Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Baumol's Cost Disease

en.wikipedia.org

Post reply on HN
Print view View original

101–110 of 140 posts

Re: Baumol's Cost Disease

#101

Post by yunyu »

wat10000 wrote: post #94
yunyu wrote: post #90

Earlier quoted context omitted.

...that was my point? You are so close to getting it.

I’m completely lost. You keep talking about how advertising to doctors and B2B is totally different from advertising to people like me. At the same time you keep talking about my personal experience with advertising. Why?

If you search for low-value consumer queries or aren't a buyer for high-ticket B2B items, you will get less relevant ads. Your personal experiences don't extrapolate well here: advertising for high-value goods is totally different from advertising for low-value goods.

Example: hypertargeted ads for F-35 engine upgrades in the DC metro - https://x.com/JosephPolitano/status/1683476652276236295

Is that clear enough?

Re: Baumol's Cost Disease

#102

Post by AnthonyMouse »

simonh wrote: post #80
wat10000 wrote: post #18

Earlier quoted context omitted.

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 fina…

The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.

> Society can afford this because it now has commensurately more resources due to increased efficiency.

Does it though? Suppose that Wall St has discovered a strategy, like high frequency trading, that produces nothing but allows the one doing it to extract a margin that would otherwise have gone to the second-fastest trader. Many people are employed in a competition to be the fastest because being the fastest is rewarded but it's a zero-sum game where nothing useful is produced and the players each have to continuously spend resources to keep running faster in order to stay in the same place.

What benefit is the person now paying more for healthcare getting in exchange for this?

> It’s a tide that raises all boats, precisely because of this effect.

What if it's not all boats? Suppose it causes doctors to get paid more because people who have the wherewithal to become doctors could also work in finance, but it doesn't cause retail clerks to get paid more because Wall St isn't hiring them away from their existing jobs, and in the meantime they now have to pay more for healthcare.

Re: Baumol's Cost Disease

#103

Post by simonh »

AnthonyMouse wrote: post #102
simonh wrote: post #80

Earlier quoted context omitted.

The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.

> Society can afford this because it now has commensurately more resources due to increased efficiency. Does it though? Suppose that Wall St has discovered a strategy, like high frequency trading, that produces nothing but allows the one doing it to extract a margin that would otherwise have gone to the second-fastest trader. Many people are employed in a competition to be the fastest because being the fastest is rew…

High frequency trading does create benefits. It speeds up market corrections, increases liquidity, and means buyers and sellers get quicker execution closer to consensus market value.

If financiers and doctors are wealthier, they have more disposable income, some of which they will spend in retail, benefiting retail clerks. They will also get taxed more, benefiting other tax payers.

The Baumol effect is sometimes described as a disease. It isn’t. It’s fundamentally redistributive.

Re: Baumol's Cost Disease

#104

Post by 1123581321 »

Mistletoe wrote: post #24
kgwgk wrote: post #22

Earlier quoted context omitted.

The reasonable price was $600 in 2000 which is over $1000 adjusted for inflation. That's four years of subscription, the useful life of a perpetual license may not be much more than that.

No I pretty much still just need Photoshop features from 2000, 25 years later. That’s $24 a year instead of the current price of almost $24 a month.

You can get 2000-level Photoshop for free from many sources now, so you shouldn't be complaining about cost increases. Paid software has moved upmarket and bundled. The work done by people who need paid software has become more complex and vertically integrated (productivity increase.)

Re: Baumol's Cost Disease

#105

Post by derektank »

wat10000 wrote: post #92
simonh wrote: post #80

Earlier quoted context omitted.

The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.

Will doctors’ pay go up enough to retain the same number of doctors?

Given the demand for healthcare is extremely inelastic, almost certainly.

Re: Baumol's Cost Disease

#106

Post by AnonymousPlanet »

AnthonyMouse wrote: post #98
derf_ wrote: post #4

The 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.

> 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. That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing. Suppose people used to spend 20% of their income on housing a…

> That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.

Housing prices aren't going up because of construction costs alone. The biggest increase is from the cost of land. For that the cost of a house on top has become less and less relevant. If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.

Re: Baumol's Cost Disease

#107

Post by jayd16 »

Is this just inflation viewed from the lens of labor cost or is it substantively different?

There also seems to be other things at play. Are textbooks really so much more expensive because of rising wages? Someone explain that one to me.

Re: Baumol's Cost Disease

#108

Post by BurningFrog »

potatoman22 wrote: post #97
BurningFrog wrote: post #78

Earlier quoted context omitted.

> money is a relative resource I think this is the better way to think of money and wealth: Money is the unit of measure for wealth. It's not in itself wealth.

That doesn't quite make sense to me. A meter is a unit of measure for distance, but a meter is a distance.

Yeah, it's not the same as physics units.

Money does have real value, but only because it can be traded for valuable things.

But money in itself, as bills or numbers in a bank account, is useless until you trade it for something "real".

Re: Baumol's Cost Disease

#109

Post by wat10000 »

yunyu wrote: post #101
wat10000 wrote: post #94

Earlier quoted context omitted.

I’m completely lost. You keep talking about how advertising to doctors and B2B is totally different from advertising to people like me. At the same time you keep talking about my personal experience with advertising. Why?

If you search for low-value consumer queries or aren't a buyer for high-ticket B2B items, you will get less relevant ads. Your personal experiences don't extrapolate well here: advertising for high-value goods is totally different from advertising for low-value goods. Example: hypertargeted ads for F-35 engine upgrades in the DC metro - https://x.com/JosephPolitano/status/1683476652276236295 Is that clear enough?

Sure. I can totally buy that advertising is different for different people. Although I don’t think it’s good regardless. The part that confuses me is that you keep bringing up my experience of advertising despite repeatedly saying it’s not comparable.

Re: Baumol's Cost Disease

#110

Post by jadenPete »

Really interesting stuff. Am I correct in thinking that if productivity were to rapidly increase in the service sector (e.g. due to AI) the same way it did in the manufacturing sector in the 19th and 20th centuries, that the cost of services would decrease?

Also, a side note: I dislike a lot of the popular conversation around the Baumol effect because they’re usually along the lines of “this can’t be the only reason my healthcare or education is expensive”, which is true (there are other factors at play), but the Baumol effect still explains a lot of it.

Post reply on HN