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Identifying Sources of Cost Disease

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Re: Identifying Sources of Cost Disease

#31

Post by BurningFrog »

js8 wrote: post #15

I think the problem is that the neoclassical theory of perfect competition is just flatly wrong, and markets actually tend to monopoly (oligopoly) pricing over time. (So the "perfect competition" is more an exception than a rule in the real world.) There is plenty evidence for this, see e.g. Keen & Standish: http://www.albany.edu/~gs149266/Keen%20&%20Standish%20(2006)... One simple way to see this, really, is to cons…

"Cost disease" has affected some large sectors in the US economy for the last 5 or so decades, but not most other countries, and not the US before that.

Your general assertion about competition not working proves too much. If true, it would affect all market economies all the time.

Re: Identifying Sources of Cost Disease

#32

Post by js8 »

BurningFrog wrote: post #31
js8 wrote: post #15

I think the problem is that the neoclassical theory of perfect competition is just flatly wrong, and markets actually tend to monopoly (oligopoly) pricing over time. (So the "perfect competition" is more an exception than a rule in the real world.) There is plenty evidence for this, see e.g. Keen & Standish: http://www.albany.edu/~gs149266/Keen%20&%20Standish%20(2006)... One simple way to see this, really, is to cons…

"Cost disease" has affected some large sectors in the US economy for the last 5 or so decades, but not most other countries, and not the US before that. Your general assertion about competition not working proves too much. If true, it would affect all market economies all the time.

The claim is not about "competition not working", the claim is about the price. It's actually quite tricky to determine whether the price level corresponds to monopolistic or marginal cost price, because it depends (in neoclassical theory, at least) on supply and demand and these are often not known. So people can easily mistake the (actual) monopolistic price for the (expected by neoclassicals) price at marginal cost, and I would argue they often do.

And there are other mechanisms, in play, too. For example, if there is friction in the market, and it often is, then the prices can be lower due to competition for market share.

Re: Identifying Sources of Cost Disease

#33

Post by js8 »

Jabanga wrote: post #20
js8 wrote: post #18

Earlier quoted context omitted.

> Food is also a matter of life and death. I think that's because you can grow your own food, and you can also buy it from abroad. Not so much with health care or education (because it's a service, not a physical product). So you can be (at least in the U.S.) screwed less over food than over health care. I agree that I don't have a complete picture, but at least, people should consider evidence for this theory. > The…

>The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less. I don't see any evidence for that. A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend fa…

I am not all that familiar with Singapore's health care, but just a cursory look at Wikipedia reveals that it's not really that much market-based, it looks quite similar to most European countries, really.

> there seems to be a trend toward healthcare spending as a percentage of GDP increasing with level of wealth

This can be expected under my model, too. The monopolistic prices depend on the demand curve, which depends on the level of wealth.

Re: Identifying Sources of Cost Disease

#34

Post by Jabanga »

js8 wrote: post #33
Jabanga wrote: post #20

Earlier quoted context omitted.

>The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less. I don't see any evidence for that. A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend fa…

I am not all that familiar with Singapore's health care, but just a cursory look at Wikipedia reveals that it's not really that much market-based, it looks quite similar to most European countries, really. > there seems to be a trend toward healthcare spending as a percentage of GDP increasing with level of wealth This can be expected under my model, too. The monopolistic prices depend on the demand curve, which depe…

Private spending constitutes a larger portion of healthcare spending in Singapore than in the US. Also, much of that private spending is out of pocket:

https://thehearttruths.files.wordpress.com/2013/10/slide4-1....

Which is very unlike the US, where, as a result of government intervention, spending through insurance companies is the norm.

Re: Identifying Sources of Cost Disease

#35

Post by Jabanga »

redy wrote: post #25
Jabanga wrote: post #20

Earlier quoted context omitted.

>The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less. I don't see any evidence for that. A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend fa…

It's also worth noting Singapore is certainly not a market-based system. Singapore's healtcare efficiency is completely the result of mandatory saving programs, a government funded insurance scheme for the poor and strict price controls[1]. As for China frankly I don't think anybody would seriously want to replicate what passed for healthcare in China. It's disturbingly common for patients to die because they cannot…

Singapore's healthcare system is more market based than the EU's, and other than the guarantee of government coverage (despite spending much less per capita on its public healthcare program than the US), than the US's.

The mandatory health savings accounts are not redistributive. Each account is funded by the individual that makes use of it. And the individual decides how much to spend out of it, and with which provider, so it turns the individual into a price-conscious consumer. In the US, leftists would call such a program 'regressive' and a form of privatisation.

So for the reasons mentioned, I think it's reasonable to suspect that the relative efficiency of Singapore's healthcare system is due to the greater role that market forces play in it.

Re: Identifying Sources of Cost Disease

#36

Post by redy »

Jabanga wrote: post #35
redy wrote: post #25

Earlier quoted context omitted.

It's also worth noting Singapore is certainly not a market-based system. Singapore's healtcare efficiency is completely the result of mandatory saving programs, a government funded insurance scheme for the poor and strict price controls[1]. As for China frankly I don't think anybody would seriously want to replicate what passed for healthcare in China. It's disturbingly common for patients to die because they cannot…

Singapore's healthcare system is more market based than the EU's, and other than the guarantee of government coverage (despite spending much less per capita on its public healthcare program than the US), than the US's. The mandatory health savings accounts are not redistributive. Each account is funded by the individual that makes use of it. And the individual decides how much to spend out of it, and with which provi…

I suspect that this is not the case and I can't find anybody else that seriously argues this. Singapore's efficiency is due to price controls and government coverage of the poor [1] and mandatory saving (in that order). Calling Singapore a market-based system is very misleading. Remove the price controls and remove the coverage for the poor and I guarantee you that you'd see the same runaway costs that the US knows all too well. This isn't exactly rocket science and I don't see how you can call a market where the government strictly controls the prices [2] and compels participation to be a "free market" or "market based."

(Then again, because health providers are compelled by law to provide their services to the poor even though the poor cannot pay it's pretty clear that there is no such thing as a modern market-based health care system. This is essentially an oxymoron.)

[1] http://www.slate.com/blogs/moneybox/2012/07/30/you_contain_h...

[2] http://www.thenational.ae/world/southeast-asia/singaporean-h...

Re: Identifying Sources of Cost Disease

#37

Post by tmbsundar »

twobyfour wrote: post #3

Here's a major one the article missed: short-sightedness. In industry and commerce, that may be optimizing for short-term cost-cutting over long-term efficiency. In education, that might be standards and incentives that lead schools to "teach the test" so the teacher/school gets a positive evaluation this semester - rather than investing in teaching how to learn or instilling a love of learning. In healthcare, that m…

In quality circles this is known as cost of poor quality. We might need Deming type thinking again to counter the short term thinking.

* Deming's chain reaction: *

http://www.transformationforum.org/Chain_Reaction.html

Re: Identifying Sources of Cost Disease

#38

Post by BurningFrog »

js8 wrote: post #32
BurningFrog wrote: post #31

Earlier quoted context omitted.

"Cost disease" has affected some large sectors in the US economy for the last 5 or so decades, but not most other countries, and not the US before that. Your general assertion about competition not working proves too much. If true, it would affect all market economies all the time.

The claim is not about "competition not working", the claim is about the price. It's actually quite tricky to determine whether the price level corresponds to monopolistic or marginal cost price, because it depends (in neoclassical theory, at least) on supply and demand and these are often not known. So people can easily mistake the (actual) monopolistic price for the (expected by neoclassicals) price at marginal cos…

I still don't see anything in this argument that is specific to the affected sectors of the economy in the last half century US.

If you're right, you might win a Nobel Prize in Economics, but I don't see how you've explained Cost Disease.

Re: Identifying Sources of Cost Disease

#39

Post by rbcgerard »

tasty_freeze wrote: post #17
rbcgerard wrote: post #8

Here is an example: School district budget: 11.3m Salaries: 4.5m Benefits: 3m That's for ~220 students and ~30 full time teachers... http://www.edline.net/files/stream/5D3207F7E11684C4-0000015B...

Request URL is not accessible. Try logging in to access the resource. $51K is being spent per student per year? And $150K salary and $100K benefits per teacher? Even if there is a school district with that budget, it is hardly representative of most school districts.

http://www.edline.net/pages/Shelter_Island_UFSD/Board_of_Edu...

they have some part time teachers - but that is about the gist of it...and the outcomes not super impressive for the money...

Re: Identifying Sources of Cost Disease

#40

Post by js8 »

BurningFrog wrote: post #38
js8 wrote: post #32

Earlier quoted context omitted.

The claim is not about "competition not working", the claim is about the price. It's actually quite tricky to determine whether the price level corresponds to monopolistic or marginal cost price, because it depends (in neoclassical theory, at least) on supply and demand and these are often not known. So people can easily mistake the (actual) monopolistic price for the (expected by neoclassicals) price at marginal cos…

I still don't see anything in this argument that is specific to the affected sectors of the economy in the last half century US. If you're right, you might win a Nobel Prize in Economics, but I don't see how you've explained Cost Disease.

IMHO, the affected sectors are specific because they are very hard to substitute. Ordinarily, when prices start to grow towards monopolistic price, the demand curve will shift (due to substitution) to counter this effect. But these sectors have demand curves that cannot be shifted easily, and so they seem as a special case, but in fact they are not.

Speaking of Nobel prize, I think Steve Keen deserves one (and maybe two), but he will never get one, unfortunately.

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