The studies seem to suggest that most of the benefit is really because the kids who get into the better schools. We pour money into schools and medicine in order to improve things, but where does the money go? But I’ve argued at length before that bureaucracy is bad at incentivizing things, especially when goals are unclear.
So the money goes to sinkholes like more bureaucrats and clever manipulation of the metrics that are used to allocate the money.
And the marginal impact of two teachers versus one, or a team of doctors versus one, isn’t huge.
(Class size matters, but we have tons of teachers — with no shortage in sight, there is no price pressure.) What sucks up the increased money?
Below are some of the responses I found most interesting. Well, we (and especially we economists) pay too much attention to snazzy gadgets.
The unavoidable answer: The number of people it takes to produce these goods is skyrocketing.
Extra medical diagnostics to catch problems, pricier but marginally more effective drugs, chiropractors, probably useless supplements — all are exploding in popularity. I don’t really know — not much, but I’d probably try something if it might be useful. How much better is the ,000/year daycare versus the ,000 a year program a friend of mine runs in her house?
I’m spending a ton of money on preschool for my kids. Unclear, but I’m certainly not the only one spending big bucks.
How much better is Harvard than a subsidized in-state school, or four years of that school versus 2 years of cheap community college before transferring in?
And at some point, bigger houses and nicer cars begin to saturate; a Tesla is nicer than my Hyundai, and I’d love one, but not enough to upgrade for 3x the cost.
I know how much better a Tesla is — I’ve seen them.
For those who don’t remember their Economics classes, imagine a guy who makes ,000/year and eats chicken for dinner 3 nights a week.
He gets a huge 50% raise, to ,000/year, and suddenly has extra money to spend — his disposable income probably tripled or quadrupled. Americans as a whole got really rich in the 1940s and 1950s, and needed someplace to start spending their newfound wealth. Entertainment is now pretty cheap, and there are only so many nights a week you see a movie, and only so many /month MMORPGs you’re going to pay for.