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Baumol's Cost Disease
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Re: Baumol's Cost Disease
#12I'm skeptical that anything actually is cheaper when normalized by offset wages. like sure you can buy a TV for cheaper, but isn't that just because now you have cheap labor and arbitrage? software is the main exception here. what physical product is actually cheaper when you remove offset labor arbitrage? this would also explain why things that are not subject to said arbitrage do not actually get cheaper, e.g. anyt…
Don’t automation technologies improve the productivity of labor?
If I can make one widget per hour, and some new tool lets me make 10 widgets per hour?
Conventional economic theory suggests the gain will be split between the widget-maker and the widget-consumer, in proportions determined by the relative slopes of the supply-demand curves, but definitely the product will become somewhat cheaper.
Re: Baumol's Cost Disease
#13I'm skeptical that anything actually is cheaper when normalized by offset wages. like sure you can buy a TV for cheaper, but isn't that just because now you have cheap labor and arbitrage? software is the main exception here. what physical product is actually cheaper when you remove offset labor arbitrage? this would also explain why things that are not subject to said arbitrage do not actually get cheaper, e.g. anyt…
Don’t automation technologies improve the productivity of labor? If I can make one widget per hour, and some new tool lets me make 10 widgets per hour? Conventional economic theory suggests the gain will be split between the widget-maker and the widget-consumer, in proportions determined by the relative slopes of the supply-demand curves, but definitely the product will become somewhat cheaper.
sure, but take furniture - is high quality furniture cheaper today than 50 years ago, normalized by inflation? from my investigation the answer is no.
Re: Baumol's Cost Disease
#14[flagged]
Technically not a source, and even less so than wikipedia.
Re: Baumol's Cost Disease
#15I can’t help but notice the items of increasing price / cost are not optional / discretionary purchases. Price can increase and not affect demand. Whereas the items decreasing in price are all subject intense competition and price sensitivity.
That's not how it works: Most things that people call non-discretionary still have opportunities for market effects. Take food: You might have spikes for, say, beef, but what is necessary is just enough calories, not necessarily having them come from beef. Therefore, you can switch preferences, eat something else, and not be affected by the price increases. Poeple rarely do though, because the amount of money spent o…
Yeah you’re right, that’s fair. I just think people don’t behave that rationally. I’m not moving away from my kid’s grandparents because my local costs have gone up, for example.
There exists greater friction with many of the items in red than the highly automated ones.
My question is how linked is this friction to the lack of automation?
With text books and meat packing there are few players due to consolidation. This means they can avoid investing in automation and keep prices high because they face less resistance from consumers and virtually none from competitors.
In short I’m asking if market forces are to blame for lower automation. And therefore automation is not the root cause of price increases.
Re: Baumol's Cost Disease
#16Earlier quoted context omitted.
That's not how it works: Most things that people call non-discretionary still have opportunities for market effects. Take food: You might have spikes for, say, beef, but what is necessary is just enough calories, not necessarily having them come from beef. Therefore, you can switch preferences, eat something else, and not be affected by the price increases. Poeple rarely do though, because the amount of money spent o…
Yeah you’re right, that’s fair. I just think people don’t behave that rationally. I’m not moving away from my kid’s grandparents because my local costs have gone up, for example. There exists greater friction with many of the items in red than the highly automated ones. My question is how linked is this friction to the lack of automation? With text books and meat packing there are few players due to consolidation. Th…
>I’m not moving away from my kid’s grandparents because my local costs have gone up, for example.
If you're unable to eat because you spent all your resources paying for that residence near the grandparents you would certainly move.
Re: Baumol's Cost Disease
#171. This is certainly a real effect that has some effect on relative wages at the margins in some cases. 2. In 2025 if you hear someone talking about it in the context of the US economy you are most likely hearing propaganda, designed to provide a dodge for the real driver of higher costs which is mostly concentrated corporate power, consolidation, and collusion.
Evidence for claim #2? The sectors where the Baumol effect has been most painful (housing, childcare, education, with the exception of healthcare) are ones that have much higher levels of competition and distribution than areas where prices have rapidly dropped. Construction Physics, for example, did an analysis [1] that showed that the top multifamily housing developer has 2% marketshare; the top residential housing…
I'm not sure what the answer is for housing, but there are tons of factors that go in to the growth of cost there. For one, the people making the buying decision aren't comparing DR Horton to Lennar. Usually, they're thinking along two lines: monthly mortgage cost and location.
Still, that doesn't rule out other types of consolidation (that are not necessarily corporate in nature.) There are no new "cities" being built, and even if you want to live in a small suburban community, chances are that you want or need to live near a city for economic reasons. I bet a lot of people on this forum wouldn't even consider living outside of 15-mile radius of SFO or NYC.
For individual families, the choices are often even more constrained. Assuming a dual income household, it's unlikely both earners will be able to geographically relocate at the same time. So you end up with situations where new housing outside of economic centers is pointless to build, and new housing in economic centers is expensive or impossible to build due to regulations and existing suburban street layouts.
Bringing it back to Baumol, we can think of an invisible "land value tax" as rising much like a wage rises without an increase in productivity. Since we're not making new economically productive regions, the cost of living near one of the existing ones has to rise (and we're not doing anything to counteract those trends.)
Re: Baumol's Cost Disease
#18The submission is titled with "Cost Disease", though the Wikipedia article has the more neutral term "Effect". But it is important to remember that money is a relative resource, not a real resource. If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier , even if the prices in the latter sectors rise a lot.
Your conclusion falls victim to the same conflation you’re calling out. If some sectors become drastically more efficient, society has become wealthier in terms of money, but not necessarily in terms of real resources.
For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because finance is much more attractive. Is society wealthier? The money says yes. The line goes up. But finance doesn’t set a broken bone or treat cancer. This may well have made society less wealthy in terms of what ordinary people actually care about.
Re: Baumol's Cost Disease
#19[flagged]
At least the URL immediately calls out the fact the site is nothing but AI spew.
Re: Baumol's Cost Disease
#20Earlier quoted context omitted.
Evidence for claim #2? The sectors where the Baumol effect has been most painful (housing, childcare, education, with the exception of healthcare) are ones that have much higher levels of competition and distribution than areas where prices have rapidly dropped. Construction Physics, for example, did an analysis [1] that showed that the top multifamily housing developer has 2% marketshare; the top residential housing…
I'm not sure what the answer is for housing, but there are tons of factors that go in to the growth of cost there. For one, the people making the buying decision aren't comparing DR Horton to Lennar. Usually, they're thinking along two lines: monthly mortgage cost and location. Still, that doesn't rule out other types of consolidation (that are not necessarily corporate in nature.) There are no new "cities" being bui…
Housing is all messed up because land is a limited resource and regulation artificially limits it even further.
I live in a high demand area. A perfectly cromulent house on a particularly good lot will sell for $1.5 million as a teardown. The new house will be 6,000+ sqft and be inhabited by a family of four. Builders won’t build smaller because the land price sets a hard floor. The most profitable and economically productive thing would be to split the lot and build several smaller houses, or build a small apartment building, housing several times more people for the same cost. But this isn’t legal. Construction costs don’t make a difference. If construction costs doubled, the new houses would just get smaller. Some of these teardowns would stop being torn down. The cost of living in the area would stay about the same.