"It will not escape notice that New York buys subway construction the way all of America buys health care."-Alex Tabarrok, Marginal Revolution, covering an excellent New York Times article on why subway construction in New York is so insanely expensive.
France -- supposedly bureaucratic, dirigiste, labor-protected France -- builds subways and high speed trains for far less than we pay. Something about the US government makes us singularly inefficient in public expenditures. Don't expect the French health care model to cost the same here either.
A prime candidate, in my view, is the US habit of federal financing plus state and local decision making. Local politicians who are spending national taxpayer money have very little incentive to reduce costs.
Professor, that might be a good one, but it's a distant second place after "If you can't afford it, it's not insurance" - A. Tabarrok
ReplyDeleteMegan McArdle has often made a similar point in response to those who believe they can drive down the cost of healthcare: that it would involve things like employees in the sector being paid less and that makes any such change politically difficult.
ReplyDeleteI had the same impression "something American is going on" after reading your post on Goolsbee's partisanship. If he wants to serve in a new administration he has to take one for the team and go along with the party's communication strategy. Given that the two US parties are very much coalitions that tailor their policies as they go along, this is often ackward for an academic striving for some consistency: stimulus is good today, bad tomorrow; our tax cuts are good, while theirs are bad, etc.
ReplyDeleteIt is my impression that the representative democracy on the European continent with competititon between many parties places a premium on consistency. Each party needs to preserve its brand somewhat in order to hang on to its base which is often on attack from many sides. As Trump has shown that even today the Republican party can be successful attracting blue collar voters, neither party has much desire to take a strong anti-union position. Every voter is always a marginal one on every issue. It does not lead to principled policies and a cunning third party can readily exploit this.
In your public intellectuals post, you suggested that if Goolsbee prefaces his comments with "I am speaking as Democratic partisan today" all would be fine. In Europe economists tend to choose, either you are scrupulously neutral and than you can speak as "an actual economist" or you align yourself and you defend party positions but you cannot use the label anymore.
"A prime candidate, in my view, is the US habit of federal financing plus state and local decision making. Local politicians who are spending national taxpayer money have very little incentive to reduce costs."
ReplyDeleteThis is intuitive, but I no longer think it is a good explanation. I have a PhD in transportation engineering.
The local share of financing for American transit capital investments is often large. Projects are often funded by local option taxes---often voted on by referenda. Here is a site for one in LA that claims to be 3/4 funded by local option tax: https://www.metro.net/projects/westside/#costfunding. Also, a city that kept its costs down could get more money from the Feds, because their projects would have higher cost benefit ratios. So there are incentives to keep costs down at the system level. Often, in fact, these come into play very tangibly: cost overruns on rail sometimes cause local bus budgets to be cut, whereupon people complain and file civil rights lawsuits.
Moreover, our costs are higher than all other countries, but in some other countries the national government foots even more of the bill.
There is a great book about replacing the eastern span of the bay bridge. https://www.citylab.com/equity/2015/10/from-250-million-to-65-billion-the-bay-bridge-cost-overrun/410254/ This project had an insane cost overrun, driven by very obvious mistakes, but there was no federal funding.
When I taught the grad course in transit at Berkeley, the students would ask me why American projects were so expensive. I told them that in the social sciences, we know lots of facts without explanations. I said the worst mistake is to ignore a fact in your decision-making simply because you don't know its cause.