Why education, healthcare and some other things cost ten times more than they used to and ten times more than elsewhere

There are many examples where costs have gone up well over ten times in education, healthcare and other areas but have not had the proportional improvement. Some importnant things cost 10 times as much, 10 times more than they used to and 10 times more than in other countries

Inflation-adjusted cost of a US university education was something like $2000/year in 1980. Now it’s closer to $20,000/year. It can still cost $2000 per year for a university education in many universities in Canada.

Do you think that modern colleges provide $18,000/year greater value than colleges did in your parents’ day? Would you rather graduate from a modern college, or graduate from a college more like the one your parents went to, plus get a check for $72,000?

Real estate is expensive in Hong Kong and Vancouver but annual tuition for local students is still about US$3000-5000 per year.

Some of the excess cost does go to wages.

CEO salary went from an average of $1.5 million in 1978 (in 2013 dollars) to $15 million in 2013.

Average doctor pay in the U.S. (where more than 70% of doctors are specialists) to that in nations such as Canada and France (where less than half of doctors are specialists) is not very illuminating.

A lot goes to administrative bloat

John Cochrane notes that The ratio of teachers to students hasn’t gone down a lot — but the ratio of administrators to students has shot up. Most large public school systems spend more than half their budget on administrators. Similarly, class sizes at most colleges and universities haven’t changed that much — but administrative staff have exploded. There are 2.5 people handling insurance claims for every doctor.

Scott Sumner indicates he was at Bentley in 1982, teaching 4 courses a semester. When he retired in 2015, he was making 7 times as much in nominal terms (nearly 3 times as much in real terms), and he was teaching 2 courses per semester. Thus he was being paid 14 times more per class (nearly 6 times as much in real terms).

Andrew Swift identifies the areas where people are willing to be scammed or are vulnerable.

What you observe is fifty years of optimization of wealth extraction. Price outcomes depend on the contributions of hundreds of participants. Every participant optimizes his/her earnings, exerting a constant upward pressure on price. Participants become ever more expert at getting rich. Wealth-extraction schemes (scams) are refined and optimized (in all markets), and price increases are pushed downstream (in markets where buyers can’t push back). Radical price increases reflect markets where consumers have reduced ability to push back:

– complex markets (can’t understand)
– opaque markets (can’t see)
– entrenched/highly-regulated markets (can’t modify)
– necessary-to-keep-living markets (can’t avoid)
– limited-quantity markets (really want)
– intermediated markets where the end buyer doesn’t decide how things are purchased (don’t choose)

bkearns123: Another commonality in the examples cited is disintermediation/subsidies. College is paid for by a third party, and financed by generous government loans. Generous in the sense that they are easy to get, not easy to get out of. Health care has massive tax subsidies, and for a good period of time felt “free” to employees. Public schooling is paid for indirectly.

Regarding the section on risk aversion, I happen to be in the playground business. The most common injury is broken bones from a fall. Consequently, our industry has ended up with poured in place surfacing, which costs 10x as much as mulch or pea gravel. It is wonderful stuff, but really increases the cost of the playground. Again, no one pays directly for their playground, and the paying party cannot risk not being in tune with the regulations. Markets cannot function if the risk reward relationship is not direct.

A lot of Education and healthcare Resources going to those that would not have been helped before or in other places

Education in the old days and in many other countries does not help those who were not academically inclined or motivated.

Higher education and education did not have to accommodate such a large percent of the population. There was more weeding out or ignoring of students who could go to the trades or other life paths.

Tolerated Excessive regulation that does not add much benefit

Nuclear plants cost ten times as much in the USA. Price increases have been less in most other countries.

Sarbanes Oxley was supposedly to prevent another Enron. It requires billions to be spent each year on documentation (paid to Price Waterhouse and others and PWC who wrote the legislation.) for three levels of financial and business leaders to sign off on what is supposed to be significant. In theory it means that the executives cannot say they did not know when something like an Enron happens. Are the companies better and more safely run before Enron or after Enron with Sarbanes oxley.

All of the regulations that came in after the 2007 financial crisis, did they really make things better or safer ?

Canada has never had a banking crisis but the USA does not look to a simplified banking or financial model. They keep the “sophistiated” and risky gambling with other people’s money model.

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