January 18, 2010


For Ailing Health System, a Diagnosis but No Cure (DAVID M. HERSZENHORN, 1/17/10, NY Times)

What afflicts the American health care system (and those of other industrialized nations) is called Baumol’s cost disease. It is named for William J. Baumol, an economist at New York University, who turns 88 next month. And it explains why health care costs will almost certainly continue to rise faster than general inflation, and why Democrats might not want to set expectations too high when it comes to their health care bill. [...]

Dr. Baumol and a colleague, William G. Bowen, described the cost disease in a 1966 book on the economics of the performing arts. Their point was that some sectors of the economy are burdened by an inexorable rise in labor costs because they tend not to benefit from increased efficiency. As an example, they used a Mozart string quintet composed in 1787: 223 years later, it still requires five musicians and the same amount of time to play.

Despite all sorts of technological advances, health care, like the performing arts, suffers from the cost disease. So do other public services like education, police work and garbage collection. While some industries enjoy sharp increases in productivity (cars can be built faster than ever, retail inventory can be managed better), endeavors like health care are as labor-intensive as ever.

Logically, we should be allowed to use Mozart as our health care example too, no?

Well, he died at age 35 from strep throat complications. Today he'd be treated with a simple round of oral antibiotics and live fifty more years. In what conceivable sense can it be said that productivity has not improved in the health care industry over that period?

Posted by Orrin Judd at January 18, 2010 5:13 PM
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