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The Cost Disease: Why Computers Get Cheaper and Health Care Doesn't Hardcover – September 25, 2012

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Product Details

  • Hardcover: 272 pages
  • Publisher: Yale University Press; First Edition edition (September 25, 2012)
  • Language: English
  • ISBN-10: 0300179286
  • ISBN-13: 978-0300179286
  • Product Dimensions: 8.5 x 5.8 x 1.1 inches
  • Shipping Weight: 15.2 ounces (View shipping rates and policies)
  • Average Customer Review: 3.4 out of 5 stars  See all reviews (19 customer reviews)
  • Amazon Best Sellers Rank: #718,756 in Books (See Top 100 in Books)

Editorial Reviews


"A provocative and timely critique of the fallacies in the conventional wisdom that we can no longer afford good education and decent health care."—Sir Harold Evans, author of They Made America
(Sir Harold Evans 2012-02-06)

“It’s a testament to Professor Baumol’s lucid prose, though, that economists and noneconomists alike will find it easy to grasp his surprisingly comforting argument for why we shouldn’t panic. . . .This book is a quick read, packed with charts and case studies. But it is the author’s command of storytelling that makes it not just digestible but also enjoyable.”—Amy Wallace, The New York Times 
(Amy Wallace The New York Times)

“Health-care costs are huge, and still rising. Based on current trends, in 2105 US health care will consume 62% of our national income.  And this is nothing to worry about. How can this be? Relying primarily on simple logic and storytelling, NYU economist William J. Baumol lays out the answer in his new book.”—Kyle Smith, New York Post
(Kyle Smith New York Post 2012-09-24)

“In this important book, William Baumol and his co-authors have shown how divergent productivity trends have profound implications for how society deals with increasingly expensive sectors like education and health.”—William Nordhaus, Sterling Professor of Economics at Yale University
(William Nordhaus)

“An excellent book that puts to the sword many health care myths. . . . [A] necessary read for anyone who is engaged in health care costs.”—Lancet Oncology
(Lancet Oncology)

About the Author

William J. Baumol is professor of economics and academic director of the Berkley Center for Entrepreneurship and Innovation, New York University, and professor emeritus, Princeton University. He lives in New York City.

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Customer Reviews

The book has a cobbled together feel, the quality of writing is uneven, and the organization is poor.
R. Albin
So contrary to what Baumol thinks there is no reason for the stagnant sectors to gain share of the economy relative to the progressive sectors.
Gaetan Lion
The economic foundations of the book are very well described and easy to understand, even for non-economists.

Most Helpful Customer Reviews

22 of 24 people found the following review helpful By Gaetan Lion on December 14, 2012
Format: Hardcover Verified Purchase
The basic premise of the book seemed so intriguing. In a nutshell, US healthcare spending is virtually uncontrollable and will go through the roof; but, we will very easily be able to afford those costs.

Baumol projects healthcare spending to rise from 15% of US GDP in 2005 to 62% in 2105. But, not to worry because overall we will be over 8 times wealthier as our GDP per capita will rise from $41,800 to $343,000. Given that, it will be so easy to spend nearly 2/3 of every dollar on healthcare.

However, Baumol's extrapolations 100 years down the road are meaningless if not completely wrong. To understand how he derived his 2105 projections you have to read carefully note 13 on page 187.

For healthcare spending as a % of GDP, Baumol observed that they grew by 1.41% per year over the 1995-2005 decade. So, here is how he got the healthcare spending of 62% of GDP: 15%(1 + 1.41%)^100 = 60.8% (I got a different figure because of decimal figures). This same logic suggests that by 2140 or just 35 years later, healthcare will account for 100% of GDP. This does not make any sense. The 62% by 2105 does not make any more sense than the 100% by 2140. Taxes, housing, other consumptions of goods and services, business investments, Government spending can't so readily be squeezed into our remaining 38 cents on the dollar (1 - 62% allocated to healthcare).

When it comes to real GDP per capita, Baumol took the 2005 level of $41,800 and used the 2.13% average annual growth rate in this measure over the 1950 to 2001 period. His calculation: $41,800(1 + 2.13%)^100 = $343,000. Now do you believe that in 2105 we could possibly be over 8 times wealthier than we are currently?
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11 of 11 people found the following review helpful By Martha E. Pollack on November 18, 2012
Format: Hardcover
Nearly 50 years ago, William Baumol and William Bowen proposed an economic theory--the "cost disease"--to account for the fact that prices in service industries consistently rise so rapidly relatively to the prices of manufactured goods. The cost disease theory rests on the observation that in some industries, especially those that produce goods, ",technology has resulted in dramatic increases in productivity, which equate to decreases in the cost per unit of products. Baumol calls these industries the "progressive sector." When the cost to produce a product decreases, then the wages for the workers who produce that product can increase, without any increase in the price of the product. But when that happens, wages also tend to increase in those industries that have not seen productivity increases, the so-called "stagnant sector". Wages must increase there because if they didn't, then those industries would be unable to compete for workers. Since the increased wages in the stagnant sector are not offset by reduced costs of production, prices in that sector grow more quickly than those in the progressive sector.

Within the stagnant sector are "high touch" service industries, including health care, education, legal services, and the arts. As Baumol and Bowen noted a half century ago, it still takes five musicians the same amount of time to play a string quintet as it did in the 18th century: technology has not changed that. (In fact, as Baumol notes in the current book, technology has led to some productivity increases even for musicians; for example, by reducing the amount of time it takes them to travel to their concert sites. But any productivity gains in the stagnant sector are very small compared to those in the progressive sector.
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11 of 12 people found the following review helpful By Sreeram Ramakrishnan VINE VOICE on October 16, 2012
Format: Hardcover
Building on his research from 1960s on performing arts, Baumol makes an 'assertion' that cost for personal services like healthcare are "condemned" to significantly outperform overall inflation because the quantity of labor to produce the services cannot be reduced easily. This premise may have worked (and perhaps still valid) for their early work in performing arts, but translating it to healthcare and education seems too simplified. Comparisons to manufacturing processes is also oftentimes misleading. Such simplifications significantly understate the vast research around modularity, product design, mass customization, and related topics that led to automation in manufacturing and enabled process improvement techniques such as lean sigma. To assume process improvement methods were the main reason for reduced labor involvement in manufacturing is indicative of incomplete analysis. Furthermore, the impact of extraneous factors - malpractice insurance, people's expectation of healthcare delivery and changing patterns of healthcare consumption - have all contributed significantly to cost inflation in healthcare. In fact, earlier on, the authors claim that these factors are minor compared to the nature of labor intensive processes.

Most of the arguments tend to be US-centric, and very early on in the book, the authors do acknowledge that policy may be attributable to the significant increases in US healthcare than other countries (not withstanding an attempt at re-framing the discussion to "rate of increase" - and arguing Japan has a higher rate than US - ignoring the population shifts to elderly may have contributed to that anomaly in Japan).
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