Cost Disease Socialism: How Subsidizing Costs While Restricting Supply Drives America’s Fiscal Imbalance

Niskanen Center: We are in an era of spiraling costs for core social goods — health care, housing, education, child care — which has made proposals to socialize those costs enormously compelling for many on the progressive left. This can be seen in the ideas that floated around the 2020 Democratic primary, which are a … Continue reading Cost Disease Socialism: How Subsidizing Costs While Restricting Supply Drives America’s Fiscal Imbalance

Cost disease: Why U.S. Infrastructure Costs So Much

Justin Fox: That said, the U.S. probably also ought to be spending less on infrastructure. Not overall, but on something like a per-mile basis. Broad international cost comparisons across all kinds of infrastructure don’t seem to be available, but there is a growing body of evidence on one particular infrastructure area that matters a lot … Continue reading Cost disease: Why U.S. Infrastructure Costs So Much

Cost Disease: Federal Reserve Study: Federal student loans increase tuition, not enrollment

The Week: A report from the Federal Reserve Bank of New York suggests that federal student aid programs are doing more harm than good. When subsidized federal loans have the effect of “relaxing students’ funding constraints,” universities respond by raising tuition to collect the newly available cash. The resultant tuition hikes can be substantial: The … Continue reading Cost Disease: Federal Reserve Study: Federal student loans increase tuition, not enrollment

Commentary on the Teaching Climate, Cost Disease & Curriculum

David Kirp: The same message — that the personal touch is crucial — comes from community college students who have participated in the City University of New York’s anti-dropout initiative, which has doubled graduation rates. Even as these programs, and many others with a similar philosophy, have proven their worth, public schools have been spending … Continue reading Commentary on the Teaching Climate, Cost Disease & Curriculum

Has the future of college moved online? And, the “Cost Disease” Relationship

Nathan Heller:

Gregory Nagy, a professor of classical Greek literature at Harvard, is a gentle academic of the sort who, asked about the future, will begin speaking of Homer and the battles of the distant past. At seventy, he has owlish eyes, a flared Hungarian nose, and a tendency to gesture broadly with the flat palms of his hands. He wears the crisp white shirts and dark blazers that have replaced tweed as the raiment of the academic caste. His hair, also white, often looks manhandled by the Boston wind. Where some scholars are gnomic in style, Nagy piles his sentences high with thin-sliced exposition. (“There are about ten passages–and by passages I simply mean a selected text, and these passages are meant for close reading, and sometimes I’ll be referring to these passages as texts, or focus passages, but you’ll know I mean the same thing–and each one of these requires close reading!”) When he speaks outside the lecture hall, he smothers friends and students with a stew of blandishment and praise. “Thank you, Wonderful Kevin!” he might say. Or: “The Great Claudia put it so well.” Seen in the wild, he could be taken for an antique-shop proprietor: a man both brimming with solicitous enthusiasm and fretting that the customers are getting, maybe, just a bit too close to his prized Louis XVI chair.
Nagy has published no best-sellers. He is not a regular face on TV. Since 1978, though, he has taught a class called “Concepts of the Hero in Classical Greek Civilization,” and the course, a survey of poetry, tragedy, and Platonic dialogues, has made him a campus fixture. Because Nagy’s zest for Homeric texts is boundless, because his lectures reflect decades of refinement, and because the course is thought to offer a soft grading curve (its nickname on campus is Heroes for Zeroes), it has traditionally filled Room 105, in Emerson Hall, one of Harvard’s largest classroom spaces. Its enrollment has regularly climbed into the hundreds.
Rather than writing papers, they take a series of multiple-choice quizzes. Readings for the course are available online, but students old-school enough to want a paper copy can buy a seven-hundred-and-twenty-seven-page textbook that Nagy is about to publish, “The Ancient Greek Hero in 24 Hours.”

At one extreme, edX has been developing a software tool to computer-grade essays, so that students can immediately revise their work, for use at schools that want it. Harvard may not be one of those schools. “I’m concerned about electronic approaches to grading writing,” Drew Gilpin Faust, the president of the university and a former history professor, recently told me. “I think they are ill-equipped to consider irony, elegance, and . . . I don’t know how you get a computer to decide if there’s something there it hasn’t been programmed to see.”

The answer is c). In Nagy’s “brick-and-mortar” class, students write essays. But multiple-choice questions are almost as good as essays, Nagy said, because they spot-check participants’ deeper comprehension of the text. The online testing mechanism explains the right response when students miss an answer.

It is also under extreme strain. In the mid-nineteen-sixties, two economists, William J. Baumol and William G. Bowen, diagnosed a “cost disease” in industries like education, and the theory continues to inform thinking about pressure in the system. Usually, as wages rise within an industry, productivity does, too. But a Harvard lecture hall still holds about the same number of students it held a century ago, and the usual means of increasing efficiency–implementing advances in technology, speeding the process up, doing more at once–haven’t seemed to apply when the goal is turning callow eighteen-year-olds into educated men and women. Although educators’ salaries have risen (more or less) in measure with the general economy over the past hundred years, their productivity hasn’t. The cost disease is thought to help explain why the price of education is on a rocket course, with no levelling in sight.

King rattled off three premises that were crucial to understanding the future of education: “social connections motivate,” “teaching teaches the teacher,” and “instant feedback improves learning.” He’d been trying to “flip” his own classroom. He took the entire archive of the course Listserv and had it converted into a searchable database, so that students could see whether what they thought was only their “dumb question” had been asked before, and by whom.

Online Education Trumps the Cost Disease: Interactive Learning Online at Public Universities: Evidence from Randomized Trials

William G. Bowen, Matthew M. Chingos, Kelly A. Lack & Thomas I. Nygren:

Online learning is quickly gaining in importance in U.S. higher education, but little rigorous evidence exists as to its effect on student learning outcomes. In “Interactive Learning Online at Public Universities: Evidence from Randomized Trials,” we measure the effect on learning outcomes of a prototypical interactive learning online (ILO) statistics course by randomly assigning students on six public university campuses to take the course in a hybrid format (with machine-guided instruction accompanied by one hour of face-to-face instruction each week) or a traditional format (as it is usually offered by their campus, typically with 3-4 hours of face-to-face instruction each week).
We find that learning outcomes are essentially the same–that students in the hybrid format “pay no price” for this mode of instruction in terms of pass rates, final exam scores, and performance on a standardized assessment of statistical literacy. These zero-difference coefficients are precisely estimated. We also conduct speculative cost simulations and find that adopting hybrid models of instruction in large introductory courses have the potential to significantly reduce instructor compensation costs in the long run.

Alex Tabarrok:

A 25% time-savings is significant. Moreover, the 25% time-savings figure is in itself an underestimate of savings since it does not include the time savings from not having to drive to class, for example.
Online education even in its earliest stages appears to be generating large improvements in educational productivity.

The Cost Disease

The Economist:

HEALTH-CARE expenditure in America is growing at a disturbing rate: in 1960 it was just over 5% of GDP, in 2011 almost 18%. By 2105 the number could reach 60%, according to William Baumol of New York University’s Stern School of Business. Incredible? It is simply the result of extrapolating the impact of a phenomenon Mr Baumol has become famous for identifying: “cost disease”. His new book* gives a nuanced diagnosis, offerings both a vision of a high-cost future and a large dose of optimism. The cost disease may be incurable, but it is also survivable–if treated correctly.
To understand the cost disease, start with a simple observation: whatever the economy’s average rate of productivity growth, some industries outpace others. Take car manufacturing. In 1913 Ford introduced assembly lines to move cars between workstations. This allowed workers, and their tools, to stay in one place, which cut the time to build a Model T car from 12 hours to less than two. As output per worker grows in such “progressive” sectors, firms can afford to increase wages.
In some sectors of the economy, however, such productivity gains are much harder to come by–if not impossible. Performing a Mozart quartet takes just as long in 2012 as it did in the late 18th century. Mr Baumol calls industries in which productivity growth is low or even non-existent “stagnant”.

What does the cost disease imply about the public sector?

Tyler Cowen:

Matt Yglesias has a good post on the recent Steven Pearlstein column. Here is Matt:
…people need to start paying much more attention to questions of tax efficiency. It’s overwhelmingly likely that we’re going to want the public sector to be a larger share of the economy in 10, 20, 30, 40 years than it is today and we need to find relatively growth-friendly ways to make that happen.
Here is Pearlstein:
From a political perspective, Baumol’s most important insight is that government spending must grow as a percentage of the economy. Most of the services that are provided by, or financed by government — health care, education, criminal justice, national security, diplomacy, industry regulation, scientific research — are those that suffer most acutely from Baumol’s disease. That’s not because of incompetence or self-interest on the part of public servants or even the socialist instincts of Democratic politicians — it’s in the nature of those activities.

William Baumol, whose famous economic theory explains the modern world, has died

Timothy Lee: Decade after decade, health care and education have gotten more expensive while the price of clothing, cars, furniture, toys, and other manufactured goods has gone down relative to the overall inflation rate — exactly the pattern Baumol predicted a half-century ago. Baumol’s cost disease is a powerful tool for understanding the modern economic … Continue reading William Baumol, whose famous economic theory explains the modern world, has died

Android Co-Founder To Lead Google’s New Education Project

Dan Primack: At the time, it just felt like idle elevator conversation. But that was my mistake, because Miner is now planning to launch an education-focused company within Google GOOG -0.88% . This also means that he’ll be stepping down as a general partner with GV, transitioning into a venture partner role through which he’ll … Continue reading Android Co-Founder To Lead Google’s New Education Project

Accounting for the Rise in College Tuition (Federal Tax $ Spending And Student Loans…)

Grey Gordon, Aaron Hedlund: We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between 1987 and 2010. The framework extends the quality-maximizing college paradigm of Epple, Romano, Sarpca, and Sieg (2013) and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in … Continue reading Accounting for the Rise in College Tuition (Federal Tax $ Spending And Student Loans…)

Milwaukee Public Schools Continue to Shrink, despite some signs of life

Alan Borsuk: But it’s another year in which enrollment in the main body of MPS schools shrank. That carries long-term implications. Every year for at least the past half-dozen, the percentage of Milwaukee kids who are getting publicly funded kindergarten through 12th-grade education through MPS has gone down a percentage point or two from the … Continue reading Milwaukee Public Schools Continue to Shrink, despite some signs of life

Madison’s monolithic K-12 model, costs more & does less while the world races by…

Kevin Roose interviews Wisconsin native Marc Andreesen: But let’s just project forward. In ten years, what if we had Math 101 online, and what if it was well regarded and you got fully accredited and certified? What if we knew that we were going to have a million students per semester? And what if we … Continue reading Madison’s monolithic K-12 model, costs more & does less while the world races by…

Why does college cost so much?

Tyler Cowen:

David Leonhardt serves up a dialogue with Robert B. Archibald, and also David H. Feldman. Archibald starts by citing the cost disease and also the heavy use of skilled labor in the sector. I don’t think they get to the heart of the matter, as there is no mention of entry barriers, whether legal, cultural, or economic. The price of higher education is rising — rapidly — and yet a) individual universities do not have strong incentives to take in larger classes, and b) it is hard to start a new, good college or university. The key question is how much a) and b) are remediable in the longer run and if so then there is some chance that the current structure of higher education is a bubble of sorts.
I never see the authors utter the sentence: “There are plenty wanna-bee professors discarded on the compost heap of academic history.” Yet the best discard should not be much worse, and may even be better, than the marginally accepted professor. Such a large pool of surplus labor would play a significant role in an economic analysis of virtually any other sector.

Curing Baumol’s Disease: In Search of Productivity Gains in K-12 Schooling

Paul Hill & Marguerite Roza, via a Deb Britt email:

Public schools in most areas of the U.S. are caught in the vise of declining revenues and rising costs.
Policymakers talk about innovating to do more with less, but to date no one knows what that looks like in education. The truth is that dramatically more productive schooling models simply have not emerged in the last two decades, even amidst cost pressures that drove spending up faster than inflation or GDP.
While education differs in important ways from other service sectors, improvement in productivity in other economic sectors may hold important lessons for understanding how the education system can become more efficient and effective.
This paper first explores the past and future outlook for education absent productivity gains. The authors then discuss several areas in which labor-intensive businesses have improved productivity: information technology, deregulation, redefinition of the product, increased efficiency in the supply chain, investments by key beneficiaries, production process innovations, carefully defined workforce policies, and organizational change. They conclude with a five-step agenda for finding the cure for Baumol’s* disease in public education.
*In the 1960s, economist William Baumol observed that productivity (defined as the quantity of product per dollar expended) in the labor-intensive services sector lagged behind manufacturing. Because labor-intensive services must compete with other parts of the economy for workers, yet cannot cut staffing without reducing output, costs rise constantly. This phenomenon, of rising costs without commensurate increases in output, has been labeled Baumol’s cost disease.

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