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4.0 out of 5 stars Well written analysis but lacking real depth, 22 Nov 2012
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This book is a well crafted summary of Baumol's work over the last few decades on the 'Cost Disease'. The authors provide a clear and succinct description of their analysis - basically, that industries that experience slower than average productivity growth, which Baumol calls the stagnant sector, still keep their wages in line with at least the average firms. Industries with higher than average productivity growth can raise wages and maintain the same price and profit but in the stagnant sector maintaining wages either means lowering profits or raising prices. This has the effect of lowering the price of e.g. computers relative to the wage rate but increasing the price of e.g. healthcare with the wage rate. The authors expand on this argument and identify a range of potential issues, such as misunderstanding the cost disease, such as by setting ill advised cost control measures in the healthcare sector, could lead to greater problems.

To support their analysis the authors use evidence from a number of different countries and industries, although their main focus is healthcare, probably to capitalise on the well publicised fear that healthcare costs will rise and consume and ever greater share of GDP. What the authors point out here is that this doesn't really matter as GDP will grow at least as fast so we can still buy at least as much of everything with a smaller share of it.

The book does feel fairly shallow and the evidence partly superficial. There isn't much of an attempt by the authors to rebut their own arguments and provide counter argument nor is there any in depth economic analysis. The book seems to have been aimed at the non-economic audience, but even for this group there is nothing particularly challenging. The book is also quite short and so the price tag may seem a little steep. Overall, the book presents an interesting and clear analysis of a topic that should definitely by more widely known but readers may be left wanting more.
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The Cost Disease: Why Computers Get Cheaper and Health Care Doesn't
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