When browsing among the shelves at the local book store, The Cost Disease is apt to be a turnoff for those looking for an upbeat read. In a sense, this would be a serious error, and a daring reader would soon discover that in less than a century, “the amounts we can consume of virtually everything will have gone up about 700 percent.” Real income per capita in 2010, the time the book was written, was a bit over US $49k, implying a real income for our not-too-distant ancestors of close to US $350k. Per capita! No, The Cost Disease (hereafter, CD) is not located in the Science Fiction section. Indeed, its primary author, Willam J Baumol, is a distinguished economics professor, currently at NYU, professor emeritus at Princeton, and come every October, among those mentioned as deserving of a Nobel Prize in economics. If, in fact, this were to come to fruition, then one of the major preoccupations in the advanced economies would be, namely, whether the cost of health care and other services would bankrupt governments and overwhelm their societies.
On the face of it, no one is more qualified than Baumol in regard to the subject matter of CD. It was his path-breaking 1966 work in cooperation with William Bowen that provided the basis for today’s CD. In the former, the authors presented what was an inherent dilemma across the industries in our society. Simplifying, if one compares a live string quartet with the production of an automobile, pretty much the same number of players were on the stage over the past 150 years, while the number of workers on the “assembly line” has declined dramatically. That is, the productivity of the auto worker has increased dramatically, while the violinist’s not at all. If workers were paid on the basis of their productivity, auto workers would be doing extremely well, while string players not so well. Indeed, there would be none of the latter. The only way the violinist can afford to continue to perform is with an increase in pay. End of story in a sense. The cost of the automobile will decline over time and the concert ticket will rise inexorably. While an obvious simplification, this is the essence of what was then called a “dilemma,” and has now morphed in to a “disease.”
Professor Baumol, along with several others, has returned to the subject he so significantly raised more than half a century ago. Sadly, anyone familiar with the earlier work will find little of value in the “new” venture. For those new to the subject, the authors provide an excessive and overly detailed discussion of the health care industry, both in the U.S. and abroad (61 percent of the text). Given the discussions dealing with business services, terrorism, and the environment, there is little more than passing mention of both the arts and education, industries subject to the dilemma, and both of core significance to the nature and well-being of our society. In a sense, the authors alert the reader to this situation in the subtitle, “Why Computers Get Cheaper and Health Care Doesn’t.”
Alas, even accepting the alert provided by the subtitle, I found the work problematic in a significant number of ways. In addition to the incomprehensibly sanguine prediction about the future noted above, the book is rife with problems that distract, divert, and delude, far too many for the space allotted here. But by way of example, among the most problematic include the following:
