3 ms·

Slightly tangential. Somebody needs to eli5 why baumol effect is supposed to be so paradoxical or special. Of course services will tend to cost more over time a

by trgn 2y ago

Slightly tangential. Somebody needs to eli5 why baumol effect is supposed to be so paradoxical or special. Of course services will tend to cost more over time as other industries generate wealth increases. The value of an orchestra performance is relative, two hours of enjoying art. Those two hours of enjoying art are not a commodity, they will cost whatever share of disposal income people like to spend on it. I've encountered it so many times now, and for whatever reason, my mind grinds to a halt, why is this a discovery, what are the implications, why is it meaningful? Not being facetious, sincerely asking.

VHRanger 2y ago
It's surprising or meaningful because the parts of the economy that don't get more productive get more expensive as a fraction of overall costs as other things grow. It's surprising because intuitively you'd think those things would be devalued.
- trgn 2y ago
  Thank you. > It's surprising because intuitively you'd think those things would be devalued. I guess this is where my intuition totally fails. In an economy that grows more productive, commodities _fall_ in value, as they cost less to produce. A society with more yards of linen is a wealthier one than one with fewer, all things being equal. That intuitively makes sense. But that non-commodities, say, two hours listening to music, would need to fall because they aren't part of that productivity increase in other industries makes no sense to me. You pay performers for two hours of _your_ enjoyment, not theirs. So obviously you would value it more if you're richer (say, as a highly productive linen producer). I mean, simple supply-demand should still explain it. Demand is elevated (more disposable income of linen producers), and supply remains constrained (only so many performers). Where is that paradox? I don't know. Some things I never grok, and beaumol is really one of these things.
  - VHRanger 2y ago
    I mean, think about a plumber or a carpenter. Those jobs haven't really been more productive since the 1970s. Sure, PEX or nail guns are marginally better than previous methods, but not by that much. But since we still need plumbers or carpenters, they're more expensive than they were in the 1970s. Because of opportunity cost - imagine 1h of plumber's time in terms of TVs over 50 years. Because all opportunity cost is translated to cash, plumbers are more expensive now despite not being a growth sector. It's the economic equivalent to Amdahl's law in a sense. Things that can't be easily improved become economic bottlenecks (healthcare, education, construction).
    - trgn 2y ago
      > Those jobs haven't really been more productive But their services aren't commodities. You're not paying a plumber to lay pipe. You pay a plumber to be in a dry house that doesn't smell like excrement. That value of course rises since demand rises. So of course, their labour value increases, since they're keeping the houses of a wealthier people free of odors. The same with education. The value of an education is the entry cost to participate in a productive economy. Of course that value is higher in more productive societies. Why should cost of an education drop, if its value rises? Again, it's not interchangeable in a global market, education is not a commodity. And I mean, imagine everybody's time in terms of cost of TVs to produce, not just those in unproductive industries. Isn't this just the effect of commodity prices dropping? Thanks for the explanation though, it starts to trickle, but there's nothing unintuitive about cost disease to me. It's just, well yeah, duh.

by trgn 2y ago

VHRanger 2y ago

It's surprising or meaningful because the parts of the economy that don't get more productive get more expensive as a fraction of overall costs as other things grow. It's surprising because intuitively you'd think those things would be devalued.

trgn 2y ago
Thank you. > It's surprising because intuitively you'd think those things would be devalued. I guess this is where my intuition totally fails. In an economy that grows more productive, commodities _fall_ in value, as they cost less to produce. A society with more yards of linen is a wealthier one than one with fewer, all things being equal. That intuitively makes sense. But that non-commodities, say, two hours listening to music, would need to fall because they aren't part of that productivity increase in other industries makes no sense to me. You pay performers for two hours of _your_ enjoyment, not theirs. So obviously you would value it more if you're richer (say, as a highly productive linen producer). I mean, simple supply-demand should still explain it. Demand is elevated (more disposable income of linen producers), and supply remains constrained (only so many performers). Where is that paradox? I don't know. Some things I never grok, and beaumol is really one of these things.
- VHRanger 2y ago
  I mean, think about a plumber or a carpenter. Those jobs haven't really been more productive since the 1970s. Sure, PEX or nail guns are marginally better than previous methods, but not by that much. But since we still need plumbers or carpenters, they're more expensive than they were in the 1970s. Because of opportunity cost - imagine 1h of plumber's time in terms of TVs over 50 years. Because all opportunity cost is translated to cash, plumbers are more expensive now despite not being a growth sector. It's the economic equivalent to Amdahl's law in a sense. Things that can't be easily improved become economic bottlenecks (healthcare, education, construction).
  - trgn 2y ago
    > Those jobs haven't really been more productive But their services aren't commodities. You're not paying a plumber to lay pipe. You pay a plumber to be in a dry house that doesn't smell like excrement. That value of course rises since demand rises. So of course, their labour value increases, since they're keeping the houses of a wealthier people free of odors. The same with education. The value of an education is the entry cost to participate in a productive economy. Of course that value is higher in more productive societies. Why should cost of an education drop, if its value rises? Again, it's not interchangeable in a global market, education is not a commodity. And I mean, imagine everybody's time in terms of cost of TVs to produce, not just those in unproductive industries. Isn't this just the effect of commodity prices dropping? Thanks for the explanation though, it starts to trickle, but there's nothing unintuitive about cost disease to me. It's just, well yeah, duh.