Reflections on Goff and the Cost Disease - by Bryan Caplan

Brian Goff’s open email on Baumol’s “cost disease” turned out to be one of Bet On It’s all-time most popular guest posts. And it’s no accident; Goff crafts a thoughtful exploration of a plausible story. Still, I think he’s largely incorrect, for reasons I shall now explain. Brian Goff’s in blockquotes; I (Bryan Caplan) am not.

Disclaimer: This is not an April Fool’s essay! As Mirabeau said of Robespierre, “He will go far, for he believes all he says.” (Quoted in Richard Pipes, The Russian Revolution)

On medical care the view that prices and expenditures are incredibly high and wasteful overlooks two important points: i) that prices and expenditures need to be adjusted for quality; and ii) income levels and growth accounts for almost all expenditure differences across countries and over the long run.  

I’m puzzled. The idea that the quality of health care has improved is already almost universally accepted. Economists who argue that healthcare expenditures are wasteful are self-consciously challenging this standard view, highlighting surprisingly strong evidence that marginal medicine fails to improve health. See Robin Hanson’s “Cut Medicine in Half” for details.

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