is naturally and/or artificially restricted. With this expanded definition, four sectors of the economy stand out as afflicted by cost disease: healthcare, higher education, housing, and ch

Cost disease is the curse of highly advanced and developed economies. It is, in some sense, the price we pay for progress.

Worse still, remember that the government will not subsidize just any daycare, school, or hospital. Naturally, funding will come alongside regulations designed to ensure that the recipient of those funds meets a minimum standard of quality and care. But since such regulations will naturally favor incumbent industry players (which are already not ve

In addition, the US greatly restricts the supply of physicians by requiring that they undertake at least eight years of expensive post-secondary education and then an additional three to seven years of training in residency; in Europe, a medical degree can be obtained in six years. Furthermore, because of these stringent, perhaps overzealous, requi

False Solutions

The larger problem, as we will see, is that when something “essential” like healthcare or childcare becomes difficult to afford, the knee-jerk reaction of the government is to subsidize it, either by redistributing taxpayer funds and/or borrowing those funds from the future. The problem is that these subsidies will increase the dem

What is “Cost Disease?”

William Baumol observed that as our economies grow, our “problem solving machine” operates at different rates in various sectors of the economy and thus productivity growth in one area of the economy can cause the cost of goods/services in other areas to rapidly inflate. He used the example of a string quartet to explain th