Just for fun, let’s design an economic sector guaranteed to cost too much. Then you guess what it is. For openers, we will sell a product deemed a necessity, with little or no option for the customer to avoid us altogether. Next, we will arrange to get paid for inputs, not outputs — how much we do, not how well we do it. We will make certain that actual results are difficult or impossible to measure with confidence. And we’ll layer on a pile of complex federal regulations to run up administrative costs.
Then, and here’s the clincher, we will persuade the marketplace to flood our economic Eden with payments not from the user but from some third party. This will assure that the customer, insulated from true costs, will behave irrationally, often overconsuming and abandoning the consumerist judgment he practices at the grocery store or while Internet shopping.
Presto! Guaranteed excessive spending, much of it staying in the pockets of the lucky producers.
You say, “Oh, sure, this is American health care.” As soon as we took the fatal misstep of untaxed health insurance — compounding the error of World War II-era wage and price controls with a greater mistake — we were doomed to a future of overly expensive medical care.
Your answer is correct but incomplete. It worked so well in health care, we decided to repeat the formula with higher education. Some sort of postsecondary education is, in fact, necessary for a fully productive life in this economy, but by evading accountability for quality, regulating it heavily, and opening a hydrant of public subsidies in the form of government grants and loans, we have constructed another system of guaranteed overruns. It is the opposite of an accident that the only three pricing categories that have outpaced health care over recent decades are college tuition, room and board, and books.
