P Trump’s proposed budget would cut spending on many domestic programs. There’s a widespread assumption that this would mean cuts in services. But is this really true or, rather, does it have to be true?
Maybe not. Consider economist John Cochrane’s response to a long blog post by Scott Alexander on cost disease, in which he noted that spending on education and health care have risen much faster than inflation over the past several decades. And the rises are greater than is explained by the late economist William Baumol’s original cost disease argument, which is that some activities become more expensive — a live performance of a Mozart string quartet — because they can’t be provided more efficiently through mass production. You need four string players.
Cochrane’s response to Alexander’s puzzlement about above-inflation cost increases in education and health care — meds and eds — is that it’s largely the result of administrative bloat. Or, as he puts it, a failure of organizational management. Teachers are a decreasing percentage of the education work force; direct care givers are a decreasing percentage of the health care work force.
Will cuts in federal government spending reverse the trend to administrative bloat? Maybe. Is anyone working to increase the chance that the answer is yes? I don’t know. Let’s hope so.
