In economics, it is well understood that the larger a business becomes, the more cheaply it can produce goods or services due to lower relative fixed costs, more technical know-how, and increased specialization.
Why then is Colorado’s largest industry in terms of employment–health care–only becoming more expensive?
Subsidies inflate costs
Let’s back up. In 1990, Colorado’s largest industry by employment was retail, which also dominated most of the rest of the country’s employment as well, along with manufacturing.
Along the way retail and manufactured goods became cheaper for consumers, as expected, relative to inflation.
Now, in most states, including Colorado, the health care industry employs the most people.
Yet instead of becoming cheaper, health care in Colorado continues to become more expensive.
This comes despite state government’s ongoing efforts to make health care more affordable, mostly by pouring more tax money into it.
So why did retail become cheaper while health care became more expensive?
As previously explained, government subsidies actually inflate prices, and this has created an unsustainable doom loop in Colorado’s health care spending.
This isn’t just happening in health care, either.
Higher education is one of the clearest examples of how the federal government’s willingness to cover student loans without limits has led to increased tuition and costs. It also happens to be one of the largest segments of Colorado’s state budget.
At the end of the day, government intervention warps markets and creates administrative bloat and inefficiencies.
Wrong solutions
Colorado’s progressive lawmakers, whether due to economic ignorance or an overriding need to win reelection, are adamant that the state’s structural budget shortfall is being caused by a lack of revenue.
They continue to try to convince themselves, and now voters that Proposition NN or Initiative 195 would solve their budget problems by hiking taxes and increasing revenue.
Actually, any temporary increase in revenue from the measures would do nothing to address the underlying drivers of Colorado’s structural budget deficits.
The longer these issues persist, the more devastating they will become when the dam finally breaks.
But that likely does not matter to the gold-dome central planners, because they will be out of office and no longer accountable for the problems their policies created and perpetuated.
Based on economies of scale, Colorado’s health care industry should be more efficient and cheaper than ever before; instead, it has become a Kafkaesque fever-dream of ever-rising costs and bureaucratic inefficiency.
Nash Herman is a fiscal policy analyst at Independence Institute, a free market think tank in Denver
