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Book Review

‘The Cost Disease ’ by William J. Baumol

Health care costs keep climbing. In the last 30 years, the US consumer price index rose about 4 percent per year. During this time, the cost of physician services increased at an annual rate of 5 percent and the cost of hospital services a whopping 8 percent per annum. Americans now spend two and a half times more per capita on health care than the average of other wealthy nations. Projecting these rates into the future, economists predict that 62 percent of our gross domestic product will be devoted to health care in 2105 (up from 7 percent in 1970 and about 18 percent in 2011).

Virtually without exception, Democrats and Republicans agree that this spiral is unsustainable. According to William Baumol, however, the conventional wisdom is wrong. A professor of economics and the academic director of the Berkley Center for Entrepreneurship and Innovation at New York University, Baumol argues in “The Cost Disease’’ that it is inevitable that cost increases in labor-intensive industries will outpace inflation but that they will be offset by productivity gains in manufacturing and agriculture, which ensure “a cornucopia of desirable services and abundant products” in the future. The principal threat to health care, Baumol claims, is the illusion that we cannot afford it without making devastating cuts in other vitally important areas.

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