See topic.
I was arguing with someone about rising health care costs in the U.S. and I showed him a chart of increased government spending since 1970. He replies, “This is true for every country due to advances in technology.” I am pretty sure this claim is patently false. I remember in Microeconomics that increased technology usually decreases long-term costs of production, but I don’t have my textbook around and I couldn’t find anything on Google. Am I right?
If the technology leads to an increase in productivity, prices should fall.
All else remaining equal and assuming entrepreneurs are free to adopt/abandon whatever methods of production they like, new production processes have to increase productivity: If they didn’t, then the capitalists would just go back to the old production methods.
One possible example of an “increase in technology” without an increase in productivity is when state fiat requires mandatory “upgrading” to inferior equipment for political reasons. Much like what is happening now with Green Solutions.
Increases in technology can give us entirely new products (or much better ones) in an industry that cause people to spend much more in that industry than before. If a new drug is invented that cures cancer, but it causes people to spend 10% more on average on healthcare, I’m not sure it would make sense to say that technology is driving up the cost of health care. Sure healthcare is more expensive as an aggregate, but only because of the introduction of this one new drug. All other prices in the healthcare industry would remain the same, ceteris paribus (and it’s highly likely that the price of that drug would begin to fall, thus lowering healthcare costs as an aggregate). So to say healthcare costs have risen due to technology without looking at the increased quality is disingenuous in my opinion. Look at electronics and computers. These prices are constantly falling. When something new is introduced due to some advance in technology (better quality), it might have a higher price than similar lower quality products, but eventually its price will fall too. I don’t see how technology contributes to rising prices though I’d be willing to hear arguments for it. However, we know that in the US, healthcare costs are being driven higher for a wide variety of reasons.
And that is to say nothing about technology simply making existing products less expensive/easier to produce thus lowering their cost to consumers. Obviously in this case prices wouldn’t be going up.
I say the same thing in every single health care thread. There is a fallacy that if total spending on something rises then this means the price of that service rises. It’s like this. As medical technology expands new procedures open up that cause people to spend income on those instead of other things. Before a given type life saving is invented nobody spends anything on it; they spend it on something else. After it is invented they spend money on it, possibly a huge portion of income. You can’t spend money on something that doesn’t exist. So, of course, spending rises on health care relative to other things over time.