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Baumol's Cost Disease

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Re: Baumol's Cost Disease

#81

Post by blargey »

yunyu wrote: post #26
AnimalMuppet wrote: post #23

Earlier quoted context omitted.

Finance funds hospitals and cancer research institutes - or at least, it enables the gathering and concentrating of resources to do so. Now, advertising...

Advertising enables innovation-producing firms to drive awareness of their services in a cost effective manner, and for less informed consumers to understand what is available on the market. Your typical physician might not be fully caught up on what is the state of the art in arthritis treatments, but advertising enables this to happen.

Advertising as a source of consumer information is a market for lemons in and of itself. Everyone is free to claim innovation and deliver trash, and internet brands are a dime a dozen. Even just keeping out overt fraud/scams or propaganda campaigns is apparently a losing battle for platforms.

Reviewers/Influencers/interest-publications are often just a half-step above banner ads, but at least has more incentives than just "loudly capture attention" and "publish anything that pays the algorithmic sticker price".

Re: Baumol's Cost Disease

#82

Post by zharknado »

The clearest example I’ve seen of this effect is with dental hygienists in the U.S.. Big labor crunch as lots of industry veterans left the labor force during COVID, wage and career growth prospects are weak vs. alternative options for newcomers, very difficult to automate in practical terms, and the way they produce revenue is usually per-procedure, with a ceiling largely fixed by insurance reimbursement rates, so the offices that employ them see a profitability issue when contemplating a raise.

Sounds like some other places use capitation to break the tight coupling between hourly productivity and profitability. Sounds interesting but politically very challenging. Would be interested to hear some perspective from consumers in e.g. the Nordics with experience.

Re: Baumol's Cost Disease

#83

Post by appreciatorBus »

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.

The phrase “Baumol’s cost disease” is widely used, and well known. It’s also in the first sentence of the article.

> In economics, the Baumol effect, also known as Baumol's cost disease…

Re: Baumol's Cost Disease

#84

Post by yunyu »

ben_w wrote: post #79
yunyu wrote: post #49

Earlier quoted context omitted.

The fact that your Facebook ads are worse is probably because you're in the EU. I'm in the US, and I am getting fairly relevant ads for Broadway shows, data infrastructure products, discounted hotel packages, and climbing gym subscriptions - things that I am actually considering purchasing. And we haven't even brought up intent-based ads (Google search). Word of mouth benefits incumbents. Advertising at least enables…

> And we haven't even brought up intent-based ads (Google search). OK, those also suck, for different reasons. If I search for a thing, a search engine's entire job is to show me about that thing. That the engine's website puts a different thing that whatever the search algorithm thought was the best thing at the top because an advertiser paid for it to be so, is strictly worse. It's worse when the ad is not correct…

You are talking about consumer marketing. I am talking about B2B marketing for prescription medications, enterprise SaaS, etc. These are separate markets and the analogies don't quite hold here - the scam problem etc is practically nonexistent for high-LTV goods with high bid costs, and newcomers are typically well funded enough to periodically outbid incumbents (or implement better targeting). The big-ticket B2B products that one hears of from word-of-mouth are usually the worse ones, since there is rarely any "going viral" to speak of.

> That the engine's website puts a different thing that whatever the search algorithm thought was the best thing at the top because an advertiser paid for it to be so, is strictly worse.

This is not clearly worse than the result being selected by the whims of some arbitrary Google engineer, or being easily gamed by SEO blogspam bots. At least the advertiser stands to lose something if they bid incorrectly.

>How long had ChatGPT been out before OpenAI's first ad for it?

Just because some products were able to grow organically doesn't imply that paid marketing never benefits startups. This is a false equivalence.

I also find it funny that the vast majority of your example products (everything except Huel or Aeropress?) make a lot of money from advertising. Maybe consider why they still exist.

Re: Baumol's Cost Disease

#85

Post by prmph »

> the tendency for wages in jobs that have experienced little or no increase in labor productivity to rise in response to rising wages in other jobs that did experience high productivity growth

Since when has wages been based on productivity?

Re: Baumol's Cost Disease

#86

Post by twoodfin »

websiteapi wrote: post #13
Dr_Birdbrain wrote: post #12

Earlier quoted context omitted.

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.

This is exactly Baumol: If by “high quality” you mean “difficult to mass produce” then yes, the lack of productivity gains in hand-made furniture makes real costs go up.

Of course, it’s easy to mass produce sturdy furniture, such as office furniture. But it’s not what consumers think of as “high quality”.

Re: Baumol's Cost Disease

#87

Post by maxerickson »

prmph wrote: post #85

> the tendency for wages in jobs that have experienced little or no increase in labor productivity to rise in response to rising wages in other jobs that did experience high productivity growth Since when has wages been based on productivity?

Productivity has always imposed an upper limit on wages.

Re: Baumol's Cost Disease

#88

Post by CrossVR »

yobbo wrote: post #76

It seems relevant that the categories healthcare, housing, and higher education are not paid by wages/cash but rather through various means of financing (in the form of insurance for healthcare). (In addition to not being outsourcable). New cars not increasing looks strange but that might be a US phenomena, where most cars might be imported and the median car have "shrunk" in size over the period.

It highly depends on what your definition of a price increase is. The cars people actually buy have definitely become more expensive with more and more people choosing to buy SUVs.

The sedan hasn't become more expensive, but people don't feel safe driving them anymore between all the large SUVs, this pushing more people towards buying more expensive cars.

Re: Baumol's Cost Disease

#89

Post by wat10000 »

yunyu wrote: post #72
wat10000 wrote: post #69

Earlier quoted context omitted.

If you want to argue that advertising is different for doctors than it is for me, and it’s useful for them despite being a drain and a danger for me, then go for it. But that’s the opposite of the argument you laid out.

Yes, advertising is more relevant and works better for people with power over large purchasing decisions as the bidders have more at stake. Maybe you aren't in the market for plumbers or running shoes, and are instead looking for "download vlc media player". This doesn't contradict anything I said?

Ok, you must be taking the piss. VLC doesn’t advertise. If you search for VLC downloads and click an advertisement for VLC, you’re going to be downloading malware. Even someone who thinks advertising is a modern miracle must be aware of this.

Re: Baumol's Cost Disease

#90

Post by yunyu »

wat10000 wrote: post #89
yunyu wrote: post #72

Earlier quoted context omitted.

Yes, advertising is more relevant and works better for people with power over large purchasing decisions as the bidders have more at stake. Maybe you aren't in the market for plumbers or running shoes, and are instead looking for "download vlc media player". This doesn't contradict anything I said?

Ok, you must be taking the piss. VLC doesn’t advertise. If you search for VLC downloads and click an advertisement for VLC, you’re going to be downloading malware. Even someone who thinks advertising is a modern miracle must be aware of this.

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