Dr. Scott Alexander over at Slate Star Codex has a post Considerations on Cost Disease riffing off a piece by Tyler Cowan. Alexander is usually lengthy, but it is because he's thorough. He actually saves you from reading half-a-dozen other articles. He tries to give many sides a fair shot at explaining the phenomenon. He does his research, provides intriguing examples, and frames thing in ways I hadn't quite thought of. Do you think today's student would prefer the college education they are getting today, or the essentially similar one their parents got in 1980, plus $72,000? (Pretty obvious answer) Then he goes on to discuss exactly why that choice is not available - that no matter how much we look to the market to solve our problems, plenty of things simply elude market forces. Not always government, either.
More than once I would read a paragraph and think "Oh, but he's neglecting the competitive forces that in play here but not there," only to find two paragraphs later that he has indeed considered exactly that, plus a few other things I hadn't thought of. He wonders why there are diminishing returns, why other countries pay for health care or education much at a fraction of our costs, and whether there is much we can do about it. He has a remarkable ability to question his own assumptions. A sample:
Fifth, might the increased regulatory complexity happen not through literal regulations, but through fear of lawsuits? That is, might institutions add extra layers of administration and expense not because they’re forced to, but because they fear being sued if they don’t and then something goes wrong?
I see this all the time in medicine. A patient goes to the hospital with a heart attack. While he’s recovering, he tells his doctor that he’s really upset about all of this. Any normal person would say “You had a heart attack, of course you’re upset, get over it.” But if his doctor says this, and then a year later he commits suicide for some unrelated reason, his family can sue the doctor for “not picking up the warning signs” and win several million dollars. So now the doctor consults a psychiatrist, who does an hour-long evaluation, charges the insurance company $500, and determines using her immense clinical expertise that the patient is upset because he just had a heart attack.
Those outside the field have no idea how much of medicine is built on this principle. People often say that the importance of lawsuits to medical cost increases is overrated because malpractice insurance doesn’t cost that much, but the situation above would never look lawsuit-related; the whole thing only works because everyone involved documents it as well-justified psychiatric consult to investigate depression. Apparently some studies suggest this isn’t happening, but all they do is survey doctors, and with all due respect all the doctors I know say the opposite.
This has nothing to do with government regulations (except insofar as these make lawsuits easier or harder), but it sure can drive cost increases, and it might apply to fields outside medicine as well.
And also, because it's just a good quote:
I mentioned politics briefly above, but they probably deserve more space here. Libertarian-minded people keep talking about how there’s too much red tape and the economy is being throttled. And less libertarian-minded people keep interpreting it as not caring about the poor, or not understanding that government has an important role in a civilized society, or as a “dog whistle” for racism, or whatever. I don’t know why more people don’t just come out and say “LOOK, REALLY OUR MAIN PROBLEM IS THAT ALL THE MOST IMPORTANT THINGS COST TEN TIMES AS MUCH AS THEY USED TO FOR NO REASON, PLUS THEY SEEM TO BE GOING DOWN IN QUALITY, AND NOBODY KNOWS WHY, AND WE’RE MOSTLY JUST DESPERATELY FLAILING AROUND LOOKING FOR SOLUTIONS HERE.” State that clearly, and a lot of political debates take on a different light.
Oh, and SSC often has brilliant commenters, but this particular thread starts out with some people whose ability to do anything but recite cliches is suspect, so just don't. JUST DON'T.