BARBARIANS AT THE GATE

Ever heard of cost diseases?
Things that are made (like clothes, cars and electronics) get roughly 20% less expensive for every doubling of quantity, (and continually improve in quality), without apparent limit- courtesy of globalisation.

But some things (education, health care and housing, for example) are getting ever more expensive- a LOT more expensive. And this is true even when costs are adjusted for greater functionality and inflation. They're not necessarily getting better either. These things have caught a cost disease.

Education costs much more than it did 50 years ago in real terms, perhaps by a factor of 5 or more. Nor are pupils learning more for every year they are engaged in the process; arguably they are learning less - and the system is fudging this by what is euphemistically called 'grade inflation'.

And sure, we now live longer and enjoy better health, but not commensurate with the extra costs. Procedures that haven't changed substantially in the last 50 years (like appendicitis surgery or fixing a broken leg for example) now cost 5 or 10 times as much in inflation adjusted $'s as they did back then.

And housing has become increasingly unaffordable, even while the constituent physical bits (building materials) have become ever cheaper, because they fall into the "things that are made" category above.

Strangest of all, the providers of these more expensive services are NOT personally gaining from the increases: Generally, our teachers, doctors and builders make less per hour than they did back then- and are subjected to far more anxious-making and happiness-destroying legal and professional risks.

By now you're probably asking yourself if what I've just asserted here really is true; maybe children are learning more per unit of time, maybe health care is more expensive entirely because we're getting much more of it, maybe houses are more expensive because they are bigger and better?

So, here are heaps of validating graphs, statistics, and links for you to consider before you dismiss this as another wild theory from a frustrated kiteflier suffering from cabin fever as this long cold wet winter trundles on:

The data in this lot are USA specific, but evidence that it applies generally to developed countries is widely available.

It's true then, beyond any reasonable doubt, some essential elements of 21st century life are pricing themselves right off the market, except for the wealthy minority. Not surprisingly, this is causing many people to question the legitimacy of our representative democratic systems.

But WHY is it happening- what's the cause or causes? Why are these (and other) essential services costing ever more while delivering less value for the users and lower real incomes for the providers?

One widely posited explanation is that civilisations have a natural life span, towards the end of which they lose their will to live and become choked by ever more laws, each with its own constituency determinedly holding on to the privilege conferred- while Rome burns. This "end of civilisation" explanation could clearly be true- but begs the questions; what is the actual mechanism, and is decline and fall unavoidable?

An alternative explanation identifies ever-bigger government as the problem: Goods and services provided via competitive markets get cheaper and better with time, but when supplied by governments or government protected businesses, they become more expensive and (very often) worse over time. https://capx.co/the-case-for-free-market-anticapitalism/ (Opines that London's catastrophic Grenfell fire was a typical government failure.) There is plenty of evidence for this 'big government is the problem' theory, but there are also countries with large public sectors that seem to have avoided at least some cost disease problems. Health care takes a larger portion of the national cake in the "free enterprise" USA than in many higher-tax, bigger-government northern European countries- arguably for worse outcomes.
To my view, a more likely, root cause of cost disease is that we're no longer directing our resources to those areas that will improve prosperity (and hence security and life expectancy). We have become wasteful; by not cutting out restrictive practices that cost more than then they return in benefits and by spending our lives doing trivial things while neglecting more useful ones. Basically, cost disease is a special type of luxury disease; a suit of problems that we wouldn't have if we didn't think we could afford them.

Often, when we establish a rule, regulation or law to address some perceived problem by the usual; "whatever the cost, it will be worthwhile if it saves just one life", we get the opposite result- because saving one life this way can cost lives in aggregate by snipping a little bit off everyone else's. Regulations almost always increase costs, making everyone a bit poorer- which reduces their life expectancy. And lobby groups pushing the government into new spending by using the emotive "you can't put a price on human life" can be very dangerous, because spending a million dollars saving one person condemns to death 10 others whose lives could have been saved for $100,000 each- and there are plenty of these.

And people in developed countries now rather admire those who "go off-grid" and take up a subsistence lifestyle- but we should revile them. Health care, education, the justice system and national defence are the essentials of a functioning state, without which our lives would once again be "-solitary, nasty, brutish and short--" (Thomas Hobbes, but you already knew this, I'm sure). Those who do not contribute to the support of these institutions when they are able to, are directly stealing from everyone who does, and are condemning future generations to a life that will be shorter and less secure than it could be.

The solution to these types of cost disease is simple therefore:

Rules, regulations and laws need to be subjected to cost/benefit analysis.
If making driving licenses harder to get causes disadvantaged kids to drive unlicensed - crashing, dying and taking out innocent bystanders in alarming numbers as they flee from the police- we should make the process easier. Instead we increase the fee and make it even more difficult- and set up ever more expensive support programs in a spiralling vortex of futility. This effectively cuts some kids out forever, which stops their getting employment (a driver's license being seen as a proxy for competence by employers), condemning them to a life of dependency and crime- for which we all pay. We should accept a higher crash rate while kids are learning on the job, because this will eventually save a LOT of lives.

But most of all, we should remind ourselves that not all human activity has equal value; We need to apply ourselves to things that matter and stop doing the many things we indulge in now that are a waste of time and money.
Like kite flying for example.
Ouch, not where I expected this to get to.
On balance, decline and fall doesn't now seem so bad; what sort of kites will barbarians like do you think?

PETER LYNN, ASHBURTON, AUGUST 1 '17

PS Cost diseases above are NOT of the Baumol's type; View Wiki Article