> [Democrats] should adopt a new framework for economic policy: treating cost disease.
> Cost disease is also known as the Baumol effect. It helps explain why rent and health care consume so much of Americans’ wallets—and why, in the case of health care, the share keeps rising…
> Three decades before Baumol described the problem, Theodore Wright, an American engineer, had found the cure for cost disease. Wright’s law observed that cost per unit goes down as more units are produced. Want a service to be affordable? Turn the service into a product. Then, manufacture the product at scale to lower the cost per unit…
…
> Mass production requires consistent standards. Production is an act of learning. To compete, factory managers learn how to produce more with less. This learning under competition delivers Wright’s law: that cost per unit falls as production increases. When product specifications change unpredictably, though, much of the learning on the factory line has to reset. Costs go up, not down.
> Democratic states and cities have been changing and adding specifications (for multi-family housing, for instance) for decades, through regulations. Frustrated by the resulting high costs, politicians then send out money to constituents (in the form of, say, housing vouchers). In the short term this does help them muddle through. In the long term, though, cost disease is inflamed by this cycle of regulations that restrict supply and then subsidies that increase demand.
#Housing & Healthcare
> The government can help with both permitting and financing. For example, the Department of Housing and Urban Development (hud) could issue an advanced commitment for thousands of manufactured housing units. Fannie Mae, a government-sponsored mortgage giant, could be used to finance this at low interest rates. hud specifications could be made the national standard for building permits. And any city accepting federal low-income housing tax credits could be required to adopt not just that permitting, but denser zoning too.
> When Austin, Texas adopted land-use reforms of this sort, apartment construction boomed and rents plunged. Cambridge, Massachusetts has followed suit. Those who doubt that Democrats can think differently on regulations, take note of Cambridge: a city where Kamala Harris won 86% of the vote adopted a new zoning law in which three-quarters of the text was to do with deleting old rules.
> There are two ways to treat cost disease in health care. The first is more conventional: turn custom services into mass-produced goods. Generic drugs, therapy bots and over-the-counter hearing aids are examples. Each affordable product meets a need that was previously addressed through expensive clinical services. Democrats should accelerate this service-to-product pipeline, which will require taking on various special interests within the health-care system.
> The other way to reduce health costs is to deflect patients from the most expensive sites of care. In America, those sites are generally intensive-care units, emergency rooms, nursing facilities and jails. Interventions that reduce demand for beds at those sites help treat cost disease. Examples include lowering co-pays (deductibles) for prescription drugs, promoting telehealth for the old, expanding community health centres’ footprint and taxing sugary beverages.
> Health-insurance executives are likely to object that they do this already through their plans—or so they claim to Congress. Yet health-insurance premiums keep rising faster than inflation. Democrats should square off against the big insurers and show that we can lower costs where they will not.
Agricolae-delendum on
No one likes the health insurance industry. Seems like a pretty popularist message to signal on. Couple that with BBB Medicaid cuts and Dems having higher trust from voters on healthcare and may be a winning message.
2 Comments
Jake Auchincloss (MA-4) by Invitation
> [Democrats] should adopt a new framework for economic policy: treating cost disease.
> Cost disease is also known as the Baumol effect. It helps explain why rent and health care consume so much of Americans’ wallets—and why, in the case of health care, the share keeps rising…
> Three decades before Baumol described the problem, Theodore Wright, an American engineer, had found the cure for cost disease. Wright’s law observed that cost per unit goes down as more units are produced. Want a service to be affordable? Turn the service into a product. Then, manufacture the product at scale to lower the cost per unit…
…
> Mass production requires consistent standards. Production is an act of learning. To compete, factory managers learn how to produce more with less. This learning under competition delivers Wright’s law: that cost per unit falls as production increases. When product specifications change unpredictably, though, much of the learning on the factory line has to reset. Costs go up, not down.
> Democratic states and cities have been changing and adding specifications (for multi-family housing, for instance) for decades, through regulations. Frustrated by the resulting high costs, politicians then send out money to constituents (in the form of, say, housing vouchers). In the short term this does help them muddle through. In the long term, though, cost disease is inflamed by this cycle of regulations that restrict supply and then subsidies that increase demand.
#Housing & Healthcare
> The government can help with both permitting and financing. For example, the Department of Housing and Urban Development (hud) could issue an advanced commitment for thousands of manufactured housing units. Fannie Mae, a government-sponsored mortgage giant, could be used to finance this at low interest rates. hud specifications could be made the national standard for building permits. And any city accepting federal low-income housing tax credits could be required to adopt not just that permitting, but denser zoning too.
> When Austin, Texas adopted land-use reforms of this sort, apartment construction boomed and rents plunged. Cambridge, Massachusetts has followed suit. Those who doubt that Democrats can think differently on regulations, take note of Cambridge: a city where Kamala Harris won 86% of the vote adopted a new zoning law in which three-quarters of the text was to do with deleting old rules.
> There are two ways to treat cost disease in health care. The first is more conventional: turn custom services into mass-produced goods. Generic drugs, therapy bots and over-the-counter hearing aids are examples. Each affordable product meets a need that was previously addressed through expensive clinical services. Democrats should accelerate this service-to-product pipeline, which will require taking on various special interests within the health-care system.
> The other way to reduce health costs is to deflect patients from the most expensive sites of care. In America, those sites are generally intensive-care units, emergency rooms, nursing facilities and jails. Interventions that reduce demand for beds at those sites help treat cost disease. Examples include lowering co-pays (deductibles) for prescription drugs, promoting telehealth for the old, expanding community health centres’ footprint and taxing sugary beverages.
> Health-insurance executives are likely to object that they do this already through their plans—or so they claim to Congress. Yet health-insurance premiums keep rising faster than inflation. Democrats should square off against the big insurers and show that we can lower costs where they will not.
No one likes the health insurance industry. Seems like a pretty popularist message to signal on. Couple that with BBB Medicaid cuts and Dems having higher trust from voters on healthcare and may be a winning message.