Baumol, Walker, and Xerxes

In the introduction to Athanasius: On the Incarnation De Incarnatione Verbi Dei, C.S. Lewis discusses the predilection that some people have to spend a considerable amount of time reading about an idea instead of simply reading the idea itself. An optimist, Lewis attributes this to humility on the part of readers who are hesitant to believe that they can directly confront and understand big ideas. It’s better and even necessary for us to have those ideas filtered and explained for us by learned experts.

This is part of the reason why I avoided directly confronting William J. Baumol’s “cost disease” idea, at least in his own words and writings. The idea is mentioned often enough in discussions about the cost of higher education that I thought I was familiar with it in very broad terms. As I understood it, the idea goes something like this:

The costs of higher education increase faster than the costs of other industries because higher education depends critically on many highly skilled people who are rarely able to benefit from the cost saving ideas and processes that permeate other industries like manufacturing e.g., efficiencies of scale, mass production, improved chemical and physical manufacturing processes, simple metrics of success and failure.

That’s essentially a correct understand of the cost disease. Or at least part of it. When I finally read Baumol’s work (summarized in The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t), I was forced to confront the rest of the cost disease:

1. The rapid growth of modern economies coupled with ongoing productivity gains in some sectors – progressive sectors – makes it inevitable that the costs of products in other sectors – stagnant sectors – will grow proportionally in comparison.
2. The continually falling costs of products and services (due to productity gains) in the progressive sectors will allow us to afford the products and services of the stagnant sectors despite their ever-increasing costs provided we adjust our understandings, policies, and behavior accordingly.

The second set of ideas are ones that I don’t hear discussed anywhere. I don’t know if that’s because these ideas are difficult (they are) or because others are ignorant of these ideas because they, too, avoided reading the original ideas and relied on assumptions and regurgitations of others’ words and ideas like a high stakes game of telephone.

If Baumol and his colleagues are correct – and they have an impressive collection of data and arguments – then a few things fall out of their ideas. First, the general trend of increasing college costs is not primarily due to malfeasance, greed, or incompetence; it’s simply what happens in an industry that can’t ever be as productive as others. This will continue to be the case unless something fundamentally and radically changes in higher education. Second, we can afford the rising costs of higher education (and health care) if we can simply wrap our brains around the fact that many other things are much cheaper now and will continue to get cheaper. In other words, we can maintain our current lifestyle if we simply get over the fact that we will have to devote a larger proportion of our resources to the stagnant sector (higher education, health care, etc.). In fact, if our productivity gains in the twenty-first century are similar to what we saw throughout the twentieth century then we’ll be able to afford more of everything even if the stagnant sector continually costs more because the progressive sector will continue to become cheaper even faster.

Working within this framework and accepting Baumol’s conclusions, it’s appalling to see the dramatic actions that some policymakers and politicians are attempting as they try to reduce the growing costs of an industry that is doomed to perpetually increase in cost simply because other industries are continually getting cheaper (another way to think of this is to remember that the inflation index is an average so of course some industries are going to be above the average and others below it; it’s not so much that colleges are rapidly getting more expensive it’s that other industries are rapidly getting much cheaper on a regular basis leaving colleges forever above the average that these industries drag down). Of course there ways to save money and reduce costs but it’s extraordinarily unlikely that anyone will ever be able to employ new, different cost-saving or cost-cutting measures on a regular basis on a scale or pace that is anywhere close to those that can employed in areas like manufacturing. That is why the actions of those who are attempting to control the costs of higher education by dramatically cutting budgets strikes me as being so similar to Xerxes ordering his men to whip the ocean. Except this time we’re not only engaged in a hopeless battle we’re actively hurting ourselves by damaging vital cultural and intellectual institutions as if we were also whipping the fishermen and sailors who help feed us and transport our goods and ourselves.