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Baumol's Cost Disease

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Re: Baumol's Cost Disease

#131

Post by duxup »

evanjrowley wrote: post #125
duxup wrote: post #51

In a way, I thought about this when I changed my career the last time. I had worked in what I will call "high end" tech support for some proprietary (and some less proprietary) networking equipment. My job generally paid great and customers paid big support contracts, good deal for a good 20 years. But Tech Support is never glamorous, executives eventually think of them as just problems (even if they're solving probl…

>Yeah they're bad because anyone who knows how to do it ... does not stick around Can confirm! I'd also like to add that the employer is happy to keep you in that position for a decade or more (as long as the client keeps paying) but one job over an extended period of time reads very poorly on a resume. Switching is a disruption necessary for growth.

It's funny because I broke into coding BECAUSE I had a long job on my resume and to the employer looked like I wasn't gong to jump job to job at the drop of a hat.

Re: Baumol's Cost Disease

#132

Post by dang »

EricRiese wrote: post #127
dang wrote: post #52

Related. Others? The Baumol Effect and Jevons paradox are related - https://news.ycombinator.com/item?id=45955879 - Nov 2025 (67 comments) Baumol Effect - https://news.ycombinator.com/item?id=43065115 - Feb 2025 (1 comment) The Baumol effect - https://news.ycombinator.com/item?id=35220758 - March 2023 (77 comments) Why are the prices so damn high - https://news.ycombinator.com/item?id=33150094 - Oct 2022 (2 comments)…

Why Are the Prices So Damn High? - https://news.ycombinator.com/item?id=33150094 - Oct 2022 (2 comments)

Good catch. Added to list. Thanks!

Re: Baumol's Cost Disease

#133

Post by bigbadfeline »

bloppe wrote: post #118
AnthonyMouse wrote: post #115

Earlier quoted context omitted.

> How is this related to Baumol? Because people claim that higher costs are a result of Baumol and are hypothetically something good or normal when it's actually regulatory costs and government capture stealing from working people. "Don't worry, prices are only up because we got so much more productive, not because of artificial scarcity or because it now requires 10 people to do certain things that used to take one.…

Sure, there are plenty of ways that the government can interfere in an otherwise fair market. That's not the point. Absent some sort of market interference, Baumol is empirically good at predicting price movements.

> there are plenty of ways that the government can interfere in an otherwise fair market

There's no such thing as "otherwise fair market" outside of government regulation. Ergo, any "interference" is for someone's benefit, and as a rule that's not the government. In other words, seeking economics explanations to political phenomena isn't going to lead to anything useful.

> Baumol is empirically good at predicting price movements.

Until something else explains the facts better - AnthonyMouse wrote about a better theory that can actually be expanded to a fairly precise descriptive model, despite the fact that the quantitative part of it would be politics dependent.

Re: Baumol's Cost Disease

#134

Post by AnthonyMouse »

bloppe wrote: post #130
AnthonyMouse wrote: post #120

Earlier quoted context omitted.

Suppose the cutoff to get into finance is at the 70th percentile of the general population and 99% of retail clerks are below the 50th percentile or otherwise have some reason not to even though those jobs already pay significantly more. How much more are they going to get paid because of that? Or let's even suppose that the amount isn't totally inconsequential. Say they end up with an extra $1000/year. But now they'…

Throwing out random numbers is not a convincing argument about how things would actually work in reality. Consider the fact that median real income tends to move up [1]. This is the metric that matters. It's the 50th percentile person, so mega rich outliers are ignored. And it weighs incomes against the CPI, which incorporates the price of medicine, construction, education, as well as consumer electronics, food, and…

> Consider the fact that median real income tends to move up [1]. This is the metric that matters.

Well, it's what matters if the CPI metric is perfect and doesn't e.g. over-weight things like food that haven't increased in cost as much as some other things.

And again, nobody is claiming that efficiency hasn't improved or that that isn't good. The issue is, if efficiency improves by 300% and then you get a 70% improvement out of it, that's bad -- people should have gotten the whole thing instead of having rent seekers capture a huge proportion of the improvement.

And for some specific subset of "efficiency improvements" the result isn't even guaranteed to be positive for the average person, so we don't need to lump them all together into an aggregate.

Re: Baumol's Cost Disease

#135

Post by trashface »

jayd16 wrote: post #107

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.

Textbooks are expensive because the authors need to live in houses, which are also expensive.

Re: Baumol's Cost Disease

#136

Post by AnonymousPlanet »

AnthonyMouse wrote: post #116
AnonymousPlanet wrote: post #106

Earlier quoted context omitted.

> 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…

The biggest increase is from the cost of zoning making land artificially scarce. But construction costs layer on top of that because of the nature of it: Instead of being able to build 20 new housing units on a lot that currently only has one and enough land to add more without destroying the existing building, adding more is now restricted to a small strip of the downtown where the lots already each contain 10 housi…

Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses. This is also why zoning doesn't matter. Look at the big picture. Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real estate are skyrocketing the same, regardless of use. What those areas do have in common: general availability of real estate to international investors.

Properties aren't bought up anymore to develop them or have any returns from use. They are being bought as a non-depreciating asset. Want to effortlessly park money and not have the money rot? Buy land. Never mind what happens to stand on top of it. You can see more and more of those rotting real estate plots all over the western world. And there's always someone who wants to park money.

Your thinking isn't wrong on a smaller scale. All those aspects matter for a local housing market. But the overall trend is governed by something else.

Re: Baumol's Cost Disease

#137

Post by cal_dent »

hibikir wrote: post #10
adam_patarino wrote: post #7

I 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…

I'd tend to disagree on the point around housing. I'd be surprised if there isnt a non-insignificant # of households who would happily move to lower cost of living areas (rent/house price wise) or areas with more nature perhaps but that is simply not feasible because there is no work there or the fields they work in are tethered to a particular city or cities in general. That severely limits their concept of choice in the matter.

Re: Baumol's Cost Disease

#138

Post by AnthonyMouse »

AnonymousPlanet wrote: post #136
AnthonyMouse wrote: post #116

Earlier quoted context omitted.

The biggest increase is from the cost of zoning making land artificially scarce. But construction costs layer on top of that because of the nature of it: Instead of being able to build 20 new housing units on a lot that currently only has one and enough land to add more without destroying the existing building, adding more is now restricted to a small strip of the downtown where the lots already each contain 10 housi…

Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses. This is also why zoning doesn't matter. Look at the big picture. Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real esta…

> Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses.

This is fairly simple arithmetic. Suppose we attribute the cost of a single family home (one housing unit) entirely to land, and then the cost of land doubles. Obviously the cost of the single family home doubles.

Now suppose construction is cheap and zoning doesn't prohibit this. For 10% of the cost of the land, we could build a condo tower on that same piece of land. Ten stories, 100 housing units. The cost of a unit just went by down by a factor of ~100. The price of the land doubling is dwarfed by the increase in the number of permissible units per plot of land.

> Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real estate are skyrocketing the same, regardless of use.

The places with less restrictive zoning objectively do have lower housing costs, and even most of the places with "less restrictive zoning" still have non-trivial zoning restrictions. For example, name the major US city that isn't accompanied by a significant land area zoned exclusively for single family homes.

Re: Baumol's Cost Disease

#139

Post by AnonymousPlanet »

AnthonyMouse wrote: post #138
AnonymousPlanet wrote: post #136

Earlier quoted context omitted.

Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses. This is also why zoning doesn't matter. Look at the big picture. Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real esta…

> Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses. This is fairly simple arithmetic. Suppose we attribute the cost of a single family home (one housing unit) entirely to land, and then the cost of land doubles. Obviously the cost of the single family home doubles. Now suppose construction is cheap and zoning doesn't prohib…

> Now suppose construction is cheap and zoning doesn't prohibit this. For 10% of the cost of the land, we could build a condo tower on that same piece of land. Ten stories, 100 housing units. The cost of a unit just went by down by a factor of ~100. The price of the land doubling is dwarfed by the increase in the number of permissible units per plot of land.

That's a brilliant plan! Let me buy the piece of land where that high rise stands with money you can't afford. Oh, you mean you have split ownership between all the owners of the units so you now can afford it? I'll buy half of the units then and rent them out. And when things are not looking good for people, I buy some more when they can't afford their loans anymore. Can't let those units depreciate, can we? My friends are in on the party and together we're keeping the demand up. And those prices go up and up. Oh, the cost of each unit has now doubled and tripled while your wages haven't? Too bad for you. I can still afford them and now you have been out competed by me.

It's the same game just with a lower starting point.

Maybe this former financial trader can explain it better https://www.youtube.com/watch?v=BTlUyS-T-_4&t=520s

Re: Baumol's Cost Disease

#140

Post by tomrod »

BurningFrog wrote: post #77
tomrod wrote: post #64

Earlier quoted context omitted.

GDP produced divided by costs required measures intensity. These will be typically normalized (inflation removed) or, if a ratio, can be nominal since both have the inflation ratioed out. GDP is known to be an imperfect measure, especially for capturing cottage industry and due to the distribution effect you described, but it's not horrible to start with.

GDP is how much wealth is produced in society at a moment in time. The total accumulated wealth in a society is a related but entirely different number.

This is why it measures intensity. It is a flow.
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