It is interesting to me that the three areas main areas in America that have become exponentially more expensive are healthcare, construction, and education. It's curious that they have the most government control.
They are also the three things that are socialized to a much higher degree in other developed countries, where they are not becoming exponentially more expensive.
I remember hearing from someone in the field that health care in Europe is indeed becoming exponentially more expensive. the exponent is smaller than the US, and the cost isn't borne by individuals, but they're still going to have a problem. (I don't have a source for this though.)
Could you explain to me how the government control of those things had lead to price increases? Specifically? I hear this a lot but have never heard an explaination and I am genuinely curious of the reasoning
"The Economy" is a (surprisingly effective!) system for allocating resources. It short-circuits a human instinct that social status and fairness should be the guide, and replaces that with "a persons economic contribution" instead.
Now, it turns out that the difference in productivity between people is so great (think the old 10x-100x programmer) that allocating resources according to contribution creates so much surplus stuff that everybody wins, even the unproductive. And, as a side benefit, everyone has an incentive to be productive.
The flip side is that Government is made up of ordinary people who often ask "what about fairness and status?", and likes to interfere to reallocate from productive people to unproductive people. In mild cases you get a healthy level of support for the disadvantaged, in extreme cases you get Venezuela. But in all cases, since the productive people are given less, they create less and there is less available to distribute. In theory this triggers the laws of supply-and-demand, reduces supply and prices increase.
The flip side is if the productive people consume their wealth instead of producing with it then we probably could tax them without any ill effects, but I think that is rarer than most people think.
Some examples other than what people have already mentioned:
Prescription drugs. The FDA has a "no existing alternative first" policy - they work on approving drugs for conditions where no current treatment works before they even start considering competitors to existing drugs. This sounds quite logical, but the effect of it is that every new drug is granted a monopoly for a long period of time before any competitor can even legally sell their alternative, so the drug company can literally charge whatever they want.
Building codes. In my grandparents' day, it was still possible to construct your own house: you bought a plot of land, hired a concrete mixer to come pour the foundation, bought a lot of 2x4s, and spent a bunch of time hammering & sawing. Now, you have to conform to all of the local building codes (which in the Bay Area, I've heard, is an 800-page tome), and you need to get approval for every feature of the design from the city building inspector, who has the power to completely block your construction if you get on his shit list. As a result, the only people who can build housing are ones who have good relationships with the city and the know-how to adhere closely to all the building codes.
Zoning. Even if you have that know-how and relationships, there are some things you just can't do with housing. Own a 1/4 acre with a single family home and want to convert it to a 4-plex? Too bad, it's not zoned for that.
And you can see the economic impact of all of these by looking at situations where they're absent. Consider generic drugs: once a generic has been approved, the price of a drug can fall by 90% or more. Or compare housing in the Houston metro area, where you can get a 3BR2BA for under $200K, to the Bay Area, where the same house will set you back $2M.
College administration costs have been expanding rapidly over the previous decades. Part of that could be attributed to federal mandates, e.g. everything to do with investigating/achieving Title IX compliance is the result of government regulation and probably wouldn’t exist in an unrestricted free market.
Accreditation is also related to government and can require colleges spend money on things they might not have 50 years ago.
I suspect the biggest cost driver is federally-backed student loans though. When you’re paying with what seems like free money it’s a lot harder to control costs. If students run out of money and drop out of your school, that’s a bigger driver to keep costs down.
It’s pretty simple. Both regulation and guarantees reduce competition in certain elements. Example: colleges no longer have to compete on pricing because students no longer have to save to go to college. The loans are easy to get and colleges are guaranteed on payment. Due to this, pricing competition because much less of a concern for colleges.
When you subsidize industries they no longer attempt to contain costs. Unintuitively, instead of getting cheaper they get more expensive. There's an interesting video by Peter Schiff on the subject: https://youtu.be/AIcfMMVcYZg
Seattle's power, sewer, and water bills are all growing much higher than inflation; have been for at least a decade; and are going to continue at this pace for the foreseeable future.
A better view would focus what kind of government control. Are we talking about a government where legislators are entirely and exclusively dependent on the votes of their constituents? Or are we talking about a government that merely presents the facade of a democracy while actually being dominated by corrupt cartels who use its power to extract rents and squash competition?
Because I promise you, "government" behaves very differently in these two situations.
moorhosj|7 years ago
oconnor663|7 years ago
clay_the_ripper|7 years ago
roenxi|7 years ago
Now, it turns out that the difference in productivity between people is so great (think the old 10x-100x programmer) that allocating resources according to contribution creates so much surplus stuff that everybody wins, even the unproductive. And, as a side benefit, everyone has an incentive to be productive.
The flip side is that Government is made up of ordinary people who often ask "what about fairness and status?", and likes to interfere to reallocate from productive people to unproductive people. In mild cases you get a healthy level of support for the disadvantaged, in extreme cases you get Venezuela. But in all cases, since the productive people are given less, they create less and there is less available to distribute. In theory this triggers the laws of supply-and-demand, reduces supply and prices increase.
The flip side is if the productive people consume their wealth instead of producing with it then we probably could tax them without any ill effects, but I think that is rarer than most people think.
nostrademons|7 years ago
Prescription drugs. The FDA has a "no existing alternative first" policy - they work on approving drugs for conditions where no current treatment works before they even start considering competitors to existing drugs. This sounds quite logical, but the effect of it is that every new drug is granted a monopoly for a long period of time before any competitor can even legally sell their alternative, so the drug company can literally charge whatever they want.
Building codes. In my grandparents' day, it was still possible to construct your own house: you bought a plot of land, hired a concrete mixer to come pour the foundation, bought a lot of 2x4s, and spent a bunch of time hammering & sawing. Now, you have to conform to all of the local building codes (which in the Bay Area, I've heard, is an 800-page tome), and you need to get approval for every feature of the design from the city building inspector, who has the power to completely block your construction if you get on his shit list. As a result, the only people who can build housing are ones who have good relationships with the city and the know-how to adhere closely to all the building codes.
Zoning. Even if you have that know-how and relationships, there are some things you just can't do with housing. Own a 1/4 acre with a single family home and want to convert it to a 4-plex? Too bad, it's not zoned for that.
And you can see the economic impact of all of these by looking at situations where they're absent. Consider generic drugs: once a generic has been approved, the price of a drug can fall by 90% or more. Or compare housing in the Houston metro area, where you can get a 3BR2BA for under $200K, to the Bay Area, where the same house will set you back $2M.
javagram|7 years ago
Accreditation is also related to government and can require colleges spend money on things they might not have 50 years ago.
I suspect the biggest cost driver is federally-backed student loans though. When you’re paying with what seems like free money it’s a lot harder to control costs. If students run out of money and drop out of your school, that’s a bigger driver to keep costs down.
codeddesign|7 years ago
mixmastamyk|7 years ago
paulddraper|7 years ago
Insurance pays for healthcare -> patients care less about how much it costs -> healthcare costs mysteriously rise
Government/lenders pay for school -> students care less about how much it costs -> education costs mysteriously rise
gwright|7 years ago
https://www.forbes.com/sites/timworstall/2016/08/31/union-wa...
jayd16|7 years ago
Besides, isn't this terribly cherry picked? Sewage is a government issue and you don't talk about runaway costs there.
derekp7|7 years ago
coryrc|7 years ago
alexqgb|7 years ago
Because I promise you, "government" behaves very differently in these two situations.
jpfed|7 years ago