This commentary is by Ben Smith, MD of South Duxbury. He is medical director of the emergency department at Central Vermont Medical Center.
Over the past six months, Vermonters have witnessed two deeply saddening policy implosions. The first is the repeated failure of school budgets (the political equivalent of kicking our kids while they are down); the second is the continued increase in health care costs, exemplified at Sen. Bernie Sanders’ recent health care roundtable.
The general tone, across the political spectrum, seems to be one of astonished helplessness: how could these things possibly cost so much? How did we get here? There must be something wrong with them.
As an emergency physician, a former school board member, and the husband of a teacher, I’d like to share an alternative view. Something is deeply wrong, but it’s not at all what we think; and to chart a path forward, we’re going to need a radically different story.
Ever since I first set foot in an emergency department in the mid 1990s, there’s been a striking gap between the profound amount of unmet need and the prevailing narrative about cost. How could this cost so much, the policy story goes; while those of us on the front line think, how could it not?
Teachers, school administrators, social workers, mental health clinicians, law enforcement and the judiciary all tell a version of the same story: steadily increasing demand, combined with steadily increasing anger about cost.
It’s not a coincidence that burnout has risen to epidemic proportions in these professions: we demand their services at ever higher levels, and ever higher quality, sometimes even calling them heroes, while simultaneously berating them for their cost. In that regime, the “hero” starts to feel a whole lot like a servant.
But what if the costs are actually real? What if it’s our assumptions about cost that are fundamentally wrong? What if costs must rise faster than in other parts of the economy?
The economist William Baumol, who passed away in 2017, had an explanation for all of this, commonly referred to as the Baumol effect. You can read about it in the New Yorker, Vox, Forbes and the Economist; and you can find a summary here, from NPR.
Baumol’s central insight was about productivity. He observed that certain types of work involve fixed, irreducible amounts of human output and cannot reasonably increase productivity like the rest of the economy (productivity is here defined in the purely economic sense.) His famous example involved a Mozart piece, the performance of which required the same amount of labor in 1960 as it did in the 1700s. The “productivity” of those musicians hadn’t increased in 200 years.
Why is this relevant? Because those musicians are part of a larger economy, most of which has increased productivity. Think car manufacturing, or computer chips. As those industries make more with less, they can redirect extra money to wages, in order to attract talent. This puts a strain on the service industries, who must increase wages to compete, but who can’t improve productivity in the same way.
The net effect is that their labor costs necessarily increase faster than inflation. They have to, or no one would work for them. When the small hospital I work for recently had to increase pay because Walmart paid better, we saw this dynamic play out in real time.
But is this affordable? A subthread in Baumol’s work suggests that it is, as long as the rest of the economy continues to increase productivity over time, and can subsidize the less productive side. Modern economic history, all the way up to the current AI boom, suggests this is eminently possible.
What this means is that we must begin to accept the reality of the Baumol effect — i.e., suprainflationary cost increases in certain essential industries — as the necessary price of quality, and focus all of our energy on how best to share that cost. Of course, in small rural states like ours, the tax base (at least at the moment) cannot sustain dramatic increases in public spending. That’s the lesson of the school budget travesty.
There is only one institution that can redistribute wealth at the scale necessary to solve these commingled problems. Until Congress comes to a new understanding of the need for progressive, redistributive federal taxation, similar to what we had in the 1950s, our essential services will continue to wither, no matter what we do here in Vermont. In the meantime, we risk a lot of destruction if we don’t allow these industries to keep up with their true cost. It is far easier to tear things down than to build them up again.
There’s another moral valence to this debate. We have every right — and duty — to expect the highest standards from our front line, whether it be health care, public education or the police. But absent a clear understanding of the true cost of providing these services, our demands become frankly destructive, and even unethical.
For anyone genuinely interested in a unifying story for our current human service crisis, Baumol is crucial reading. I hope Sen. Sanders, his staff, and all of our leaders at the state and federal level will take some time to understand his ideas.
Read the story on VTDigger here: Ben Smith: There’s a reason education and health care costs rise so quickly.