So how do we explain health care and college cost inflation? Well, health care economist David Cutler once offered me the following observation: In health care, as in education, the output is very important, and impossible to measure accurately. Two 65-year-olds check into two hospitals with pneumonia; one lives, one dies. Was the difference in the medical care, or their constitutions, or the bacteria that infected them? There is a correct answer to that question, but it’s unlikely we’ll ever know what it was.
Of course, since this is “libertarian” Megan McArdle, she entirely misses the gigantic (for a libertarian) elephant squatting and taking a dump in the middle of her intellectual living room: Markets.
The entire medical game has been rigged to prevent free-market competition, and the educational establishment has also hijacked the power of the state to reach the same sort of outcome.
Expose both to real free-market competition, and you’ll not only see prices plummet, but quality and “outputs” improve, without resort to jibber-jabber about arcane economic theories.
Of course McArdle, now fully immersed in the stultifying Boswash Bubble, no longer has a clue about any of this. She calls herself a libertarian, but she’s become almost entirely a statist. And why not? Her livelihood now depends on carefully and copiously licking the nethers of the state.