a16z Podcast Baumol's Cost Disease, in Healthcare... and Where We Go Next
Jan 6, 2021
In this engaging discussion, Vijay Pande, a general partner at Andreessen Horowitz with a focus on biotechnology, shares his insights on the persistent challenges of Baumol's cost disease, particularly in healthcare. He and Marc Andreessen explore how technology has transformed other industries yet struggles in healthcare. They illustrate the potential of AI to reshape costs and quality, comparing innovative health apps to entertainment platforms. The conversation also touches on consumer influence in the healthcare landscape and the role of personal choices in improving health outcomes.
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Baumol's Cost Disease Explained
- Healthcare, education, and construction costs rise exponentially, unlike goods like electronics.
- This is due to differing productivity growth rates and labor migration between sectors.
Labor Differences in Services vs. Goods
- Healthcare and education rely on specialized, apprenticeship-like labor, hindering productivity growth.
- Goods are made in automated factories, benefiting from technological advancements.
The String Quartet Analogy
- Baumol used the example of a string quartet to illustrate cost disease: live music is expensive; recordings are cheap.
- AI, in its simplest form, turns services into goods, like listening to music vs. a live performance.