This Economic Phenomenon Is Making Government Sick

Some sectors bring bigger productivity gains than others, and often for sustained periods of time. For instance, computing and communications have made enormous strides over the last few decades, but K-12 education hasn’t improved very much and also costs more, an economic phenomenon that has been labeled the “cost disease.” It turns out the cost disease also shapes politics: To the extent governments manage, run or fund low-productivity-growth sectors, the spending required to sustain those sectors can automatically boost the size of government over time.

This logic may apply most of all to health care and retirement. For all the medical advances we have seen, the costs have gone up a lot as well. The temporary pause in health-care cost inflation now seems to have ended, with U.S. costs rising 5.8 percent in 2015. By the way, health-care cost inflation is a global phenomenon, indicating the near-universal nature of this problem.