Here's a major one the article missed: short-sightedness.<p>In industry and commerce, that may be optimizing for short-term cost-cutting over long-term efficiency.<p>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.<p>In healthcare, that might be high costs and bureaucratic obstacles that deter people from seeking evaluative and preventative care - at the cost of much more expensive later-stage treatments down the line.<p>In real estate, it could be crappy building materials and lower standards of craftsmanship that help build faster and cheaper but result in more problems and higher utility and eventually maintenance costs down the line.<p>In infrastructure, it can be deferring maintenance so you can cut taxes - resulting in more expensive repairs when things fall apart completely for want of a bit of paint or grease.<p>And so on ad nauseum.
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: <a href="http://www.albany.edu/~gs149266/Keen%20&%20Standish%20(2006).pdf" rel="nofollow">http://www.albany.edu/~gs149266/Keen%20&%20Standish%20(2006)...</a><p>One simple way to see this, really, is to consider a simple example (curiously omitted from economic textbooks) of a supply chain: You have two markets and three entities - producers, distributors and consumers, where producers sell to distributors and distributors sell to consumers. Now consider, in the case of competition, what should be the margin of the distributor in the equilibrium? That is, why should all the cost decrease be propagated to the consumers?<p>In reality, "equilibrium" prices are probably oligopolistic determined by some "relative market power", which is really about how much you can "screw" your customers. And health care and education are matter of life and death for most people, so yeah, high prices, unless there is a big factor that will put an end to that (which happens outside the U.S. through regulation and government price negotiation).
Very interesting observations and a very complex subject with many factors.<p>One theory of economics is that it only actually works if very few of the market participants act like rational economic actors.<p>In the example of higher education, for instance, universities used to be a great value for students. Now they are approaching break-even on average in terms of cost-benefit for students, with some students losing and some winning.<p>That is a market based outcome and is exactly what a market should do but people don't like it.<p>In the past maybe professors and administers thought in non-market ways, such as that they should impart knowledge for the good of society, etc, etc, as opposed to rationally optimizing their income.
When I read Scott Alexander's post I couldn't shake the notion that he could have saved himself a lot of writing if he simply read up on how CPI is calculated and noticed that it's a very limited measure of real inflation.
Here is an example:
School district budget: 11.3m<p>Salaries: 4.5m<p>Benefits: 3m<p>That's for ~220 students and ~30 full time teachers...<p><a href="http://www.edline.net/files/stream/5D3207F7E11684C4-0000015BE8DF4EC2/050817+Budget+Presentation-Budget+Hearing.pdf" rel="nofollow">http://www.edline.net/files/stream/5D3207F7E11684C4-0000015B...</a>
The cost disease can't be cured gracefully, for too many people have a vested interest in maintaining the delusion that government is not inefficient.<p>The source of the cost disease is the growing control of government over sectors of the economy.<p>In education:<p><a href="https://academic.oup.com/qje/article-abstract/111/3/671/1839935/How-Teachers-Unions-Affect-Education-Production" rel="nofollow">https://academic.oup.com/qje/article-abstract/111/3/671/1839...</a><p>In healthcare, the cost disease began when Medicare programs began being created around the world.<p>Even within sectors, we see the pattern. For example, the two fields of medicine which have seen the least cost growth are cosmetic [1] and laser eye surgery. Not only have costs risen the least, but the quality of some procedures in these fields has improved tremendously over the last two decades. Both are electives, so there are fewer mandates requiring that they be covered by insurance and fewer redistributive programs to subsidise them.<p>[1] <a href="http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06-17-2013.jpg" rel="nofollow">http://healthblog.ncpa.org/wp-content/uploads/2013/06/HA1-06...</a>