The Cost Disease: Why Computers Get Cheaper and Health Care Doesn't

by William J. Baumol, David de Ferranti (Contributor), Monte Malach (Contributor)

Why are the costs of health care and higher education rising so dramatically? How can we keep them affordable for lower- and middle-income American families?

The exploding cost of health care in the United States is a source of widespread alarm. Similarly, the upward spiral of college tuition fees is cause for serious concern. In this concise and illuminating book, the well-known economist William J. Baumol explores the causes of these seemingly intractable problems and offers a surprisingly simple explanation. Baumol identifies the "cost disease" as a major source of rapidly rising costs in service sectors of the economy. Once we understand that disease, he explains, effective responses become apparent. Baumol presents his analysis with characteristic clarity, tracing the fast-rising prices of health care and education in the United States and other major industrial nations, then examining the underlying causes, which have to do with the nature of providing labor-intensive services. The news is good, Baumol reassures us, because the nature of the disease is such that society will be able to afford the rising costs.

Genres: Economics, Nonfiction, Health, Business, Science, Politics, Health Care

272 pages, Paperback

First published September 25, 2012

Reviews

[Phoebe · Rating 3 out of 5]

Ehhhh I have mixed feelings on this book. The first time I read it, I thought I finally understood why healthcare in the United States costs such an ungodly amount. Buuut after reading a couple of other books (Priced Out by Uwe Reinhardt, the Price we Pay by Marty Makary) it's easy to see there's much more going on than labor costs keeping costs high. Baumol's book is great to get an understanding of what the cost disease is, but if you want a well-rounded view, you have to read a book or two more. His book was really well written though.

[Matej Misik · Rating 4 out of 5]

The first half of the book is very well written and intuitively outlines why we haven’t seen productivity gains in healthcare despite decades of innovation and why we are unlikely to see the rise of healthcare expenses (typically quite significantly outpacing the rise in inflation or GDP) slow down.

I would have liked Baumol to dig in deeper and show how unlike in other industries innovation in healthcare has more often than not led to decreases in productivity (think hyper-specialization of workforce, many new treatment and diagnostic modalities per patient…).

The second part of the book is today slightly dated and presents case studies dominantly from other industries trying to draw a link to healthcare. This part of the book for me was unnecessary for the points the author was trying to make.

[Jim Sailer · Rating 5 out of 5]

This is a compact, powerful book with clear, jargon-free analysis of our economy and our economic future. He takes a subject we think we know well -- health care costs, for example -- and shows why the dominant political thinking about this is not only wrong, but dangerous. An outstanding book!

[Cameron Davis · Rating 3 out of 5]

A must-read for anyone interestedin the economics of health care. Not the most exciting book but the idea's implications are huge.

[Ethan · Rating 4 out of 5]

A book that develops a convincing hypothesis on why healthcare costs have exploded over the past few decades, while cars and other consumables have declined in price.

The first half of the book is academic and reads like a research paper abstract. Arguments were well constructed and Baumol provided a lot of data to prove his point, which I definitely appreciate. The latter parts of the book (where the author collaborated with a few others on the content) felt less than well-written, and some of the examples were superficial (for example, the authors devoted an entire Chapter 9 to singing praises for IBM).

[D · Rating 3 out of 5]

If you’ve already read the Wikipedia article on Baumol’s cost disease, reading this book won’t add much. The examples are focused on health care (excluding all other service occupations) and are written in an innumerate business-case-study language that obfuscates details and does not form a convincing argument. That said, the central idea is thought provoking and something more people should be exposed to.

[Joetich · Rating 5 out of 5]

Completely enjoy this book. There are couple of ideas that I don’t like, but most of them give a far broader perspective of what happens with healthcare and other stagnant sectors. I must say that this is a must for every administrative staff in this kind of industries.

[Robert · Rating 3 out of 5]

This book was written shortly after the 2010 ACA fight in the United states and it is very much a product of that period.

The cost disease concept is really important to understanding a lot of the why the modern economy looks the way it does but it's probably not so complicated as requiring an entire book to explain.

An okay but not essential read.

[Marks54 · Rating 4 out of 5]

This book develops one of the principal explanations for why costs have been increasing significantly on a consistent basis in some sectors (health care, education) while they have been decreasing in others, especially manufacturing. The argument is complex but the basic point is that when some industries are becoming much more efficient, those industries or sectors that are limited in the degree to which productivity can be enhanced will necessarily experience persistent costs increases due to labor market and other considerations. Various details of this general argument are considered along with its policy implications and some good case examples of the cost problem in such "stagnant" industries.

The book is in essence a compilation of papers written around the overall argument. Along with the argument, there is much time devoted to reviewing the research that has been brought to bear to test (and largely support) this argument about health care and education cocsts.

This work is valuable for its policy implications - for there is a role for regulation in unsuring that the "cost disease" does not dampen innovation or damage the poor, who are disproportionately affected by it. The style is very effective, especially in translating discussions among economists to treatments that are more accessible to general audiences.

[Reid Mccormick · Rating 4 out of 5]

Sometimes I forget how I find the books I buy. Usually it is one of two ways: I either find the book while browsing Amazon or the book is referenced in another book I read. I remember seeing The Cost Disease in another book, but I can’t really remember which one. But I found it on Amazon, enjoyed the reviews, and saw that it was relatively inexpensive so I decided to give it a go.

The Cost Disease is a heavy, more academic work. This is not a typical light read in popular economics like Freakonomics. It is very interesting book that tackles the common misunderstandings of our economy.

I am a millennial working in higher education with baby boomer parents. It seems like every day I am being bombarded with questions about the cost of higher education and health care. Both institutions are notorious for their skyrocketing costs over the years. The Cost Disease gives us a solid answer to the question. In short, health care and higher education will continue to increase, but fortunately the buying power of consumers will continue to increase as well. And of course, there is some fine print not included in my short summary.

I am sure you can ask a dozen economists the same question and you will get a dozen different answers, but The Cost Disease offers a good, researched response to this huge question.

[Liam · Rating 5 out of 5]

"Since the Industrial Revolution, labor-saving productivity improvements have been occurring at an unprecedented pace in most manufacturing activities, reducing the cost of making these products even as workers' wages have risen. In the personal services industries, meanwhile, automation is not always possible, and labor-saving productivity improvements occur at a rate well below average for the economy. As a result, costs in the personal services industries move ever upward at a much faster rate than the rate of inflation." (xvii-xviii)

"Total health care spending appears to be income elastic. In other words, if GDP per capita increases by 1 percent, total health spending per capita will increase by slightly more than 1 percent. As it grows richer, a country will spend a growing proportion of its GDP on health." (98)

"The range of such progressive-sector business services is remarkably broad and includes items as diverse as business strategy and business operations consulting, statistical and risk calculation, data management and analytics, and even the computer tools used for animated film production. All of these activities have seen dramatic productivity growth that can be attributed to the sophisticated technology employed in their production." (125)

[Mark · Rating 3 out of 5]

The premise of this book is that though areas of the economy which require intensive human involvement: teaching, health care, fine arts, etc seem to get more expensive as the cost of mass produced items fall. Even though things like healthcare seem to be growing in cost, they are still affordable by society because the cost of other things has fallen. I found myself wondering what could be done in the health field to help it scale / require less people. While there was some good content, book felt very redundant and would have been better served by a article 1/5 as long as the book. Writing / redundancy would be only 2-stars, but the ideas discussed redeems book to 3-stars for me.

[Luis · Rating 5 out of 5]

El libro tiene la virtud de explicar claramente y en un lenguaje claro qué es la "enfermedad de costos" y varias de sus implicaciones para la elaboración de políticas públicas. La parte de recomendaciones de política se centra en el sector salud, dejando de lado otros sectores como el educativo. En buena medida esto se debe a que el debate en los Estados Unidos es sobre el sector salud, lo cual explica también que la mayor parte de la evidencia empírica sea para ese país. Es un libro que despierta el interés sobre el tema y llama a ahondar en su estudio y sus implicaciones en otros, como es la desigualdad.

[Chris Sampson · Rating 3 out of 5]

The rising cost of healthcare is a global phenomenon. Why? Because the relative productivity of labour intensive industries inevitably - and inexorably - declines. Computers get cheaper; healthcare doesn't. It's a simple idea, now proven by historic data and in need of appreciation. The cost disease allows - encourages, even - affordable increases in spending on health. Though incisive, Baumol's book inevitably labours this central argument. But to understand trade-offs in public spending you need a firm grasp of the cost disease. This book provides a means to that end, and delivers important context for any discussion about healthcare, education, economics and politics.

[Salem · Rating 2 out of 5]

Excellent analyses on why the rising costs of healthcare and education taking more of GDP annually may not be a problem. Lots of good recommendations on healthcare cost-cutting, too. Far too optimistic about the benefits of rising productivity and falling costs elsewhere, though. It'll only take a hiccup in resource availability to invert the curve of productivity-related cost savings in, let's say, food production, to devastate his assumptions and put healthcare permanently out of reach for billions.

[Burton Johnson · Rating 4 out of 5]

Great insight from an economist on the the relationship of the rising real cost of service industry goods like healthcare and the arts vs. those of manufacturing where productivity increases are common and substantial. I will always view healthcare in a different light after reading this book. Many changes need to happen to help our healthcare system, but we will indeed be able to afford them with the significant decrease in costs of so many other goods in our lives.

[Jason Furman · Rating 3 out of 5]

If you know what Baumol's cost disease (or Bowen's curse) is then this book probably will not add very much--there are some interesting, insightful discussions but most of it is very basic, high level, repetitive, and does not take important steps like quantifying the importance of the phenomenon it is focused on.

[Stephen]

http://www.economist.com/node/21563714

[Mills College Library]

338.52097 B3488 2012

[Brian Pinnock · Rating 3 out of 5]

Well worth reading.

[Mof · Rating 5 out of 5]

Why higher relative costs of education and healthcare are not necessarily a problem.

[Paul · Rating 1 out of 5]

Absolutely off base. Do not read this. Please.

[Anne Pan · Rating 4 out of 5]

The book drills down the cause of high medical costs, provided hypothesis and tests.
Despite I can’t really agree with some of its assumptions, the points and conclusions are still somewhat insightful and interesting to me.