« Fuming Mad | Main | Anti-Climate Week »

The Coyote Law of Improved Technology and Inflation

Coyote Blog » Blog Archive » Things People Believe That Make No Sense

You often hear people say that one of the main reasons for health care inflation is the cost of all the new technology.  But can you name any other industries that compete in free markets where technology introductions have caused inflation rates to run at double the general rate of inflation?  In fact, don'€'t we generally associate the introduction of technology with reduced costs and increased productivity?
Or look at medical fields like cosmetic surgery or laser eye surgery.  Both these fields have seen substantial introductions of new technology, but have seen inflation rates not only below the general health care inflation rate but below the CPI, meaning they have seen declining real prices for decades.
The difference is not technology, but the pricing and incentive system. Cosmetic surgery and laser eye surgery are exceptions in the health care field — they are generally paid out of pocket rather than by third parties
I can think of one other industry where introduction of technology has coincided with price inflation well above the CPI — education. It is interesting, but not surprising to me, that this is the other industry, along with health care, most dominated by third party payer systems and public subsidies of consumers....

I dubbing this insight The Coyote Law as it suddenly makes clear a truth I had only dimly perceived before.

Comments

I would guess it applies to some defence spending too. When they need things in a hurry value for money can (but not necessarily will) be obtained. When the procurement process takes its usual form value for money is less likely?

See: Army replaces £114m radio kit with £300,000 off the shelf kit.

quod vide Baumol's Cost Disease.

Post a comment