I’ve started reading a book by William Baumol called The Cost Disease, which raises an interesting question. Why in 2014 can I buy a laptop computer that is smaller, more powerful, and most of all, much cheaper than one I could have bought just ten years ago, but healthcare costs have risen from ten years ago? Why are some industries able to become more efficient, and produce more of their goods or services, faster and cheaper, while other industries are stuck in a spiral or are continually raising costs with stagnant efficiency?
I won’t give a full, in-depth review of the book, but in short, the analysis lays out the premise that in some industries, such as with computers or automobiles, manufacturers are able to continually improve on both their manufacturing processes and the quality of the goods they are manufacturing. This enables these manufacturers to produce better goods at lower costs. These lower costs then enable them to pass some of these savings on to their customers, as well as to pay their employees more money. Continue reading →
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