part 9 of memories from my
35 year teaching career:
One thing certainly has changed dramatically
in the last few decades: the cost of college.
There is an inevitable economic law that
pushes the prices of some items up (even
when the prices are corrected for the
effect of inflation). Another
example of the price increase trend is
the cost of health care.
Economic decisions are subject to this
reality constraint:
average real wages equal average productivity
The productivity (the amount
produced per hour of work) for farmers
and manufacturing workers has skyrocketed
in the last couple centuries as new
technologies have been applied. Real
wages have soared while the fraction
of income spent on necessities such as
food and clothing has fallen — leaving
more income for people to spend on all
the products that are available now
that did not previously exist.
However, education, medical care, and
some other service industries share
one basic feature: it is hard to
increase productivity. The productivity
of a teacher is measured by the
number of students in a class. The
productivity of a doctor or nurse is
measured by the number of patients
per hour. Although technological
improvements can enhance the
quality, there is a basic limit to
how much productivity can grow when
the service provided depends on
personal interaciion: teacher/student
or doctor/patient.
Note that this cost pressure is independent
of the question of who pays for it.
College costs are partly covered by
financial aid, and health care costs
are often covered by insurance. Sometimes
government benefits apply to both
of these.
The inevitable upward cost pressure
on services requiring personal interaction
is known as Baumol’s law, or the cost
disease. Recommended reading: The
Cost Disease by William Baumol.
……………..
–Douglas Downing
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