- Cost disease and civilizational decline
By Holden Karnofsky 6 min read

Cost disease and civilizational decline

Click lower right to download or find on Apple Podcasts, Spotify, Stitcher, etc. Note that this recording combines a previous post with this one.

"Cost disease" is a term sometimes used to refer to the rising costs (over the past several decades) of particular goods and services - particularly education (both K-12 and higher education), health care, real estate, and infrastructure (e.g., subway stations) - without commensurately rising benefits. It's been discussed at length on Slate Star Codex, here and here.

I've often heard people citing "cost disease" as an indicator of general "civilizational decline." I've even seen it lumped in with the "Where's Today's Beethoven?" question, along these rough lines:

Collapsing civilizational competence hypothesis (CCCH): we have so much wealth and technology, we have such a huge population, and yet - we collectively can't match the music or literature of the past, or its scientific innovation, or its ability to provide an affordable education and health care, or even its subway station construction. Something is badly broken in our culture.

The CCCH is an intriguing claim - especially so, I think, because we are naturally biased toward imagining the past as a golden age.

I haven't seen a major formal defense of CCCH (see previous comments on how people discuss innovation stagnation), but I've heard it come up in many casual conversations.

Over the last several weeks, I've been examining different topics relevant to the CCCH. Here I'm going to summarize my take on the CCCH as a whole.

At a high level, I basically see it as cherry-picking. It would be one thing if we saw things getting worse everywhere we looked - declining quality of life, declining wealth, declining technological capabilities, declining athletic abilities. But in fact, the world has been getting better in a large number of ways.

With this in mind, I think it's worth looking at the specific claims made in the CCCH, one by one, and remaining open to the idea that there are lots of different things going on here - that we won't see the same theory explaining everything.

Once we take that attitude, what I think we see is:

Innovation stagnation and cost disease really seem like different phenomena.

Cost disease is itself multiple, arguably somewhat cherry-picked phenomena.

It's not the case that everything is getting more expensive1 - in fact, in some sense the average thing is getting more affordable. E.g., as shown here, real median household income is rising or at worst flat, which means that median income is rising faster than average prices; a similar chart for mean income, or a global version, would be more encouraging still.

If food and energy were getting more expensive while education and health care were getting cheaper, I imagine the complaints about "cost disease" would be roughly the same. So we should think of cost disease as "A list of several things that are getting more expensive" rather than as "A phenomenon in which everything gets more expensive." And we should look at each of these several things individually.

I'd guess that a decent amount of cost disease is explained by the "stakeholder management"-related challenges I laid out previously.

  • Slate Star Codex's excellent compilation of comments on cost disease includes several pretty compelling (to me) anecdotes about some of the possible causes that seem to largely reflect stakeholder management challenges. See the comments from John Schilling, bkearns123, fc123, and CatCube.
  • Detailed examinations of what's going on with construction costs (for subway stations and other infrastructure) seem to imply a major role for stakeholder management;2 I'd guess that similar dynamics affect education and health care.
  • The facially most obvious explanation for rising real estate costs would seem to be NIMBYism, which I previously discussed as an instance of "stakeholder management" challenges. (Another salient explanation would be along the lines of: "As wealth rises and land doesn't get more plentiful, land should get more expensive.")

I'd guess another significant fraction is explained by things I don't consider to be "civilizational decline" at all.

  • Baumol's cost disease may be an important part of the "cost disease" picture, and wouldn't indicate civilizational decline. Baumol's cost disease is difficult to explain compactly, but the basic idea is something like: "Due to productivity going up, many jobs get more lucrative; and so schools and medical systems and such need to pay more in order to stay competitive in hiring, even if schools and medical systems aren't getting more productive themselves."
    • I've also wondered whether the basic dynamic of Baumol's cost disease applies to things other than employees. For example, you could maybe imagine that a similar dynamic applies to conveniently located real estate. That is: real estate is a key input into many things, and it has not been getting cheaper as fast as other things have been getting cheaper; so when a high percentage of the costs of X comes from real estate, X will get more expensive.
  • I'm pretty compelled by some of the "cost disease" explanations that emphasize the combination of:
    • (a) Rising demand and willingness-to-pay for good education and health care.
    • (b) Difficulty assessing the quality of education and health care. When you can't tell what you're getting for your money, but are willing to spend a lot for "the best," this could be a formula for costs spiraling upwards and paying for a lot of illusory indicators of value.
    • (c) "Disintermediation," in which people are not entirely making their own purchasing decisions - health care is paid for by insurance, public education by government, higher education by scholarships and donations as well as direct payments. This makes it harder for there to be a subset of the market that has lower willingness to spend, providing demand for cheaper services.
    • You could certainly call the combination of (a)-(c) dysfunctional, but it's not clear that there is anything here that is unique to today's world or getting worse as time goes on. If (a) is rising while (b) and (c) are steady, that's sufficient for costs to rise over time.

Bottom line. When I look separately at the various pieces of the CCCH, I ultimately don't see a good case that our society is getting less competent across the board, or "forgetting how to do basic things," or anything like that. I think our society is getting bigger, wealthier, and more capable, and it's sometimes "getting in its own way" in ways that we might naturally expect.

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  1. Relevant chart:



    • From a Brookings report on this topic: ""We do find empirical evidence consistent with two hypotheses. The first is that the demand for more expensive Interstate highways increases with income, as either richer people are willing to pay for more expensive highways or in any case they can have their interests heard in the political process ... The second hypothesis ... is the rise of 'citizen voice' in the late 1960s and early 1970s. We use the term 'citizen voice' to describe the set of movements that arose in the late 1960s—such as the environmental movement and the rise of homeowners as organized lobbyists (Fischel 2001)—that empowered citizens with institutional tools to translate preferences into government outcomes (Altshuler and Luberoff 2003) ... Other new tools, such as mandated public input, could yield construction of additional highway accoutrement (such as noise barriers), create delays, or increase planning costs ... we find that income’s relationship to costs is five times stronger in the post-1970 era. This is consistent with the timing of the rise of citizen voice, which took flight in the late 1960s and early 1970s. Second, we find that the discussion in the Congressional Record around the Interstates was substantially more likely to involve environmental issues after 1970 and that these issues remained in heightened discussion after the passage of the National Environmental Policy Act in 1969."
    • Alon Levy's analysis of subway costs (1, 2) has named station construction as a major culprit in countries with unusually high costs - in particular, the choice to tunnel underground to avoid street disruption, rather than using cheaper and quicker "cut-and-cover" methods that cause major street disruption. My guess is that there was less concern over street disruption in the past, partly because there was less "citizen voice" to oppose it.