Comment by redy | Hacker News Reader

Comment by redy | Hacker News Reader

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Cost disease is definitely a real thing but you should be very wary of the diagnoses proposed by these amateur (libertarian) bloggers. Even a cursory analysis reveals that attempts to blame regulation, utilization, or government spending do not hold water -- all you have to do is compare the US to France, Germany and Japan.

A more plausible theory is that cost disease is largely due to (1) regulatory capture and weak institutions, (2) coordination costs between various institutions and (3) what ultimately boils down to corruption (public officials acting with private interests). If you really want to understand rising costs in health-care, military, and construction you should pay close attention to the rise in outsourcing and pseudo-government agencies (eg US defense contractors, supposedly "private" corporations where 70%+ of revenue comes from the government).

France, Japan, China -- these are in fact highly centralized economies which means that they are able to operate national, robust healthcare and military systems with surprising efficiency. UK, Brazil, India and of course the USA (par excellence) -- these are highly decentralized and federalized economies which means large scale initiatives are very prone to succumbing to the dangers referenced above.

> attempts to blame regulation, utilization, or government spending do not hold water

Agreed. These amateur ideologues latch onto anything that seems to support their beliefs with very little hard thinking.

> ultimately boils down to corruption ... highly decentralized and federalized economies

Maybe, but Western nations are arguably more centralized today compared to 50 years ago.

70 years ago the US won a world war and rebuilt Europe and Japan. 60 years ago the US built the interstate highway system. 50 years ago the US put people on the moon.

Can you imagine the US doing any of these things today? Today we can't win a war in one country (not to mention fighting in the Pacific and Atlantic simultaneously).

The space shuttle is gone with no replacement.

And we can't even maintain the roads and bridges that our grandparents built from nothing.

These were years with great decentralization and with no computers. Organized crime played a much larger role in the economy.

What's changed in the last 5 or 6 decades?

> 60 years ago the US built the interstate highway system.

I think this is the point. The US spent roughly half a trillion dollars to build ~40,000 miles of road. There was a great deal of corruption as well as massive political conflict between federal, state and city agencies. Compare this to what the Nazis did in 1935 when the government hired 150,000 men and put them to work and finished construction five years later.

The point here isn't that decentralization is bad. But it's not difficult to see why these large federalized states like the US, India, Brazil do infrastructure so poorly.

> What's changed in the last 5 or 6 decades?

The rise of highly sophisticated private actors that are, in fact, very, very good at extracting public monies. This is most visible in the military where the cost of outsourcing is so obscene that even Congress cannot deny it and now "in-sourcing" is a thing -- but really it afflicts almost everything the government does. This combination of decentralized, unsophisticated, weak government actors trying to match wits with highly sophisticated, numerate private actors is, in the end, a recipe for pillaging of the public treasury. (In fact one could argue that the 2008 global financial crisis is ultimately the best example of such pillaging.)

Another way to look at this is to understand that what people call "cost disease" is the other side of the growing pricing power of private firms. And, ultimately, these firms can charge such high prices because they have worked very hard to guarantee that governments will pay them. (See eg Medicare where by law the program cannot negotiate prices.)

>France, Japan, China -- these are in fact highly centralized economies which means that they are able to operate national, robust healthcare and military systems with surprising efficiency.

France and Japan are suffering from the cost disease. China's healthcare system is more private than the US system. It's also pretty primitive at the moment so not a great point of comparison.

I think your cursory analysis is sloppy.

>amateur (libertarian) bloggers

Ah the irony..

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