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What is with this phenomenon of services getting more expensive in real terms (health care, tuition, child care, pet care) while also delivering a worse experie

What is with this phenomenon of services getting more expensive in real terms (health care, tuition, child care, pet care) while also delivering a worse experience? AFAIK, for all of these industries, this has nothing to do with pension obligations. And at least for child care, demand should be going down relative to the population given that less people are having less kids. So it can't be a simple demand thing.

alephnerd 2y ago
> AFAIK, for all of these industries, this has nothing to do with pension obligations. They do, indirectly. All those PE, IB, and VC funds people rail about are overwhelmingly funded by pension funds *, and all the industries mentioned are increasingly consolidating due to regulatory overhead, pushing solo practitioners out (eg. lots of older MD friends selling their practices to consolidated funds because they don't want to deal with paperwork and billing). As more and more Americans retire and have inflated expectations of retirement, funds need to return much more. ------- * State+Local Pension funds in the US have $6 Trillion AUM [0] (it would be the 3rd largest economy in the world on its own). Federal Pension funds is around $1 Trillion AUM [1] (it would be the 20rd largest economy in the world on its own). And all the 401k funds combined would be $7.4 Trillion AUM [2] (it would be the 3rd largest economy in the world on its own). This is just American funds. Other countries pension funds invest in the US as well. [0] - https://www.nasra.org/content.asp?admin=Y&contentid=200 https://www.nasra.org/content.asp?admin=Y&contentid=200 [1] - https://www.opm.gov/about-us/reports-publications/agency-plans/fy-2024-congressional-budget-justification/earned-benefits-trust-funds/ https://www.opm.gov/about-us/reports-publications/agency-pla... [2] - https://www.ici.org/401k https://www.ici.org/401k
lotsofpulp 2y ago
There are multiple reasons. For one, dealing with people and their animals is high liability. It is also generally unpleasant to deal with the general public day in and day out, especially sick and stressed out ones, so the work is undesirable. > demand should be going down relative to the population given that less people are having less kids It is demand for labor relative supply of the labor. If the supply is going down quicker, then the demand going down is not going to make prices go down. Bottom line is that in previous generations, people who took care of infants/toddlers (including older siblings, neighborhood kids, grandparents, etc) either did it under a situation with less liability, or they had less opportunity costs (lower wages than today’s workers), and/or did it at a “lower quality” than legal staffing minimums for daycare businesses.
- onlyrealcuzzo 2y ago
  > There are multiple reasons. For one, dealing with people and their animals is high liability. It is also generally unpleasant to deal with the general public day in and day out, especially sick and stressed out ones, so the work is undesirable. Is this new? Did it not used to be this way? > If the supply is going down quicker, then the demand going down is not going to make prices go down. So why are these types of services exploding in real terms, but haircuts and food and personal trainers and massages and mechanics and other types of services are not?
  - lotsofpulp 2y ago
    > Is this new? Did it not used to be this way? There is no or little liability when a grandparent or older sibling/cousin is taking care a toddler. And there didn’t used to be so many desk jobs available for everyone to compete with taking care of infants/kids. Also, once the kids exist, which used to be a foregone conclusion, it wasn’t an option to do other work. Now people are making a conscious decision, tabulating the cost/benefit of having the kid versus working a desk job. I also think there are more viruses floating around due to more travel, but that is my armchair opinion. > So why are these types of services exploding in real terms, but haircuts and food and personal trainers and massages and mechanics and other types of services are not? I don’t know what constitutes exploding, but the price of un-scalable labor services have increased a lot. Some might be more than others, but US wage data indicates that the lowest quintiles have experienced higher wage increases than the others in recent years.
tech_ken 2y ago
Personally I believe it's a consequence of the increasing financial-ization of society. I know lawyers who've securitized preschool curricula for private equity firms to purchase and trade, which to me just seems bass-akward. When literally every aspect of society is serving double duty as both the original thing, but also a financial asset for capital holders to trade and profit off, eventually value is going to be extracted from the quality of service provided. Everywhere you look people are basically paying (what I see as) a hidden tax across all goods and services, so that capital-holders can see (increasing) returns.
- alephnerd 2y ago
  That financialization is due to pension funds as well. The largest LPs in every single fund is always a Pension Fund. State+Local Pension funds in the US have $6 Trillion AUM (it would be the 3rd largest economy in the world on its own). Federal Pension funds is around $1 Trillion AUM (it would be the 20rd largest economy in the world on its own). And all the 401k funds combined would be $7.4 Trillion (it would be the 3rd largest economy in the world on its own). This is just the US.
  - tech_ken 2y ago
    Yeah I saw your other comment and was curious. If it was purely pensioners seeking higher returns wouldn't those be getting circulated back into the economy, driving costs down? It seems counterintuitive to me that there's a big cohort of older US-ians who are profiting more from every sector, but simultaneously not creating massive competitive pressure and driving down prices/up quality. Not doubting that ex. PE acquisitions are driven by pensions, but just curious how the whole dynamic plays out on a macro scale.
    - alephnerd 2y ago
      > getting circulated back into the economy They are, into your Blackrocks and KKRs and other funds who will invest it in the economy to help drive further returns. Some of that money goes into VC which has funded most of our employers on this forum, and some of that has gone into consolidation like mentioned in the article, and others into helping IPOs or currently listed companies. > driving costs down No, because more people are growing old and entering retirement age, so funds need to higher returns to remain solvent. And it's not like you or I want our retirement's living standards to be at poverty level - we'll most likely target to median American living standards. If you target 5-8% YoY returns, A LOT of financial engineering needs to be done.
balls187 2y ago
Demand may be going down, but supply is going down even more (especially post-pandemic).
AlotOfReading 2y ago
Childcare essentially can't go down in price. The vast majority of the cost is labor and their average salaries are shockingly close to minimum wages. Adult:child ratios aren't changing either. The only thing reducing the number of children needing daycare can really do is reduce the number of adults employed.
- onlyrealcuzzo 2y ago
  > The vast majority of the cost is labor and their salaries are shockingly close to minimum wage on average. But minimum wage is down substantially in real terms. So why are costs up substantially in real terms?
  - xp84 2y ago
    > minimum wage is down substantially in real terms. I don't know if perhaps it is where you live, and regionally lots of things vary a lot, but in California: 2010 MW was $8. $8 in 2010 is worth $11.58 in 2024 dollars according to a BLS calculator. Today the minimum wage is either $16 (or $20 if you work in fast food for some reason) Minimum wage is up substantially in real terms here.
- silisili 2y ago
  Sure it can - there's a ton of red tape and regulations around childcare. Whether that's good or not is up to the parent, I guess. When we were children child care was getting dropped off at a neighborhood lady's house who either didn't work or worked part time at off hours. Often time trading days or just paying a nominal amount.
  - bryanlarsen 2y ago
    30% of children attend a home-based childcare which is either unlicensed or has minimal licensing requirements.
- chung8123 2y ago
  How does this work? If the primary cost is labor and labor salaries are so low how is it all not just a ton of profit and then causing a bunch of care facilities that compete?
xp84 2y ago
The wild thing is that even at good preschools, the teachers make less money than a barista or McDonald's worker (especially now that the special fast food $20 MW is active now in California!) These people literally handle dozens of kids at a time, a super difficult job, and they pay them so little that they could not themselves afford childcare. Do the math: When they have their own kids, they are probably never coming back, since their wages would never be enough to make it make sense to put those kids in care in order to work in a preschool. So to summarize, the price of childcare is already way too high for people to afford, yet the pay for those who provide that care is an absolute joke, meaning most people have a hard time justifying entering that field, meaning it continues to be difficult to find good childcare, there just aren't enough places.
nostrademons 2y ago
Baumol's Cost Disease: https://en.wikipedia.org/wiki/Baumol_effect https://en.wikipedia.org/wiki/Baumol_effect Basically low-productivity industries like health care, education, childcare, etc. compete for labor with high-productivity industries like software engineering, particularly over long timescales. Over a couple years, software engineers and daycare providers aren't really fungible (although they may be moreso than you think: my son's first daycare provider was an ex-Google software engineer who got laid off in 2022). Over a decade they absolutely are. Nobody will go into teaching for $35K/year if they can make $200K/year as a software engineer, or drop a million in med-school debt to make $350K/year wages in your 30s when the software engineer is making $600K/year at that point and has a couple million in the bank from being able to work for a decade. So over the long run, wages in low-productivity fields like teaching or childcare need to rise to match the prevailing wages in high-productivity fields like finance, tech, or biotech, or else there will be a shortage (and poor service) in those fields. Except by definition, these are low productivity fields. A daycare worker can still take care of max 4 infants by law, while a good software engineer can serve a million users. So you need many more of them, and if they make as much as those high-productivity professions, the total cost of providing that service will go through the roof.
- tech_ken 2y ago
  Seems like a failure to properly attribute productivity back up the labor chain though? If 1 of the 4 infants cared for becomes a high-productivity software developer, shouldn't the labor productivity number of the teacher partially reflect that? Basically "number of cared for children" seems like a bad metric to score a childcare provider on, rather something like "net social contributions of all children cared for" seems like a more precise metric.
  - lotsofpulp 2y ago
    Humans are not capable of measuring to that level of detail. It should be expected there will be externalities. So far, the only way I have thought of that society can align productivity of raising children well to the actual benefit of raising children well is by scrapping all old age benefits. But even that might not work in reality.

alephnerd 2y ago

> AFAIK, for all of these industries, this has nothing to do with pension obligations. They do, indirectly. All those PE, IB, and VC funds people rail about are overwhelmingly funded by pension funds *, and all the industries mentioned are increasingly consolidating due to regulatory overhead, pushing solo practitioners out (eg. lots of older MD friends selling their practices to consolidated funds because they don't want to deal with paperwork and billing). As more and more Americans retire and have inflated expectations of retirement, funds need to return much more. ------- * State+Local Pension funds in the US have $6 Trillion AUM [0] (it would be the 3rd largest economy in the world on its own). Federal Pension funds is around $1 Trillion AUM [1] (it would be the 20rd largest economy in the world on its own). And all the 401k funds combined would be $7.4 Trillion AUM [2] (it would be the 3rd largest economy in the world on its own). This is just American funds. Other countries pension funds invest in the US as well. [0] - https://www.nasra.org/content.asp?admin=Y&contentid=200 https://www.nasra.org/content.asp?admin=Y&contentid=200 [1] - https://www.opm.gov/about-us/reports-publications/agency-plans/fy-2024-congressional-budget-justification/earned-benefits-trust-funds/ https://www.opm.gov/about-us/reports-publications/agency-pla... [2] - https://www.ici.org/401k https://www.ici.org/401k

lotsofpulp 2y ago

There are multiple reasons. For one, dealing with people and their animals is high liability. It is also generally unpleasant to deal with the general public day in and day out, especially sick and stressed out ones, so the work is undesirable. > demand should be going down relative to the population given that less people are having less kids It is demand for labor relative supply of the labor. If the supply is going down quicker, then the demand going down is not going to make prices go down. Bottom line is that in previous generations, people who took care of infants/toddlers (including older siblings, neighborhood kids, grandparents, etc) either did it under a situation with less liability, or they had less opportunity costs (lower wages than today’s workers), and/or did it at a “lower quality” than legal staffing minimums for daycare businesses.

onlyrealcuzzo 2y ago
> There are multiple reasons. For one, dealing with people and their animals is high liability. It is also generally unpleasant to deal with the general public day in and day out, especially sick and stressed out ones, so the work is undesirable. Is this new? Did it not used to be this way? > If the supply is going down quicker, then the demand going down is not going to make prices go down. So why are these types of services exploding in real terms, but haircuts and food and personal trainers and massages and mechanics and other types of services are not?
- lotsofpulp 2y ago
  > Is this new? Did it not used to be this way? There is no or little liability when a grandparent or older sibling/cousin is taking care a toddler. And there didn’t used to be so many desk jobs available for everyone to compete with taking care of infants/kids. Also, once the kids exist, which used to be a foregone conclusion, it wasn’t an option to do other work. Now people are making a conscious decision, tabulating the cost/benefit of having the kid versus working a desk job. I also think there are more viruses floating around due to more travel, but that is my armchair opinion. > So why are these types of services exploding in real terms, but haircuts and food and personal trainers and massages and mechanics and other types of services are not? I don’t know what constitutes exploding, but the price of un-scalable labor services have increased a lot. Some might be more than others, but US wage data indicates that the lowest quintiles have experienced higher wage increases than the others in recent years.

tech_ken 2y ago

Personally I believe it's a consequence of the increasing financial-ization of society. I know lawyers who've securitized preschool curricula for private equity firms to purchase and trade, which to me just seems bass-akward. When literally every aspect of society is serving double duty as both the original thing, but also a financial asset for capital holders to trade and profit off, eventually value is going to be extracted from the quality of service provided. Everywhere you look people are basically paying (what I see as) a hidden tax across all goods and services, so that capital-holders can see (increasing) returns.

alephnerd 2y ago
That financialization is due to pension funds as well. The largest LPs in every single fund is always a Pension Fund. State+Local Pension funds in the US have $6 Trillion AUM (it would be the 3rd largest economy in the world on its own). Federal Pension funds is around $1 Trillion AUM (it would be the 20rd largest economy in the world on its own). And all the 401k funds combined would be $7.4 Trillion (it would be the 3rd largest economy in the world on its own). This is just the US.
- tech_ken 2y ago
  Yeah I saw your other comment and was curious. If it was purely pensioners seeking higher returns wouldn't those be getting circulated back into the economy, driving costs down? It seems counterintuitive to me that there's a big cohort of older US-ians who are profiting more from every sector, but simultaneously not creating massive competitive pressure and driving down prices/up quality. Not doubting that ex. PE acquisitions are driven by pensions, but just curious how the whole dynamic plays out on a macro scale.
  - alephnerd 2y ago
    > getting circulated back into the economy They are, into your Blackrocks and KKRs and other funds who will invest it in the economy to help drive further returns. Some of that money goes into VC which has funded most of our employers on this forum, and some of that has gone into consolidation like mentioned in the article, and others into helping IPOs or currently listed companies. > driving costs down No, because more people are growing old and entering retirement age, so funds need to higher returns to remain solvent. And it's not like you or I want our retirement's living standards to be at poverty level - we'll most likely target to median American living standards. If you target 5-8% YoY returns, A LOT of financial engineering needs to be done.

balls187 2y ago

Demand may be going down, but supply is going down even more (especially post-pandemic).

AlotOfReading 2y ago

Childcare essentially can't go down in price. The vast majority of the cost is labor and their average salaries are shockingly close to minimum wages. Adult:child ratios aren't changing either. The only thing reducing the number of children needing daycare can really do is reduce the number of adults employed.

onlyrealcuzzo 2y ago
> The vast majority of the cost is labor and their salaries are shockingly close to minimum wage on average. But minimum wage is down substantially in real terms. So why are costs up substantially in real terms?
- xp84 2y ago
  > minimum wage is down substantially in real terms. I don't know if perhaps it is where you live, and regionally lots of things vary a lot, but in California: 2010 MW was $8. $8 in 2010 is worth $11.58 in 2024 dollars according to a BLS calculator. Today the minimum wage is either $16 (or $20 if you work in fast food for some reason) Minimum wage is up substantially in real terms here.
silisili 2y ago
Sure it can - there's a ton of red tape and regulations around childcare. Whether that's good or not is up to the parent, I guess. When we were children child care was getting dropped off at a neighborhood lady's house who either didn't work or worked part time at off hours. Often time trading days or just paying a nominal amount.
- bryanlarsen 2y ago
  30% of children attend a home-based childcare which is either unlicensed or has minimal licensing requirements.
chung8123 2y ago
How does this work? If the primary cost is labor and labor salaries are so low how is it all not just a ton of profit and then causing a bunch of care facilities that compete?

xp84 2y ago

The wild thing is that even at good preschools, the teachers make less money than a barista or McDonald's worker (especially now that the special fast food $20 MW is active now in California!) These people literally handle dozens of kids at a time, a super difficult job, and they pay them so little that they could not themselves afford childcare. Do the math: When they have their own kids, they are probably never coming back, since their wages would never be enough to make it make sense to put those kids in care in order to work in a preschool. So to summarize, the price of childcare is already way too high for people to afford, yet the pay for those who provide that care is an absolute joke, meaning most people have a hard time justifying entering that field, meaning it continues to be difficult to find good childcare, there just aren't enough places.

nostrademons 2y ago

Baumol's Cost Disease: https://en.wikipedia.org/wiki/Baumol_effect https://en.wikipedia.org/wiki/Baumol_effect Basically low-productivity industries like health care, education, childcare, etc. compete for labor with high-productivity industries like software engineering, particularly over long timescales. Over a couple years, software engineers and daycare providers aren't really fungible (although they may be moreso than you think: my son's first daycare provider was an ex-Google software engineer who got laid off in 2022). Over a decade they absolutely are. Nobody will go into teaching for $35K/year if they can make $200K/year as a software engineer, or drop a million in med-school debt to make $350K/year wages in your 30s when the software engineer is making $600K/year at that point and has a couple million in the bank from being able to work for a decade. So over the long run, wages in low-productivity fields like teaching or childcare need to rise to match the prevailing wages in high-productivity fields like finance, tech, or biotech, or else there will be a shortage (and poor service) in those fields. Except by definition, these are low productivity fields. A daycare worker can still take care of max 4 infants by law, while a good software engineer can serve a million users. So you need many more of them, and if they make as much as those high-productivity professions, the total cost of providing that service will go through the roof.

tech_ken 2y ago
Seems like a failure to properly attribute productivity back up the labor chain though? If 1 of the 4 infants cared for becomes a high-productivity software developer, shouldn't the labor productivity number of the teacher partially reflect that? Basically "number of cared for children" seems like a bad metric to score a childcare provider on, rather something like "net social contributions of all children cared for" seems like a more precise metric.
- lotsofpulp 2y ago
  Humans are not capable of measuring to that level of detail. It should be expected there will be externalities. So far, the only way I have thought of that society can align productivity of raising children well to the actual benefit of raising children well is by scrapping all old age benefits. But even that might not work in reality.