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Why so costly?



Technology makes things better. Not morally, of course: military technology kills and maims people more efficiently, surveillance technology invades privacy more pervasively, and so forth. But improved technology leads to more output from less input for any system. Almost a tautology, right? I mean, that’s the whole point. So why, in our technology-laced world, do certain domains keep getting more expensive and less efficient?

This is veering dangerously close to economics, and I’m anything but an economist, so let me quickly outsource most of that talk to Slate Star Codex, talking about cost disease, and Pedestrian Observations, discussing infrastructure. First, Scott Alexander, who’s always worth reading, in a twoparter at SSC:

in the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries. I worry that people don’t appreciate how weird this is. […] And this is especially strange because we expect that improving technology and globalization ought to cut costs. […] If technology increases productivity for skilled laborers in other industries, then less susceptible industries might end up footing the bill since they have to pay their workers more. There’s only one problem: health care and education aren’t paying their workers more; in fact, quite the opposite. […] health care and education costs have managed to increase by ten times without a single cent of the gains going to teachers, doctors, or nurses.

Note that the “cost disease” discussed here is posed as distinct from “Baumol’s cost disease” known to economists. And before you think, “Aha, I know the reason why! (…And it happens to be my pet hobbyhorse!)”, please go read both of those posts, where a whole cornucopia of causes are considered in great detail. In particular

  • institutional risk tolerance (e.g. for lawsuits)
  • “free riders”
  • administrative bloat
  • organizational complexity
  • widespread market failures “due to trickery, or to the difficulty of gathering accurate information”
  • “America just isn’t very good at regulation”
  • “lots more rules and regulations”
  • “fifty years of optimization of wealth extraction”
  • “industries shifted focus to servicing deeper into the tail of the population aptitude/effort”
  • “the ‘missing’ money is ending up in the pockets of the super-wealthy elite”
  • etc.

None of these explanations seem individually convincing. The libertarian ones are disproved by the many counterexamples in nations whose governments are far more economically involved; fear of litigation hardly seems to apply to the 10xing of higher education costs; “money siphoned to the super-rich” seems to contradict “administrative bloat,” and both seem too obvious and simplistic (who’s getting super-rich from higher education? What’s the administrative bloat of a subway project?); “complexity costs,” again, don’t explain why Korean subways are so much cheaper than American ones.

Let’s dig a little further into those construction costs, because they’re among the most stunning and inexplicable ones. You can argue, if wrongly and tendentiously IMHO, that American higher education is more expensive because it’s better, that American healthcare is more expensive because it’s better and (rolls eyes) subsidizes drug discovery worldwide, etc., but nobody who has experienced both versions can seriously argue that new American subway systems are superior to those of Paris or Seoul.

And yet, as Pedestrian Observations, er, observes, in a remarkable comparison of subway construction costs around the world:

Portland’s light rail Milwaukie extension and Washington’s predominantly above ground Silver Line both have cost ranges of about $100-150 million per km, enough for a full subway in many European cities … Observe from the low costs of Italian subways that corruption alone cannot explain high American and British costs … The labor costs in developing countries are lower, but so is labor productivity.

We expect technology to make that kind of construction more efficient, both directly, by constructing better machines for the specific purpose, and indirectly, by making information transfer more efficient. But while I am no construction engineer it seems unlikely that French and Korean subway engineering technology is meaningfully different from that used in NYC and London. In America, though — and in the UK, so it’s not just about “excess” national wealth — these technological advantages are being swamped by something else, some kind of cost disease apparently unique to the English-speaking developed world.

But I put it to you that this something else, this cost disease and/or market failure, is not independent of technology at all. Whatever it is — a confluence of all of the factors above, evolved into a vicious-spiral feedback loop, perhaps — it seems to me very likely that cost disease itself is somehow technology-driven. I know that sounds kind of crazy, but so does this whole situation.

Ultimately, the enormous amounts of excess money poured into these English-speaking industries goes to some kind of economic parasite, whether or not they imagine themselves as much. That is true whether you want to blame government bureaucrats, tenured and sinecured public employees, corporate rentiers, free riders, trial lawyers, fat-cat administrators, or the 1%, depending on your politics. Over the last few decades they, whoever they are, have gotten a full order of magnitude better at their parasitism. It’s possible that this is unrelated to better technology over that time period. Possible, but unlikely. It seems more likely that more efficient information transfer has contributed to the hypergrowth of economic parasites in certain nations which lacked effective cultural, economic, or legal immune systems against this ongoing infestation.

I don’t pretend to know the exact mechanism by which this happened. Really my primary objective with this post is just to signal-boost the whole maddening topic. But I think that if we start envisioning the situation this way — the American economy as an apparently mighty elephant invisibly infested and weakened by (possibly many species of) parasites, emboldened and engorged by the very technology on which the elephant feeds — it might be easier to have a rational discussion about issues like single-payer health care and equal access to education. Both of which would, in fact, be very easy for a nation as rich as America to afford, if not for the parasites that make them inaccessible.



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