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>> Then we'd see soaring productivity, which we don't see: https://twitter.com/paulkrugman/status/1140259227908411392 https://twitter.com/paulkrugman/status/114

>> Then we'd see soaring productivity, which we don't see: https://twitter.com/paulkrugman/status/1140259227908411392 https://twitter.com/paulkrugman/status/1140259227908411392 This is like using a total number for "inflation" to assume that costs have not gone up. And yet... https://ritholtz.com/wp-content/uploads/2018/02/pricechanges.png https://ritholtz.com/wp-content/uploads/2018/02/pricechanges... Childcare, hospital services, college textbooks, college tuition, childcare, and medical services way overindex the average inflation. TVs, Software, Toys, Cellphone Service, New Cars, and Clothing all underindex the average inflation. What do those sectors underindexing sound like regarding productivity and purchasing power? EDIT: Also consider two other effects: We are automating productive jobs, and people are replacing those jobs with very low productivity jobs (service sector).

jdlshore 7y ago
That is exactly the argument of the paper the OP is promoting [1]: that the cost of education is due to the "Baumol Effect:" it is an industry dominated by the cost of human contact (the teacher's time) and human contact is not subject to productivity gains in the same way other goods are. In other words, it isn't that education isn't unusually expensive, it's that everything else is unusually cheap. From the paper's conclusion: "The Baumol effect is the best explanation for rising prices in education, healthcare, and other service sectors. In that sense, and only in that sense, is there something “wrong” with the service sector—namely, that it’s hard to increase productivity in services. Or we could equally well say that what’s right with the goods-producing sector is that it’s easier to increase productivity in goods. Whatever the explanation for this difference in productivity growth, however, it’s a difference, like the difficulty of domesticating huckleberries, that cannot be traced back to policy. We should neither ignore this difference nor make too much of it." That's the paper's perspective. I'm not promoting it myself, but I did find it to be a sensible argument. [1] https://www.mercatus.org/system/files/helland-tabarrok_why-are-the-prices-so-damn-high_v1.pdf https://www.mercatus.org/system/files/helland-tabarrok_why-a...
- im3w1l 7y ago
  I've had the same thought. That the price of goods have decreased. But more due to cheap imports. Of course productivity improvements are also important but less so. Then as those prices go down, the central bank prints money to counteract decreasing prices. And it's because of this currency debasement that the price of everything else increases.

jdlshore 7y ago

That is exactly the argument of the paper the OP is promoting [1]: that the cost of education is due to the "Baumol Effect:" it is an industry dominated by the cost of human contact (the teacher's time) and human contact is not subject to productivity gains in the same way other goods are. In other words, it isn't that education isn't unusually expensive, it's that everything else is unusually cheap. From the paper's conclusion: "The Baumol effect is the best explanation for rising prices in education, healthcare, and other service sectors. In that sense, and only in that sense, is there something “wrong” with the service sector—namely, that it’s hard to increase productivity in services. Or we could equally well say that what’s right with the goods-producing sector is that it’s easier to increase productivity in goods. Whatever the explanation for this difference in productivity growth, however, it’s a difference, like the difficulty of domesticating huckleberries, that cannot be traced back to policy. We should neither ignore this difference nor make too much of it." That's the paper's perspective. I'm not promoting it myself, but I did find it to be a sensible argument. [1] https://www.mercatus.org/system/files/helland-tabarrok_why-are-the-prices-so-damn-high_v1.pdf https://www.mercatus.org/system/files/helland-tabarrok_why-a...

im3w1l 7y ago
I've had the same thought. That the price of goods have decreased. But more due to cheap imports. Of course productivity improvements are also important but less so. Then as those prices go down, the central bank prints money to counteract decreasing prices. And it's because of this currency debasement that the price of everything else increases.