Health care, education and the cost disease: A looming crisis for public choice

Abstract

An economic specter haunts the democratic governments of the world’s most prosperous economies. The rising cost of health care and education casts a shadow over virtually every election, while increasing costs of other services play a part in the growth of the homeless population and the deteriorating sanitation of city streets. It will be shown here that both an explanation and a solution in principle are available. However, while the solution is, in one sense, simple and straightforward, in another it poses a problem of frightening magnitude for public choice. If the citizens of these countries are willing to do what is necessary for the supply of educational, health care and other related services to keep up with the expansion in overall economic output made possible by rising productivity, then, if my analysis is correct, a difficult choice will be required: either ever more of gross national product will have to be channeled through the public sector, with all the problems we know that to entail; or, alternatively, these services will have to be transferred to private enterprise, in fields where private business firms can hope to succeed only if granted an (improbably) immunity from the temptation of unwise governmental interference. This, is indeed, Scylla and Charybdis in spades.

I am extremely grateful to the Alfred P. Sloan Foundation, the Price Institute for Entrepreneurial Studies and the C.V. Starr Center for their generous support of this work, and to Ms. S.A.B. Blackman for her invaluable help in the research.