Why are the prices so damn high?

Discussion in 'The Red Room' started by Order2Chaos, Aug 14, 2019 at 6:09 AM.

  1. Order2Chaos

    Order2Chaos Ultimate... Immortal Administrator

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    At least for health care and education, the answer is the Baumol Effect.

    https://www.mercatus.org/system/files/helland-tabarrok_why-are-the-prices-so-damn-high_v2.pdf

    The TLDR of the Baumol Effect is that productivity in different industries rises at different rates, especially since ~1900. This means that the opportunity costs of less-improved industries’ products increase. As prices are signals of opportunity cost, they rise commensurately.

    The bulk of the book above (it’s only 90 pages, not a novel or anything) is an approachable but statistical overview and support for the thesis that Baumol is the primary driver of health care and education costs. Not all price increases are attributable to Baumol, but these are.

    I have two things I want to discuss then: implications for US health care policy, and extrapolation of a general concept of diverging efficiency gains.

    However I’m typing this on my phone with a cat trying to swat at the charging cord, so I’ll make my cases in subsequent posts.
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  2. AlphaMan

    AlphaMan The North Remembers...

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    On the surface, this makes a lot of sense... It's something I've never considered before. I will have to take a deeper look into the link you've provided. When it comes to healthcare, people are scouring the bottoms of oceans, the depths of the jungles and the heights of the heavens to find resources so that we all live longer and happier lives. It makes sense that economic growth in his area will outpace most others.... but education?

    [​IMG]
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  3. oldfella1962

    oldfella1962 light & lethal

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    good point Alphaman - it's not like there we are searching how and low for more things to teach that hadn't been thought of before.
  4. Tracker

    Tracker Wonderful, Loving Husband & Father

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    .

    Easy answer: Third party payer.

    Look at medicine. What field of medicine have costs either gone down or at least increased vastly slower than the other areas of medicine.

    Cosmetic surgery. Why? Insurance normally will not pay for cosmetic procedures. The patient has to pay it themselves. So people wanting cosmetic surgery look long and hard at the costs of the procedure and which doctors have to actually compete on the basis of costs with each other. Thus putting downward pressure on the prices.
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  5. spot261

    spot261 George "The Animal" Steele tribute act

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    Interesting take, but there's a definite difference at play. Cosmetic surgery is (for the most part) elective, whereas much of the rest of medicine is anything but.
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  6. Shirogayne

    Shirogayne Sheithforge Formerly Important

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    This.

    No one is going to do comparative shopping for trauma care when they're bleeding out. Health insurance knows this and that's why you have people in ER wishing they'd died instead after car crashes because they're going to be financially ruined.
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  7. Tracker

    Tracker Wonderful, Loving Husband & Father

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    Really? Aside from emergency services how is medicine not elective?
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  8. Tracker

    Tracker Wonderful, Loving Husband & Father

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    But the overwhelming majority of Americans seeking medical care are not going for emergency or trauma care.
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  9. spot261

    spot261 George "The Animal" Steele tribute act

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    You're suggesting cancer treatment, or heart transplants aren't elective? How about psychiatry (by which I mean acute psyche, not just going to your shrink)?
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  10. Ancalagon

    Ancalagon outta my way Administrator Formerly Important

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    How much more efficient has education gotten in the last 90?

    How many more students per hour does a teacher teach today than they did 90 years ago?
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  11. Tracker

    Tracker Wonderful, Loving Husband & Father

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    You can choose your doctors in those matters can't you?
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  12. AlphaMan

    AlphaMan The North Remembers...

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    In 1972, the cost for a semester at Harvard University was $2,500. Today it is over $47,000. That outpaces the Consumer Price Index by a factor of almost 17.
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  13. Tracker

    Tracker Wonderful, Loving Husband & Father

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    One reason being that colleges for the most part do not compete with each other on a cost basis. They largely attract students based on reputation (most of which are massively overblown). Also students thanks to various grants and student loans are largely insulated from the direct costs (at least for a time).
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  14. spot261

    spot261 George "The Animal" Steele tribute act

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    That's not what elective means.
  15. Tracker

    Tracker Wonderful, Loving Husband & Father

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    True. Still the idea is the same. If you can make choices then you can have price competition. If you have price competition you can reduce the rates of increases in prices.
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  16. spot261

    spot261 George "The Animal" Steele tribute act

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    No, it's not the same, because the provider knows you need the service as a matter of life or death. The same can't be said about cosmetic surgery.

    That's what elective means, it's a procedure without medical necessity.
  17. steve2^4

    steve2^4 Aged Meat

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    What choices did you make after educating yourself on different methods and providers to treat your foot?
  18. Tracker

    Tracker Wonderful, Loving Husband & Father

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    Still the idea is the same. You have choices. You can have competition for services.
  19. spot261

    spot261 George "The Animal" Steele tribute act

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    No it isn't, because you don't have the choice not to buy at all, merely whom you buy off. That's a massive difference.
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  20. Fruitloop

    Fruitloop Shit Town

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    OP has an interesting framing of the problem, namely the cost of skilled labor. So what's the solution?
  21. spot261

    spot261 George "The Animal" Steele tribute act

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    I'll bow out at this point given everyone probably knows my answer by now.
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  22. Shirogayne

    Shirogayne Sheithforge Formerly Important

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    You're deliberately missing the point.

    The reason health care has run rampant is because of the system in place by insurance companies forcing hospitals to raise prices high enough that when insurance tries to low-ball them, they can cover costs. And that's bullshit our system "works" like this.
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  23. Tracker

    Tracker Wonderful, Loving Husband & Father

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    insurance is an example of a third party payer. My immediate family (that is myself, my sisters, and my parents) did not have health insurance for decades so they always sought the best deal for medical services. Whether it was my dad's appendix, my mothers two operations on her neck, or my middle sisters Type 1 diabetes.
  24. Order2Chaos

    Order2Chaos Ultimate... Immortal Administrator

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    Counterpoint: auto repair. Just as much 3rd party payer-centric as health care, but it’s gotten somewhat more efficient over the decades (especially parts production), so prices have held steady.

    Also there is simply not nearly so much demand for cosmetic surgery as other medicine. Sources aren’t super consistent, but AFAICT, in the US there were 1.8 million cosmetic surgeries done in 2018, compared to between 21 and 59 million non-cosmetic surgeries. The demand is just much lower.
  25. Tracker

    Tracker Wonderful, Loving Husband & Father

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    counter counterpoint-auto repair- a large number of auto repairs and maintenance are NOT covered by insurance. thus no third parties involved.
  26. Spaceturkey

    Spaceturkey you can't spell hatred without "red hat"

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    but with the American system, it isn't the cost of the skilled labour, but rather, the middle men and shareholders.
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  27. Spaceturkey

    Spaceturkey you can't spell hatred without "red hat"

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    neither are most cosmetic surgeries under single payer/UHC
    only reconstructive
  28. Tracker

    Tracker Wonderful, Loving Husband & Father

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    that is my point
  29. Fruitloop

    Fruitloop Shit Town

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    That may explain why costs are higher in the US compared to other countries. But that's not the main concern of the article. Rather, it investigates why prices in sectors like healthcare and education (and other professional services) have risen dramatically in real terms over the past several decades. And it pretty clearly points to the salaries of skilled labor.
  30. Amaris

    Amaris Princess of Love

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    Too low?