Why Are the Prices So D*MN High?

Why have some prices increased since 1950 by a factor of four while other prices have decreased by a factor of four? Technology is making so many goods and services much cheaper than in the past–that seems to be the normal situation–so why do some industries seem not only to be not progressing but actually retrogessing? As Scott Alexander put it, why are some industries so weird?

Those are the questions that motivated my latest piece, a short book with Eric Helland just released by the Mercatus Center titled, Why are the Prices so D*mn High?

In approaching this question I had some ideas in mind. I assumed that regulation, bloat and bureaucracy, monopoly power and the Baumol effect would each explain some of what is going on. After looking at this in depth, however, my conclusion is that it’s almost all Baumol effect. That conclusion radically changes one’s evaluation of price increases and decreases over the long run and it changes what, if anything, one might try to do to address such price changes.

Next week I will examine some of the evidence that pushes me towards this verdict. I’ll also take a closer look at the Baumol effect, which is mistakenly called the cost disease.

Let’s note here, however, what we need to explain. For the most part, we don’t see quick, big changes in prices that then level off. That in itself is interesting since policy tends to be discontinuous. We might expect a big regulation, for example, to cause a big increase in prices as industries adjust but then growth should return to normal. Instead, what we see and need to explain is slow, steady rising relative prices that happens over decades. Indeed, in some cases, such as education, prices have been increasing faster than average for more than a century! Puzzle over that over the long weekend. More next week!

Addendum: Other posts in this series.

Comments

The greater the government involvement, the higher the increase.

Second

The (lack of) depth in your thinking is staggering. Government involvement is not exogenous - the government is involved in health care and education for many of the same reasons why the costs of these are increasing. I am not saying the government involvement is always warranted or that the interventions are the most appropriate. But to simply note the correlation and think you have found something profound is superficial thinking - I don't even think it is thinking at all. Mood affiliation at best.

"the government is involved in health care and education for many of the same reasons why the costs of these are increasing. "

That's because of the Bureaucrat effect:
1. Gov sees a problem, hires people and implements policy to solve it
2. Problem gets worse
3. Gov hires more people, implements more extreme policy
4. Problem gets worse faster
5. Gov hires more and more and more people, implements lots and lots of policies
6. Prob keeps getting worse faster and faster

The government doesn't / refuses to recognize that it's policies are exacerbating the problem; a problem that was small becomes large because the gov keeps doubling down on bad policy

Government aggregates accounts, causes mis pricings because the accounts are no longer unbundled into a savings/loan account for cash flow management. Huge price volatility and arbitrage moments sustained by distant taxpayer.

Let me summarize your post. "You're dumb. There are cases you may be right, but to say so is dumb." Doesn't make much sense.

Professional services and education are not giving society more bang for the buck. The over abundance of lawyers and government overreach probably adds considerably to the inefficiencies. Simplifying professional services and government with if, then, else applications would lkkely save society a bundle.

The rise of hospital monopolies are a result of Obamacare. If you think that this will generate a one time price increase, well you should get out a bit more.

All the markets where process have risen are characterized by the consumer not having to pay for it up front.

Home appliances are substantially an emergency purchase. Your refrigerator quits. You go buy a new one. It is competitive and the prices haven't risen, in fact they have fallen. Same with auto repair. Something you really need, know nothing about, that is expensive, and can be done 5 different ways, but the costs have held for to flat in spite of the increasing complexity of automobiles.

Hint. Doctor fees for medicare are set by Congress. Availability of drugs is controlled by the FDA. Education is funded and financed by government. There is nothing approaching free market competition to control process, so there is no control. Btw Canadian medical costs are increasing at the same rate starting from a lower base. Something to do with us getting richer a number of decades later than the US.

"The rise of hospital monopolies are a result of Obamacare."

Huh? My area has the same number of hospitals as ever, with HMO, PPO, EPO options. Where are you?

The claim that it is Obamacare’s fault is deceitful: This is done to combat any and all attempts at making prices competitive. The fact that Obamacare tried to do this at all is a footnote.

What is going on is many smaller providers pooling together with hospital networks to make it very difficult for insures to ask for lower fees: I can browbeat a small doctor’s office in a large city, as if they go out of network, there are many other fish in the sea. When those just choose to join a hospital, and negotiate along with it, it’s a lot harder. For instance, in my city we are down to two hospital networks owning all the hospitals, and a lot of formerly private practices now being part of said hospital network. If an insurer does not accept the hospital’s terms on everything, good luck making employers choose it. When both networks work together to keep prices up, Every insurer must accept or, in practice, offer no services worth anything.

This is also why insurance is even more expensive in rural areas: The long convenient hospital is a monopolist, and building a competing hospital is capital heavy, and just lower profits.

The new required coverages introduced by the ACA caused premiums to rise. That happened to us. We had to switch to an HMO plan with lower premiums. We could not keep our plan or our doctor. Obama fibbed.

Obamacare = Ocommiescare

Re: The rise of hospital monopolies are a result of Obamacare.

That Obamacare! The first concern ever that could exercise causative force on events in the past!
Come on, the trend toward hospital mergers began way back in the 80s (if not before) and hit its full stride in the 00s.

Lower education (government-sponsored child abuse) and health (see Medicaid, Medicare, and especially ACA) are basically government programs. The others more or less are (what today passes for) free market items.

Did the inflation/deflator indices/factors "apply" nonequivalently (is that even a word?) to the various goods and services?

You didn't provide facts evidencing (as weak a word as "nonequivalently") that almost unlimited government command and control weren't large contributors to outsized education and health real price increases.

Each year, the village school budget is voted down by the retired taxpayers. Then, the PTAs get out all the parents' votes. They always raise the school budgets by much more than overall inflation.

Almost everyone knows that correlation is causation when it advances the narrative.

You aren't reading carefully. Alex says government action comes in the form of discrete policy changes, and these long term trends seem unaffected.

But congrats on sticking to your prejudices?

But there are changes in the long-term trends. Education's inflation rate shifts sharply upward around 1980 and never slows down again. Health care and professional services shift upward around then but then flatten out. A Baumol explanation starts to require epicycles, like Ptolemaic astronomy.

I guess pure Baumol is just that people "see" productivity rise in general and offer/demand higher wages everywhere.

I see a tip up in 1982, and a larger one in 1992.

https://www.bls.gov/opub/btn/volume-3/what-can-labor-productivity-tell-us-about-the-us-economy.htm

Presumably Alex has some math on correlations.

Rich, if that were true, then you would not expect to see lower health care costs (and rates of inflation for these services) in France, Germany and Sweden.

Here is a McKinsey interview on how Germany has kept its healthcare costs lower: https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/how-germany-is-reining-in-health-care-costs-an-interview-with-franz-knieps

In fact you don't see lower rates of health care inflation in Europe. The US is solidly in the middle of the OECD in controlling health care cost increases. If you look at the data, its absolute price level is higher due to a relatively short period of differential inflation in the late 70s and early 80s (the US made different choices in hospital design, etc.), but since then inflation has re-converged.

http://theamericanscene.com/2011/10/04/back-to-the-future-healthcare-edition

Then, that means the alternative hypotheses offered by others, including Baumol effect, and government subsidy, are eliminated.

Thank you.

By the way, if you look at current (not 2011 statistics) from the OECD you will see that we are, relative to others who have government programs, way out of line: https://data.oecd.org/healthres/health-spending.htm quite apart from inflation.

And for infrastructure, and for the subway line in Manhattan, and the big dig, and California’s high speed train to nowhere, etc etc.

American government, whatever the level, is horrible at producing public goods for any reasonable cost within any sane timeline.

The answer, of course, is to transition everything to the government. Let’s do food next.

That is a rant which is not addressing the question, but it made you feel good to say it. What evidence do you have as to the question under discussion--health care spending levels or inflation relative to more government regulated and financed economies. I've given comparative citations and evidence, and all you have is a rant.

Government involved services, to include education, infrastructure, defense, mass transit and healthcare, are all much more expensive in the US than other developed countries. With poorer results.

Shouting about healthcare is great. But you can say the same About the rest of the suite of public goods/services in the US.

Hence, healthcare isn’t special. This is a general trend of the inefficiency and incompetence of the US public sector.

Thus, the government dichotomy between US and other developed countries’ healthcare systems clearly isn’t relevant.

And so your data showing that our cost structure is out of line needs to be put into context.

The chart would be exactly the same for education, defense, infrastructure, mass transit, etc.

Data without context leads to incorrect conclusions.

Clear now?

No, I do not agree with you. You make it sound like the government is providing the service, but in fact the government contracts with private enterprise to provide most goods and services. Your fail to distinguish this; moreover, but for defense which faces no foreign competition, goods are procured through competitive bidding in the marketplace. If we were to increase competition in healthcare by wresting the AMA from control of residencies and increase residency programs our doctor costs would be lower; and if we, like other countries, actually negotiated drug prices, rather than use intermediaries in the market, our prices would be lower as well.

Government procures goods and services. Favor competitive bidding. Disfavor Donald Trump's efforts to send the wall business to a South Dakota campaign contributor.

Oh. If your point is to wish away public choice economics, then just say “we will wave a magic wand and incentives won’t matter anymore.”

It’s the same, but more transparent and elegant.

I don't have to wave any wand, I just have to have the government purchase in a marketplace just like you or I do.

Your objections are to preferences for public goods.

And if this is necessary:

US spends 35% more on primary/secondary education per pupil than OECD, with worse results. For post secondary, it’s about 100% more, with worse results.

Source : https://nces.ed.gov/programs/coe/indicator_cmd.asp

Cost to build subway, $2.6 billion per mile in US. $200-450 million per km in Europe.

Defense hopefully doesn’t need citations.

So put healthcare in context. It matches a pattern of everything else.

The countries you point to have lower levels of poverty and less wealth disparity, making the cost of education, for example, less demanding. Land costs for a subway cannot be compared to costs per mile of railroad given land costs. Also, provide link on subway costs.

How is "healthcare" costs calculated in the chart. Is it 1950's style health care, or is it percentage spend on health care overall? There is a big difference, I would bet that 1950's health care is pretty cheap. But I would expect that as a country gets richer, health care spending will gradually expand to a bigger and bigger fraction of the economy as more and more cures are found, at least with today's style of medicine. After-all you cannot take it with you.

I'm sympathetic to this line of reasoning, but find it difficult to believe there is more government involvement in auto repair than the automobile manufacturing industry, or for that matter telecom

Cost disease is primarily a problem within three industries: housing, education, and health care. Both when comparing between those industries as well as within those industries, there are tons of examples which go directly against your claim.

Housing is more expensive than health care or education despite having more government involvement in education and health care. I'm comparing the absolute cost; not growth rates here.
Health care is more expensive than education despite more government involvement in education.
American health care is more expensive than European health care.
Private insurance is more expensive than Medicare/Medicaid.
College is more expensive than high school.
Private college is more expensive than public college.

This is because government involvement often leads to demand restrictions which lowers costs. The nature of the government involvement is important, of course.

Wow, you are totally wrong! Cheap goods get cheaper because they come from China! When Trump's tariffs really start to bite, everything will be more expensive! Nothing will be spared!

I hadn't rwarealised lised professional services were dominated by government. I had thought the telecoms revolution got a lot of free rides off thd military. Happy to have it explained to me.

I they are largely accountants and attorneys, then there may be a good argument for it. Even a decent percentage of IT is driven by compliance - though that compliance often is with security measures that are necessary anyways.

Average hourly earnings is the true price base. An unit of people's time is the thing that is constant.

If you're going to average prices of lots of things, some will go up and others down. The trend due to 1 or 2% constant productivity increase should look like the chart above, because that's what averaging does. Calling a mathematical inevitability a disease, as this effect often is called, is pretty silly.

A major Difference between conservative and liberal economists is exactly this distinction. You ask a liberal economist they will say most of the increases are due to Baumol. Conservatives will say government.

It’s pretty clearly Baumol once you look at the data. And looking at more industries makes this even more clear.

Either is testable and has some basis preferable to the actually believed reason by most of centre-left leaning society - capture of markets by profiteering corporations and colluding governments that won't stand up to them ("Free college now!").

So how does Baumol explain that cosmetic surgery has decreased in price while other types have increased?

Excellent point.

This needs to be addressed by any claiming Baumol is the primary driver of health care costs.

Quiet down you two, or the Feds will get more involved in cosmetic surgery, if only to eliminate the embarrassing cost disparity.

The Baumol sectors aren't really optional. You need a place to live. You need an education to get a credential to have a career. You need necessary healthcare to live.

As other goods got cheaper there was more money slushing around that could have gone somewhere. Back in the day economist kept thinking it would go towards...a 6 hour day...a 4 hour day...a 3 day week...early retirement. Instead, it went into goods people don't really have an option to forego (and other purely positional goods). Despite all the extra resources, these sectors haven't really turned out a fundamentally better product. A lot of the extra money seems to go into various kinds of inefficiency, waste, or superfluous benefits.

In a world where these sectors didn't soak up the extra money people might work less, or have a spouse stay home with the kids, or retire earlier, or just generally have more financial security.

Best outcome would be if "Anti-Baumol savings" went into spending or investment into industries with more growth prospects.

Otherwise you're just looking at "Anti-Baumol savings" meaning Baumol sector employees earn less, which means they spend less, which means prices in other sectors are restrained, which means less nominal inflation, but otherwise no real differences in anyone's quality of life.

Excellent comment asdf.

...except... don't you also need food? Why isn't food subject to Baumol?

Related theory: it’s Baumol’s at the surface, but only because govt regulations have locked in labor-intensive mechanisms of delivery.

Good theory. Also add in the studies that show the colleges captured 70% of the additional gov't funding to education. The kids get the other 30%.

The idea that wages are related to productivity is mythology. In the construction industry, for instance, advances in materials engineering and techniques have made the number of workers and the time spent on tasks a fraction of what it once was. Productivity has increased dramatically. Yet wages have not.

I always thought that wages were driven by supply and demand, and that total prices/supply were driven by productivity (assuming a competitive market). That would explain the correlation between productivity growth and real wages across the whole economy, because as real costs decrease, the real costs of things to buy deflates, and so buying power increases accordingly. It also explains why industry specific wages might not rise, because the cost savings are passed on in the decreased cost of the product (or to profits, but we are assuming a competitive market, which drives economic profits to 0), not to the workers.

The truth about Red China: https://www.scmp.com/news/china/politics/article/3010835/30-years-tiananmen-square-crackdown-why-beijing-still-thinks-it?utm_medium=email&utm_source=mailchimp&utm_campaign=enlz-scmp_today&utm_content=20190520&MCUID=e2596e16ec&MCCampaignID=c1bffc7da3&MCAccountID=3775521f5f542047246d9c827&tc=3

Where is housing?!? But yes, very consistent with Baumol.

Also, where is Energy (fuel, gas, electricity)?

That is interesting. We often see direct calls for higher city wages because cities are "unaffordable" to workers they need, and value.

Is that a mechanism for cost disease?

Maybe regional data would show slower rises in education costs where housing is more affordable?

Both the supply of land and the availability of financing is driven by government processes.

I was wondering the same thing.

A casual inspection suggests that units of labor input / unit of output has been systematically reduced in some areas (for example in appliance or auto manufacturing), but not reduced or in fact increased in others (education).

When I attended school (toward the left side of the scale), class sizes were larger, and there were no teachers aides, or counselors, social workers, school safety officers, etc.

I would suggest that the regulatory burden accretes slowly, both for new regulations and degree and scope of implementation. For example, mainstreaming disabled kids into schools was probably not a step function change.

Education and health care has probably been more effective at resisting efficiencies than manufacturing, in part because of residual respect and status for those areas as professions, and in part because its so much more difficult to see and measure the output of a hospital or university than an refrigerator assembly line.

And in the early years of the graphs, those areas were a much smaller fraction of GDP.

It would be interesting to see if military training, for example of pilots or nuclear power officers or techs, where I suspect there is less institutional resistance to efficiency, has a similar cost curve to economics of nursing.

"Education and health care has probably been more effective at resisting efficiencies than manufacturing, in part because of residual respect and status for those areas as professions"

My heart bleeds (not literally) because malefactors of great wealth couldn't send teachers and doctors' jobs to Red China. Where will this mad rush to destruction lead America? When will it stop?

I think this is wrong, but there is a way to make the case: with a multiple county data set.

If say, Germany (including EU regs) had better cost control, what would that tell you? Let's look!

https://nces.ed.gov/programs/coe/indicator_cmd.asp

Actually, Figure 3 shows the US spending more than most "more regulated" countries.

Maybe we are doing something uniquely wrong with our "public funding with moar capitalism."

Engineer,

Military training has the same cost curve: https://www.forbes.com/sites/niallmccarthy/2019/04/09/the-cost-of-training-u-s-air-force-fighter-pilots-infographic/

Thanks, but the reference compares current pilot training cost by aircraft type, not over time.

"We might expect a big regulation, for example, to cause a big increase in prices as industries adjust but then growth should return to normal."

Why would that be? Take HIPAA. HIPAA regulated how healthcare had to protect sensitive information. Yet every year we face new burdens when complying with HIPAA. New forms of violation are found (e.g. selfies on social media) which then require enforcement, penalties, mitigation, policy, and refreshing. Old, sometimes ongoing, violations are brought to light that require new expenditures to rectify. Nor are these regulations static. I would encourage interested parties in Googling "This Week in Medicare Updates"; you can then peruse the very boring trade publications that check the half dozen odd changes to Medicare regulation interpretation, enforcement, etc. that come out any given week of the year.

Regulations, particularly for education and healthcare, are not static costs. They are beasts written into law by people who rarely understand them and certainly do not bother to exhaustively define them. Even in the rare times when they are thusly written there is a multi-billion dollar industry in contesting what each word means in a given context and a small army of federal regulators who go over these things. But even this is not final. After all the courts get involved and then suddenly wide swathes of the thing get annulled, or worse directly changed. Thanks to severability you do not just get to punt all the stuff deemed "illegal", but instead you must guess while waiting for the whole process to sort itself out again by running the regulatory gamut again.

Roberts v. Galen of Virginia, for instance, was entirely about how Section 1395dd(b) of EMTALA (passed in 1986) did or did not require an "improper motive" to make a transfer "improper". Case was filed in 1992 and decided in 1999. For 13 years it was not obvious to all parties if the law required one well known standard (basically if you are obligated to be reasonable and not intentionally violate the rules) or another (basically you are required to have more costly procedures to sure you don't accidentally screw up). In 1999 the Supreme Court said it was the latter. Fine whatever.

Except that wasn't the end of it. Newsom vs Mann followed the very next year and decided that another part of EMTALA requires the first standard. Doing a cursory search of medical-legal decisions finds that in 2008 the Kentucky Court of appeals found that section 1395dd(a) does not require the meeting the same standard as 1395dd(b).

I do not pretend to understand if all these decisions are correct. What I know is that for one law passed in 1986 to outlaw one VERY specific behavior we did not have a one time increase in healthcare bureaucracy and then return to trendline. We had over 20 years of reinterpretation which generated new costs over the entire period. But finally after 20 years this is all settled and not incurring new regulatory costs?

Of course not. On 11/23/2018 CMS published:

Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2019; Medicare Shared Savings Program Requirements; Quality Payment Program; Medicaid Promoting Interoperability Program; Quality Payment Program-Extreme and Uncontrollable Circumstance Policy for the 2019 MIPS Payment Year; Provisions From the Medicare Shared Savings Program-Accountable Care Organizations-Pathways to Success; and Expanding the Use of Telehealth Services for the Treatment of Opioid Use Disorder Under the Substance Use-Disorder Prevention That Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act

Which made a (hopefully) slight change to technical billing requirements in EMTALA. God may know what that means for emergency billing and ultimately how the ED functions, but I certainly don't. Nor will I for at least 5 years.

In healthcare, at least, regulation is a gift that keeps on giving. I cannot think of a single regulation that does not require the system to adapt at least every couple of years. I mean I literally have sat through meetings where we debated the cost of just eating penalties (and passing on the cost to insured patients) verses staying on the compliance treadmill.

But even that strategy doesn't work as a one-off as CMS basically doubled EMTALA violation penalties with minimal warning in 2016.

But suppose somebody finally fixed the rules and "Final Rules" were actually final. Still is not a one-off. After all my practice has changed dramatically in short periods of time. Fentanyl and carfentanyl rapidly became major issues. Now I have to figure out how much EMTALA compliance is going to cost with a dramatic increase in non-responsive patients. Also all the old protocols with their cost-benefit calculations are no longer valid with a different patient mix where far more of my "found downs" will respond to Narcan and are thus no longer EMTALA burdens. Likewise, with more of the population identifying as something other than their gonadal sex all manner of regulations about non-discrimination, chaperoning, and the like get to be rewritten, litigated, and redone.

So while I agree a lot of the cost in healthcare is driven by Baumol, you cannot look for one off hikes in regulatory costs. The system does not work that way. EMTALA's major cost burdens continue changing to this day (33 years later) in idiosyncratic and unpredictable fashion.

'Now I have to figure out how much EMTALA compliance is going to cost with a dramatic increase in non-responsive patients.'

What a fascinating perspective. A German doctor does not have to deal with anything like that at all - that is, how much something is going to cost.

'Likewise, with more of the population identifying as something other than their gonadal sex all manner of regulations about non-discrimination, chaperoning, and the like get to be rewritten, litigated, and redone. '

Ditto - that is not a German doctor's problem at all.

'The system does not work that way.'

Well, the American system, which is exceptional in so many ways.

Greater demand for higher education (demographic component and foreign student arrivals) and a scarcity of persons with the skill levels to perform professional services and a surplus of less educated people relative to demand.

Can you substitute a doctor, nurse, teacher, lawyer, computer programmer (professional services and education) for a Starbucks barista or waiter (food services).

Also, these are transaction prices, so if in he past public college education was directly subsidized by the state, and those subsidies were withdrawn, the price of those services (tuition) increased. Here is a link to BEA data methodology: https://apps.bea.gov/national/pdf/chapter5.pdf

Increase the supply of educated people with skills that are in demand.

And decrease the cost educating than by 3/4. That would increase the supply as well.

To have appliance prices decrease like they did is the result of year on year lowering our costs. Every component and process is examined and redesigned. What would happen if that same process was done by all the heavy government involved sectors? Nothing. Because it doesn't matter. So it won't happen.

Health Care costs would drop by 95% in the first year if people had to pay out of pocket.

Yes. The auto companies, for example, have systematically made tens thousands of process optimizations to improve results and reduce costs.

Cost efficiency is not a value for higher education; they have not made the most elementary cost reduction efforts.

Seventy-five percent of higher education faculty are now contingent labor, without benefits or tenure. Of course, most of the savings have gone to fund top executives, but isn't that "running like a business"?

Running it like a business might include, for example, organizing the operation to achieve 4 year graduation rates above 75%. The very best performance is about 90%, but there are many schools with less than 50%, and some in the single digits.

Health Care costs would drop by 95% in the first year if people had to pay out of pocket.

You mean my doctor would work for $10,000 a year? Boo Yah!

If people had to pay for healthcare out of pocket the healthcare sector would collapse, and probably drag the rest of the economy down with it. That vast majority of people do not have enough income to afford any but the most basic healthcare services (and some people cannot afford even those). Of course we'd get a revolution with libertarians left swinging by the lampposts if anyone ever really attempted that stunt, which would be as catastrophically cruel in the name of abstract ideology as the holodomor perpetrated by Stalin was.

Derek should do some reading on this. The studies show out of pocket costs causes people avoid preventive care (ultimately raising costs) and the costs of individual negotiation for care is higher. https://patientengagementhit.com/news/out-of-pocket-healthcare-costs-rise-as-utilization-is-unchanged

Here is some good data comparing US v world on medical inflation and costs, including out of pocket: https://www.epi.org/publication/health-care-report/

There is no such thing as preventive care.

"causes people avoid preventive care (ultimately raising costs)"\

Didn't the Oregon experiment disprove this?

Car repair costs have gone up because of all of the new technology on the cars. Replacing a bumper now includes all of the sensors that were nor previously there. Technology is great but it costs to fix it.

But back in the 70s a car making it to 100k miles was a minor miracle. So is this car repair spending in total or the average cost of a repair. Having to get a new alternator on your Corolla with 220k miles is something different than needing a new one for you ‘78 Chevett with 22k miles.

I agree. If you bought a car in the 60s or 70s, you typically spent as much in repairs as you spent to buy it. Since cars made a step increase in quality in the 90s repairs are typically inconsequential.

This is not true. Accident repairs are much more expensive on many cars because they use compound curves and sometimes exotic materials. Drivetrains are MUCH more complex. Replacing a transmission in an SUV can cost $10,000. Also, modern manufacturing techniques package a LOT of hardware into very small spaces, and are sometimes optimized for ease of construction on automated assembly lines rather than ease of repair. On some modern cars entire subassemblies have to be dismantled to get at serviceable parts that used to be serviceable with a wrench. In some cars you have to lift the engine to replace the back spark plugs.

So auto repair prices have remained relatively flat even though cars have become more reliable, because they have also become much more complex and difficult to service and repair.

I know nothing about car repair, but a friend recently told me that there is less and less actual car repair. Computer assisted diagnostics indicate where the problem lies just by plugging the car into the machine. Then everything is modular, and the whole module gets swapped out for a new one without any fixing of the old one. When was your last “tuneup”? Similarly, no one pounds out dents in fenders and then carefully repaints to match the old color; they just install a new one. Body shops today never open the bucket of Bondo.

Your friend is confused about the setting of codes in the car's computer. It only tells you what system has hit the criteria to set a code. May or may not be anywhere close to the real problem.

On the other hand, you need tens of thousands of dollars of code scanners and oscilloscopes to run a repair shop nowadays. Somethings can't be diagnosed without oscilloscopes and others permit you to determine if ripping the intake off to just do a physical check on the injector is a valid next step.

Auto repair is higher cost now as many working shops throw parts at a problem, as skilled diagnostics techs become more necessary. But being an industrial control system tech is different than someone who likes mechanical things. There are youtube channels of doing diagonistics on cars. But the smallest thing can take a car out. A bug on the mass airflow sensor for instance. Saw one video, thousands of dollars having been dumped into a BMW that wouldn't start. Guy finally ran it down to a short in the passenger door handle. Although why that trashed the network rendering the car inoperable wasn't obvious.

Easy money financing and third party payer schemes levitate prices.

The constant in medical care is third party-payments. Same for (public) education. Insurance and taxes are not the best ways to pay for things. Is post-casualty repair work included in car repairs? That's third-party payments.

Professional services are government guilds with all the distortions that implies, but I can tell you firsthand some specialties haven't had a raise in years.

This.

I'm not throwing out the Baumol effect. But the stuff on the top tends to be paid for by someone else and production tends to be extremely wasteful. The stuff on the bottom tends to be paid for by the consumer who expects good value/price trade-off.

What is the REAL price of . . . corruption? (Why are those prices so damned high?)

Telecomm (the hardware/software) industries may show no conspicuous evidence of corruption, but we begin to know how widespread corruption is across our corrupt and corrupting Media Establishment, enough for several sectors of our economy combined.

"Higher education" (temporal training) has become corrupted, in terms of inflated administrative costs, corrupting commercial sports broadcast intrusions, and has begun to yield outbreaks of cheating parents expressing parental care and concern for their poor children's education or training. (Corruption in "lower education" maintains qualitatively different standards.)

Health care, as we now know, has become thoroughly corrupt, otherwise, we might suppose Americans all (drug manufacturers, "professional" medical organizations, doctors and health care regulators themselves) should have been able to dodge the opioid addiction crisis deftly.

Et cetera, et cetera, et cetera.

Why are corruption costs NOT being accounted for?

Regulation creates opportunity for corruption. You can't selectively enforce rules, or lobby for rules that favor incumbents in an industry if there is no regulation.

Regulating and/or regulatory regulations, in which case, might be due if not overdue (which in theory would at least be capable of enforcement).

(By now, a Constitutional overhaul might be due, but that won't be occurring soon, either.)

The prices of health care services included in the inflation basket, are those the prices paid for by insurance companies or prices paid for by the uninsured?
https://perkurowski.blogspot.com/2017/07/i-believe-my-one-line-health-sector.html

The areas at the top (these are not industries) enjoy the practice of incumbents deciding which new entrants may enter, when, and on what key terms, under the humorous sad concept of Certificate of Need.

If it were something as simple as claiming Baumol effect or government subsidy, you would see the same pattern in countries like Sweden, Germany, and France.

Here is a McKinsey interview of an official of the German Ministry of Health on how they have controlled health care costs: https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/how-germany-is-reining-in-health-care-costs-an-interview-with-franz-knieps

It's interesting you say that, because there's actually a rebuttal to that in one of the references used in Alex's study, this link.

https://www.healthaffairs.org/doi/10.1377/hlthaff.12.3.152

It's from 1993, but still relevant today. "When politicians and policymakers ask, “How does Germany (or Canada or the United Kingdom) do it?” a large part of the explanation for a lower GNP share is that they pay health professionals less—not just physicians, but nurses and technologists, too. Such redistribution does not benefit the country as a whole, or even the average citizen. Until we can get some reliable measures of true cost of medical services in different countries, a moratorium on comparisons of spending levels might be the biggest contribution to a more reasoned health reform debate."

Germany spends less money on Health Care, but they have more workers in the Health Care sector, meaning more workers who are not doing something else. That is a greater cost in and of itself. U.S. healthcare workers are paid more due to two reasons. The Baumol effect, as mentioned in Alex's paper, American workers are more productive than German workers, and were American Physicians to choose something else, they would make more "stuff" and higher wages, thus the higher salaries. Secondly is the American system does not use government monopsony power to undercut wages of health professionals. Using monopsony power to undercut wages of health professionals does make households without a health professional better off, but the net welfare effects are actually negative (except in the case of a bilateral monopoly)

It is evident you do not understand the Baumol effect, because this is a cross comparison. Second costs are lower because there are negotiations with providers because the government purchases the services. Moreover, it is not a monopsony if there is a private pay market. Finally, if you did understand the term monopsony you would understand that a monopsonist buys less, not more, which is contradicted by higher number of docs and nurses in the other system. But what they are missing is an intermediary system of private insurance administration costs. Finally, look up how the AMA has been responsible for restricting supply, which is evident in the indefensible cost for service which you want to protect.

Why is it that the more government involvement in healthcare and education among first world countries the lower the spending as a % of GDP?

When the government runs it, there is no profit motive to increase the amount of consumer debt to increase consumption as a share of GDP to grow the metrics that inflate share price: revenue, profits, monopoly power, CEO compensation.

Hmmm...none of the above comments got around to mentioning what Alex regards as the most likely suspect...Baumol's "cost disease." In a nutshell, Baumol argued that productivity growth in certain sectors (primarily in the services sector) was inherently limited because Mozart could only compose a certain number of operas per year, you can't (effectively) read more than one thing at a time, and a surgeon can only operate on one person at a time. But if income increases, demand for many of these normal goods will increase faster than labor productivity, so inflation for those sectors will tend to increase faster than other sectors. That's the embarrassingly incomplete dime version of Baumol's argument. And I think it's a pretty good explanation for the long run inflation rates for various goods and services. The one exception might be rent, but that too isn't all that far removed from the essence of Baumol's argument either.

Except the book says this in the conclusion section - 'We have tried to avoid using the term cost disease because a deep
lesson of the Baumol effect is that, over time, goods can increase
in price and also become more affordable. An even deeper lesson
is that higher prices of some goods are an inevitable consequence
of economic growth.98 Changes in relative prices are an inevita-
ble consequence of growth and not a failure of growth. We can
have our healthcare and our smartphones, too.
It’s natural to look at high and rising prices in sectors such as
education, healthcare, and the arts and to conclude that there is
something wrong with these sectors. We have taken a close look
at education and healthcare, and Baumol and Bowen examined
the arts, and most of the specific explanations for problems in
these sectors are either untrue or cannot explain rising costs.99
Education has not become more dominated by administrative
costs or lazy rivers. Medical malpractice costs are not a large
share of healthcare costs. Across a wide range of industries, nei-
ther regulation nor concentration does much to explain long-run
changes in prices.'

But maybe you were reading another section?

So much for Okular PDF formatting

You might have misunderstood me. Baumol's argument isn't that something like surgery can't see productivity growth; it's about the relative rates of productivity growth. And just to be clear, I'm not really taking a position one way or the other as to whether or not Baumol's "cost disease" is the best explanation for the price changes in Alex's graph. I was simply pointing out that up until my post there was precious little discussion about Baumol's "cost disease." Lots of other proposed causes, but not much about what Baumol said, which was supposed to be the subject of Alex's post.

And I agree that "cost disease" is an unfortunate term for a "problem" that essentially arises as a consequence of our becoming wealthier.

Your surgeon example is poor. Surgeons can only work one case at a time, but they can do cases more quickly. For instance, back in the day surgeons would clamp and stitch all manner of bleeds. This was very time consuming. Then in the 20s Bovie developed electrocautery. Now you could literally burn through minor vessels and cauterize as you cut. As time went on we had plenty of other time saving innovations (e.g. in the 60s and 70s we had surgical staplers come out and Da Vinci robots more recently) that allow surgeons to do more cases in less time, in theory.

The problem, like much else in medicine, is that we have simultaneously put more burden on the surgeon. In ye old days we spent far less time prepping patients ... and had higher infection rates. In those long gone times we could open abdomens more quickly and quickly visualize organs; now the open approach is slower (obesity) and we do far more with laparoscopic options (slower, but much quicker return to normal activity with less scarring). Then, of course, there is the effect of regulation. If nothing else we burn a day or two of surgeon time each year on HR anti-discrimination fluff. We burn another day or so on maintaining BLS and ASL certifications. Then, of course we have made the process of reimbursement more onerous. And of course there are ever growing admin responsibilities.

Surgery is about the worst example in healthcare, we plenty of devices to make the mechanical work go faster, we just have spent some of those savings on improving surgical outcomes (even as the population has become more morbid and less able to tolerate surgery) and some on admin and other fluff.

Every advance you mention means 10% more surgeries that previously were treated by "don't stress yourself or you'll die" or prescriptions of opiates to ease the pain of dying.

Two decades ago I had familial carotid body tumors removed, about 8 hours of surgery each, while young, early 50s, so the tumors wouldn't compress the vagus nerve and cause problems with swallowing, speech, hearing, etc, years in the future. Problems my younger brother and sister had already had. My first diagnosis was by palp by a curious doctor treating my sister. At the time I had "socialist" health insurance, ie, $50 in copays total for doctor visits, labs, imaging, surgeries, drugs, follow up. Gas and tire wear to UNH Hitchcock hospital cost more out of my pocket. Three years later on the diagnosis and I wouldn't have been able to afford it until age 65 when my 15 year stint on free market health insurance ended. Free market insurance would have denied approval of 80% of costs after the $5000 deductible, while charging premiums higher than my employer socialism plan cost. The free market insurance was across State lines from Indiana for profit Anthem buying the NH BCBS not-for-profit, which within years was cutting benefits while hiking premiums to boost profits. The year the 20% cap on non-medical care of premiums took effect, my annual insurance premium was cut $1000 instead of another $800-1000 increase, the pattern from 2003-2010 was 10% increases every July.

Still, with CEO bonus set by the 20% and 15% cap profit generation, Anthem management wants medical costs to rise faster than inflation while Anthem overhead falls so the premums can rise faster than inflation driving up metrics that drive up CEO bonuses faster than inflation.

Thus more expensive surgeries are desired that are deeemed medically necessary.

In education quality is often measured by the student teacher ratio,

So if we reduce the average size of classes we are supposedly improving quality.

But this is also reducing productivity -- students per teacher.

So how do you get around this problem in measuring education?

Give up the profoundly stupid idea that quality equals the student teacher ratio. Measure output not input.

Compare rates of improvement controlling for psychometric profiles.

E.D. Hirsch offered a number of years back that education research is commonly 'cargo cult' social science - the models are mis-specified and the wrong tools to measure performance are chosen. You see one study after another with ambiguous or non-replicable results.

I am curious if the prices of goods and services that have decreased did so primarily by reducing labor costs through automation/technology investments, process improvements, or deferring labor to developing countries with lower labor costs. The trend appears to be that the more dependent the good or service is on labor that is local (versus global), the higher the cost of that good or service has crept upwards.

Thread winner. Surprised nobody to date except Ryan picked up on this. The chart is simply the difference between goods (which become automated over time--machines replacing labor--as well as tradable overseas, "Made in China" is cheaper than "Made in USA") and services (local, not tradeable, usually not automated, hence relative to goods costly and prone to inflation).

Baumol's cost disease is a variant of the above "services cannot be automated easily and become more expensive relative to goods" argument, but it's not quite the same. Google Baumol's disease, it's comparing services to services.

There has been no technological advances in the increased cost industries? None of their inputs have gotten cheaper?

How much have prices for haircuts gone up? Surely, they've should have gone up multiple factors in price according to you theory.

That's somewhat true for housing because the size of houses makes it cost prohibitive to ship things like pre-assembled wall panels, but cars are very large as well, and that hasn't stopped cars from being shipped internationally. Health care and education don't really have the same restrictions. Both could be provided online. And restaurants, retail, and hotels are also made up of strictly local labor, but their prices haven't gone up nearly as much.

Housing is expensive in part because land is more valuable in desirable areas due to zoning restrictions that limit the supply of buildable space. But another major reason for the high cost of housing is the morass of building codes and the variability of building codes from region to region that make it impossible to bring modern assembly line processes to home building, This is sometimes the intent of the building codes - to maximize the amount of good union labor required to build a house.

Imagine if we built cars like we build houses - you hire a welder to weld up a chassis for you. Then you hire a body man to form a body around the frame. Then hire an upholsterer to make your seats, and an engine mechanic to build the engine, etc.

That car would cost you half a million dollars and be less reliable and much poorer in quality than a car you can buy today for $15,000. But that's pretty much how we do it with houses,

I agree with you about the huge gap in quality between houses and cars these days. But most localities are following either the International Building Code or something based on the International Building Code. Europe uses Eurocode. It's quite possible to mass manufacture a home, and sell it in most parts of the US. The widespread adoption of mobile homes is proof of that. But that approach hasn't caught on for more upscale homes.

The reason mobile homes even exist is to skirt the various building codes. Most mobile homes are never moved off the site they are initially placed on, but they are treated differently by he regulatory system.

I think it was MIT that had an initiative to design modular homes that could snap together and were made of pre-fab walls of composites with electrical and plumbing sandwiched inside them. Building a home just required connecting the plumbing and electrical fittings between walls, then attaching the walls together. This would have brought economies of scale and much lower prices.

The project failed because they couldn't deal with the complexity of the building codes from state to state, or even city to city. There was no way to manufacture a common design that would work everywhere.

For example, some jurisdictions demanded that all water pipes be connected with screw-type fittings, while others required press-fit. Also, he inspection laws required that walls remain open for initial inspection so a city inspector could check the electricals for code compliance. You can't do that with a composite wall where the interior is no longer inspectable. And since those requirements are locally applied, you can't just get them changed nationally. You had to go community-by-community, and those community politicians are heavily influenced by the building trades, which work tirelessly to stop such innovation.

Then you have the various zoning laws that prevent common designs. In my neighborhood, for example, homes must have two-foot overhangs on the roof, the roofs must have wood shingles, and stucco is required instead of vinyl siding. Every zone has different rules for 'aesthetics'. Some require clay tile roofs and Mediterranean styles. Some require fancy garage doors with windows. All of this mandated variation makes it really hard to come up with generalized designs.

There was no way to manufacture a common design that would work everywhere.

That's not because of building codes. It's due to the fact that conditions are very much different in different localities. A house in northern Montana is built much differently than a house in south Texas. No generalized design would be satisfactory for every environment. Furthermore, home owners have different wants and needs. Some have children and also do a lot of entertaining, others are childless and more reclusive. Houses are designed to appeal to particular interests. A "one size fits all" approach is what worked so well in the Soviet Union.

The houses were not one size fits all. They had panels that could be put together in many combinations, allowing you to build houses in many different configurations. There was a whole catalog of house designs. Pick the design, and a parts list would be generated for all the panels and roof segments required.

The geographic needs are a good point, but I think they had that covered as well to some extent.

One point on higher education: these are list prices which only the top 10% or so pay and which have risen with the income of the top 10%. The median price of higher education is much more informative and exhibits a far less steep historical price path.

There are cost-side comparisons across countries.

https://nces.ed.gov/programs/coe/pdf/coe_cmd.pdf

How does this account for quality? There are many medical procedures and educational knowledge that did not exist in the past, not to mention universities have much better student amenities than they used to.

Maybe (dad's) productivity allowed that cost disease in amenities.

I guess it would be darkly funny if the Europeans had less of the cost disease because they had less of the productivity growth.

In a wealthy country with a high level of inequality like ours, I would expect the goods and services highly valued by the affluent (education, professional services, etc.) would experience the largest price increases, while the goods and services valued by everyone else (entertainment, transportation, etc.) would be flat. Roughly 30 years ago my firm represented a company that developed expensive (luxury) student housing. What the client saw was an opportunity driven by increases in the quality of public universities not reflected in the tuition charged. Parents had saved to send their children to private (i.e., expensive) colleges, but when the time came to send them off, public universities were the better value. The parents had the savings to spend, so why not on luxury housing instead of a private college education. That may seem ridiculous today, with public universities charging not that much less than private colleges, but lest one forget, yesterday may have been very different from today, just as tomorrow may be very different from today. The value of an education at a public university was much greater yesterday than it is today, the return relative to the cost having shrunk significantly since our client developed luxury student housing. In time, prices will adjust, the cost of an education at a public university returning to the bargain price of 30 years ago.

Prices will not return to where they were 30 years ago, because now we have an army of educrats to pay for. 'Diversity' departments are not free. Administrative bloat is huge in academia, and prices will not come down under we regain our senses and realize that you don't need an army of bureaucrats to run a school.

Baumol might argue that low productivity growth, high skill wages would keep up with high productivity growth, high skill wages. What is the growth in high productivity growth, high skill wages? Is it as high as the cost increases in health care and education.? If not, there is more going on.

All those items where the cost has gone up are more or less forced on people or they are bought in times of dire need or stress.
Blackmail and extortion are rightly illegal, but human ingenuity being what it is, many of those who seek this activity find a way of doing it legally, and seek occupations where price gouging is possible.
Education - compulsory
Health care - if you don't get it you may die
Prof. Services - often bought because of someone else's actions
Car repair - if you don't get it, you are immobilised.

Everything on that list except for air travel and telecommunications are things which people need just as much as the things you just listed. In fact, I'd say food and drink is the most necessary thing on that list followed by clothing. Both of those things are extremely cheap.

I wonder about the accuracy of the data.

Graph shows car costs since 1950 have gone down.

I own a 2004 mazda b4000 pickup truck 6 cyl 4wd. Bought for 13000 in 2006. 2 yrs old at that point. To get the same capability today would cost me double. A new truck w/o 4wd and with 4 cylinders would also cost me double.

As far as I can see the cost of pickup trucks has doubled since 2006. The chart shows it declining.

Something is wrong with the data.

You might say well maybe trucks are different. But if you look at the costs of cars and suvs they are not getting cheaper or more affordable.

I just looked at the cost of a ford fusion in 2009. Cheapest version 19K.
Cost in 2019: 23K. An increase of about 20% in 10 years. Yet the graph shows it flat.

Something is wrong with the data.

The graph also shows the cost of air travel going down.

LOL!

That maybe true for President Trump since he now gets air travel for free. But it's not true for the rest of us. Increased costs. Decreased comfort. That's the current story.

Something is wrong with the data.

The chart is relative to general inflation, so a product with cost increasing at the same rate as general inflation would show as flat even though it costs more in nominal dollars today.

I understand what you are saying but I see costs rising much more than inflation for general aviation and for vehicles. Remember the price to replace my truck has more than doubled.

I still think the data is wrong

Air fare should show a steeper curve downwards. It cost me the same to fly to Europe last year as it did, in nominal dollars, when I was a kid in 1973. Also with cars, more gadgets, safety and miles to be driven in each one.

"For the most part, we don’t see quick, big changes in prices that then level off. That in itself is interesting since policy tends to be discontinuous."

But policy change could impact the entrance of new firms with new technology (this presumably would affect all sectors equally) or it could impact the introduction of new technology in specific sectors relative to other sectors.

Also, it's interesting that the sectors that get less expensive are ones where either users are frequent repeat buyers and can discern the quality easily or ones that it's easy for consumers to get lots of information prior to purchase, while the sectors that got more expensive are ones where quality is hard to discern, and also seem more likely to entail asymmetric information between the buyer and seller.

Since you measure the change of prices in real dollars, you implicitly set your inflation to 0. So if certain goods have declining prices during some period, it is a mathematical necessity that other goods will have raising prices during the same period, so that the weighted average is 0.

+1 Stand up and take a bow.

lessee. Industries where elites are able to insulate themselves with education and licensing; where ownership can operate as gatekeepers; where they can use government to block competition; and where the banks can insert themselves as rent-seekers by financializing aspect of the process: costs went up.

Industries where labor is comparatively less powerful; and where investors can cannibilize companies using subsidies and tax and regulatory preferences: costs went down.

Amusingly the Wikipedia explanation of the Baumol effect invokes professors as an example: "it takes nurses the same amount of time to change a bandage or college professors the same amount of time to mark an essay in 2006 as it did in 1966."

The common element between the goods which are rising in price is that they are all products which consumers have limited information concerning. They're goods which are bought only rarely, and the value generated by those goods is borne out very gradually. Consumers only choose a college once, and then spend years afterwards learning about whether their purchase was correct. Consumers don't begin making health care decisions until late in life when they suddenly are confronted with a barrage of decisions, which once again take years to discover their implications; when the consumer dies. People only buy a newly constructed house once, and then it takes years to learn about. Lawyers, accountants, and engineers are only usually seen once by consumers for a single issue. Also, markets are more heterogeneous in all of these industries with more players, so it's harder for consumers to learn information about the suppliers. Rationality is bounded by experience. Learning by using is valuable.

Car repair is the exception, but it's not going up in cost by nearly as much. The issue there, I suspect, is that new vehicles are becoming more advanced faster than car repair is improving.

As Arnold Kling says, 'Restrict supply. Subsidize demand."

Actually, if you look at the statistics, Kling is half right: we restrict the supply of doctors. See OECD data: https://data.oecd.org/healthres/doctors.htm
As for his second claim of subsidy, OECD data shows that other countries have a higher percentage of government support but at lower costs.

Actually, that probably is not correct because he is not selecting all goods and services, but just some. If you choose a different period, perhaps beginning in 2000 to date, you also get different pictures because the baseline is flat for some sectors, and not decreasing and others not increasing either.

This was meant as a response to Joel's comment above.

In the case of healthcare it’s due to the continual innovation in ways to maximize the monetization of disease, including social engineering of medical practitioners to erode any values that might stand in the way. Read the piece that Tyler linked yesterday about the American Psychiatric Association annual meeting yesterday and extrapolate that to every subspeciality in medicine. Is business really so hard to understand?

I'd link to this on Twitter but I don't know what the Baumol effect is. I don't think my followers do either.

The educational sector has some rather gross inefficiencies which can be corrected with policy measures. Both the medical sector and the education sector might benefit if public financing (as a share of the sum of personal income) were fixed. In education, this might be undertaken by having two sets of producers. Both would be organized as philanthropic corporations. One set would except state issued vouchers which would settle all obligations between vendor and client. The vendor would turn them in to state or county governments for re-imbursement at face value. The other sort of producer would charge tuition and room-and-board per what the market would bear and receive no public financing at all. Clients who wish to use their services turn in their vouchers to the state and county government and receive a refund that approximates their household's contribution to the public fund from which the voucher redemptions are financed. They get out approximately what they put in in real time, so the market for tuition-funded education is undisturbed. Homeschoolers could be compensated the same way.

For the medical sector (including ltc), we might do what Milton Friedman suggested, which is to have publicly financed insurance over a high deductible and allow a price system to re-emerge for mundane medical care.

An interesting point of comparison would be the cost of space launch. The cost per kg lifted into orbit has been increasing steadily just like the cost of education and health care. But then it reversed and began to decline, and the decline has been accelerating. Somit started out looking like the education graph, then transitioned into one that looks like the technology graph.

What changed? The government got out of the way, and private contractors moved in. Government cost-plus accounting created incentives in the large aerospace companies that contracted for them, which caused managerial and administrative bloat. Government accounting rules caused paperwork costs to soar, and cost-plus removed and incentive for the big aerospace firms to innovate to cut costs.

But when private companies got into the market, innovation began to happen rapidly, and competition forced them to focus on productivity and overall costs. The traditional government contractors simply can't compete in the market as they have become too bloated and inefficient. But if private space had never been allowed, we would have no idea how much cheaper space access could be, and we'd all be assuming that $6,000 to launch a kg into orbit was just the best we could do.

We still teach children the same way we taught them 100 years ago. If you took a kid from 1920 and plunked him down in a modern classroom he would feel completely at home, albeit with a few minor advancements like projectors. But the experience would be largely the same. The same is not true for just about any other modern a activity. Education productivity has actually declined as we apply ancient procedures and processes, except now we require an army of bureaucrats in the mix.

I'll wait for someone to explain why it's sensible to explain price differences for goods that are radically different over the time period shown. I won't hold my breath, though. (Comparing telecommunications and home appliances and healthcare today to that in 1950 is entirely untenable.)

Education has a limited supply, limited by how many students you can physically cram into a classroom. Whether this is a natural or regulated construction doesn't matter, it is a thing. So we have college educated teachers without jobs and tenured professors with a cushy lifestyle. Will this dynamic change?

The Baumol sectors aren't really optional. You need a place to live. You need an education to get a credential to have a career. You need necessary healthcare to live.

As other goods got cheaper there was more money slushing around that could have gone somewhere. Back in the day economist kept thinking it would go towards...a 6 hour day...a 4 hour day...a 3 day week...early retirement. Instead, it went into goods people don't really have an option to forego (and other purely positional goods). Despite all the extra resources, these sectors haven't really turned out a fundamentally better product. A lot of the extra money seems to go into various kinds of inefficiency, waste, or superfluous benefits.

In a world where these sectors didn't soak up the extra money people might work less, or have a spouse stay home with the kids, or retire earlier, or just generally have more financial security.

So for analysis of this sort, should we be measuring the cost of goods not in dollars, but in how many hours it takes to make the money to buy the goods, working at a median hourly rate?

I like the book, but I do not see why a recording is not a substitute for a musical performance, but it is a substitute for a lecture performance. Granted, neither is a perfect substitute but I think both are in improvement in productivity, broadly speaking.

Would that be because we are trying to buy more coaching/motivators, smarts and credentials and not more just knowledge and skills? Mostly if I want to learn something, I go to a coach/tutor, a book or youtube not school but if I want acknowledgement that I have smarts and skill I got to go to school.

So are we trying to buy more IQ and Longevity but failing but cannot due to the marginal befit of schooling and healthcare is to the point where additional spending is negative?

Do economists have any measures of litigiousness? I'd be interested to see how much of the cost increase comes from not just the actual lawsuits, but all the precautions taken (often wasteful) to protect against possible future lawsuits. I've recently dived into the world of K-12 education, and realized it is a much more litigious industry than I originally thought. I imagine healthcare is the same.

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