Ron Knecht: Take politics out of the market

In 1790, it took four musicians to play a Mozart string quartet. Today, it still does.

While that sounds obvious, it’s not true. But it does get to the heart of increasing human well-being, and especially to a major problem of education, government and health care.

The problem’s technical name is “cost disease.” Allegedly, in some economic sectors, too little technological progress occurs to enable innovations and new business models that increase labor productivity. But pay in those sectors nonetheless increases as fast as in the rest of the economy.

Thus, the string quartet example. Similarly, in 1964, one person taught 30 students high school biology, and likewise today. And, it still takes a judge to try a criminal case, while a nurse needs about as much time to change a bandage as back then. So, the argument goes, poor productivity gains continually increase costs of performing arts, education, government and health care faster than our incomes rise.

However, the myth that incurable cost disease forever dooms these sectors to little progress, requiring us to pay rising costs, has been debunked many times. But nowhere better than in the 1980 film, “Fame.”

There, 14-year-old Bruno Martelli auditions at a performing arts high school, surrounded by three keyboards plus a bevy of amps, woofers, tweeters and other electronic musical equipment. To the music teacher’s amazement, he plays a full orchestration of the third movement of Beethoven’s Fifth Symphony — all by himself.

Later, as the teacher instructs Bruno how to properly hold a violin bow, they argue about how to make music. Bruno says that if Mozart were alive today, he’d wire up and have strings coming out of one hand, brass and woodwinds from the other and percussion from his feet – and he could compose and play to his heart’s content without an orchestra or quartet.

The startled teacher proclaims erroneously that that’s not music. Ultimately, though, Bruno learns standard instrument technique, plus his modern music skills — just as Mozart would if he were alive today.

That story proves two things. First, the idea that education, government or health care is doomed to cost disease is false, just as it is for performing arts. New technologies are always being developed that allow innovation, new business models and labor productivity gains – meaning that consumers should get ever more for less, which is the essence of economic growth and human progress.

Second, the new means are both a supplement and partial substitute for existing methods, not a complete replacement. Les Paul’s electric guitar didn’t completely replace acoustics, but one can’t imagine rock ‘n’ roll without it.

So, health care uses new devices and medicines, while nurses still change bandages. Courts are more efficient with computerized records, while judges still try cases. And education has massive open online courses and computer-based lessons, while some courses are still taught in traditional residential college classes.

The real reason for cost disease is that government, health care and education are run via the political (not market) allocation of resources. That allows incumbent providers — especially unions — continually to take ever more of the economic pie by charging you more than you should pay. Because of their short-sighted self-interest, they oppose cost-saving progress that diminishes their numbers or power.

In market competition, incumbent providers don’t have such sustained political power — as shown by the fact that at some restaurants you can now order drinks and dinner electronically or by waiter. Markets give you consumer choice, plus lower costs.

Ron Knecht is an economist, law school graduate and Nevada higher education regent.