Posted on February 9, by Scott Alexander I. Tyler Cowen writes about cost disease. Cowen seems to use it indiscriminately to refer to increasing costs in general — which I guess is fine, goodness knows we need a word for that. Cowen assumes his readers already understand that cost disease exists.
Posted on February 17, by Scott Alexander I got many good responses to my Considerations On Cost Disease post, both in the comments and elsewhere. A lot of people thought the explanation was obvious; unfortunately, they all disagreed on what the obvious explanation was.
Below are some of the responses I found most interesting. So, what is really happening? I think Scott nearly gets there. Things cost 10 times as much, 10 times more than they used to and 10 times more than in other countries. So where is it going?
The number of people it takes to produce these goods is skyrocketing. Labor productivity — number of people per quality adjusted output — declined by a factor of 10 in these areas. It pretty much has to be that: How can that happen?
Our machines are better than ever, as Scott points out. Well, we and especially we economists pay too much attention to snazzy gadgets. Productivity depends on organizations not just on gadgets. Southwest figured out how to turn an airplane around in 20 minutes, and it still takes United an hour.
Contrariwise, I think we know where the extra people are. Most large public school systems spend more than half their budget on administrators. Construction sites have always had a lot of people standing around for every one actually working the machine. But now for every person operating the machine there is an army of planners, regulators, lawyers, administrative staff, consultants and so on.
I welcome pointers to good graphs and numbers on this sort of thing. So, my bottom line: Well, how does bloat come about? Regulations and law are, as Scott mentions, part of the problem. These are all areas either run by the government or with large government involvement.
But the real key is, I think lack of competition. These are above all areas with not much competition. The main effect of our regulatory and legal system is not so much to directly raise costs, as it is to lessen competition that is often its purpose.
The lack of competition leads to the cost disease.
Everywhere we see businesses protected from competition, especially highly regulated businesses, we see the cost disease spreading. And it spreads largely by forcing companies to hire loads of useless people. Yes, technical regress can happen.
Productivity depends as much on the functioning of large organizations, and the overall legal and regulatory system in which they operate, as it does on gadgets. Like our ancestors peer at the buildings, aqueducts, dams, roads, and bridges put up by our ancestors, whether Roman or American, and wonder just how they did it.About Olin Business School.
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Reflecting recent reexaminations of the nature and purpose of the modern publicly held corporation, Progressive Corporate Law introduces the reader to alternative perspectives within the field.
The contributors to this volume are loosely bound both by their rejection of the prevailing paradigm of the corporation as a public good designed exclusively for the maximization of private profit .
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On teachers’ salaries, at least, the NCES data is data for WAGES only, not total compensation. Given their civil service protections, automatic, seniority based promotions, extremely generous benefits and pensions, a picture of flatlining wages is inaccurate.