August 27, 2013

MEGAN MCARDLE: Why Do Education and Health Care Cost So Much?

So how do we explain health care and college cost inflation? Well, health care economist David Cutler once offered me the following observation: In health care, as in education, the output is very important, and impossible to measure accurately. Two 65-year-olds check into two hospitals with pneumonia; one lives, one dies. Was the difference in the medical care, or their constitutions, or the bacteria that infected them? There is a correct answer to that question, but it’s unlikely we’ll ever know what it was.

Similarly, two students go to different colleges; one flunks out, while the other gets a Rhodes Scholarship. Is one school better, or is one student? You can’t even answer these questions by aggregating data; better schools may attract better students. Even when you control for income and parental education, you’re left with what researchers call “omitted variable bias” — a better school may attract more motivated and education-oriented parents to enroll their kids there.

So on the one hand, we have two inelastic goods with a high perceived need; and on the other hand, you have no way to measure quality of output. The result is that we keep increasing the inputs: the expensive professors and doctors and research and facilities.

Related: Colleges Set To Offer Exit Tests:

The test is part of a movement to find new ways to assess the skills of graduates. Employers say grades can be misleading and that they have grown skeptical of college credentials.
Joe Philipson for The Wall Street Journal David Pate, dean of the School of Arts and Sciences at St. John Fisher College outside Rochester, N.Y. The college will offer the new CLA + test.

“For too long, colleges and universities have said to the American public, to students and their parents, ‘Trust us, we’re professional. If we say that you’re learning and we give you a diploma it means you’re prepared,’ ” said Michael Poliakoff, vice president of policy for the American Council of Trustees and Alumni. “But that’s not true.”

Then why not decouple the competency test and the diploma entirely? All is proceeding as I have foreseen.

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