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April 13, 2011

Oh, By The Way: It Is An Iron Law of Economics That Health Care Costs Will Go Up And Consume Larger And Larger Parts of Your Income, Forever

A smart guy wrote a piece that explained this. Wish I remembered who to credit. But I'm crediting "whatever smart guy wrote this."

A suit of armor used to be prohibitively expensive -- 40 gold pieces, 60 gold pieces. I don't know. I don't have my Dungeon Masters Guide handy. Point is, it cost so much that only the landed gentry -- the rich and super-rich -- could afford it.

Nowadays, you can buy body armor for about a week's salary, even if you're lower-middle class. (I have no idea what it costs, just go with it.)

The difference is between craft and industrial production. Craft is very expensive, because it's just one highly-skilled guy doing the work. His skill is valuable and therefore his time is valuable, and while he can pawn off some of the labor to apprentices and other lower-paid workers, by and large most of the man-hours used in creating the fruits of his craft are his hours, and his time is valuable, so lots of time * high cost per hour = very high cost of labor.

Good produced through industrial production, on the other hand, are made largely by machines, which have a high initial cost but actually are cheaper than three or four people's yearly salaries (go with me-- I'm speaking in generalities), and most of the people needed for this work are low-skilled, so their cost per hour is relatively low. Sure, you have some very skilled people building the machine and engineering the final product, and they command very high rates of pay indeed, but their costs are of the one-time variety, and are spread over each unit sold, so that those costs end up being fairly small in the scheme of things.

Point is, fewer man-hours are needed to produce industrial goods, and most of those man-hours are paid rather cheaply. Few man-hours * low cost per man-hour = small costs of labor.

Note that we are all wealthier than ever due to this industrial effect. It's not that we have so much now -- we're not all princes and merchant captains. It's that the cost of most goods has dropped so low -- due to machines and industry greatly multiplying the output of a few human workers -- that the basket of goods we can purchase with our money is now relatively large.

But this wealth effect, caused by the exploding plenty of industrialized goods, does not apply to goods and services that are still crafts. That is, are still basically one skilled guy, using his skilled (and therefore expensive) man-hours to provide a service or make a good.

Health care -- at least until we have auto-surgeons and aritifcially-intelligent dianosticians -- will continue being a craft. And that means not only will it remain expensive, but it will actually get more expensive every year.

Because expense is determined by looking at the relative buying power of your dollar.

At one point, a car was more expensive than a doctor's and hospital's services, even for a fairly difficult procedure. But the cost of that car has plummeted, whereas the relative cost of the medical services has stayed at the high cost of craft.

What's interesting is that we all have more wealth now, because things like foodstuffs, clothing, electronics and transportation have all gotten cheaper so we can buy those things (and more than we used to) and still have more money left on the side.

The trouble is that health care costs aren't similarly falling, so that every year, we can buy more goods, but health care costs increase in relative terms. In total, we have more wealth, but we get annoyed when we see a greater and greater portion of our wealth-pie going to health care. We don't notice that on the other side, a smaller and smaller piece of that wealth-pie is going towards goods that used to be quite pricey.

Overall, we're coming out ahead, but we're just focusing on the part of the cost-pie that's growing.

(And, by the way, it must grow: If goods fall in value, that means they're cheaper, and that means you'd have to pay a guy with a fixed cost-per-hour more of those goods every year just to keep paying him the same real amount of value.)

Not sure what this has to do with politics, except that we seem to have wisely (ahem) put ourselves on the hook, more and more, for one of the few costs in life that is required, by economic law, to always go up.

At least until they industrialize the process. Which won't be for 60 years or so. I don't know, I forget. I don't have my Traveller books handy.


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posted by Ace at 01:21 PM

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