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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 r
by derf_ 10mo ago
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.
- wat10000 10mo agoYour conclusion falls victim to the same conflation you’re calling out. If some sectors become drastically more efficient, society has become wealthier in terms of money, but not necessarily in terms of real resources. For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because finance is much more attractive. Is society wealthier? The money says yes. The line goes up. But finance doesn’t set a broken bone or treat cancer. This may well have made society less wealthy in terms of what ordinary people actually care about.
- AnimalMuppet 10mo agoFinance funds hospitals and cancer research institutes - or at least, it enables the gathering and concentrating of resources to do so. Now, advertising...
- rwmj 10mo agoSome finance is needed and beneficial. The ability to form corporations and raise money through the stock market enhances many other fields of endeavour. But this can go too far. In London during 2000-2008, finance consumed every spare IT worker, as well as mathematicians and physicists. Salaries were far higher working for a bank than working in any other IT-related industry or start-up. Did this produce great works? Is London now better off because of this? In a word, no.
- nospice 10mo agoThe problem I have with these arguments is that they're awfully close to the anti-tourism arguments you hear in tourist towns such as Tahoe. You have this influx of visitors and money, and there's a considerable number of residents who see it as uniformly negative: congestion, high property prices, and so on. Imagine what it could've been without all these rich tech bros! But then, the US is full of picturesque small towns where the original heavy industry (logging, copper mine, steel mill) disappeared and tourism did not fill the gap. And all the young people moved out in search of better opportunities, except for the ones addicted to meth. There's no money, no jobs, no hope. Every socioeconomic shift has downsides, but it doesn't automatically mean that the alternative is better. Broad economic gains tend to lift all boats because money changes hands.
- wat10000 10mo agoIt also doesn’t mean the alternative is worse. Nothing says such a shift had to be overall good.
- rwmj 10mo agoIn the case of London, it was misallocation, not an influx of anything. It would have been better if the programmers had been founding start up companies, and the physicists had been researching science, instead of working for banks.
- jimbokun 10mo agoWhat’s your basis for concluding “no”? London is a very desirable place to live.
- yunyu 10mo agoAdvertising 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.
- wat10000 10mo agoThe only way this should happen is if it’s a fake arthritis treatment meant to detect doctors who learn about treatments from advertising instead of legitimate sources, so they can be prevented from practicing medicine.
- yunyu 10mo agoWhat are legitimate sources in your definition? Should physicians be expected to spend all their free time reading every single study in every medical journal or conference, even for niche areas that they don't usually encounter? Should the average diabetic/arthritic patient need to obsessively pore over academic reports to stay informed about their condition? Should advertisers be banned from sponsoring journals or conferences? This is an extremely ill informed line of reasoning.
- wat10000 10mo agoI don’t know what counts as legitimate sources. I’ll let the professionals figure that one out. > Should advertisers be banned from sponsoring journals or conferences? It baffles me that you apparently think this is some kind of zinger. Yes!
- yunyu 10mo agoGot it. So you want attention to be controlled by the whims of academic/government/publishing bureaucrats or black-box ranking algorithms who are the arbitrators of legitimacy. I can't say I agree with that opinion, but different strokes for different folks.
- simonh 10mo agoThe Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.
- wat10000 10mo agoWill doctors’ pay go up enough to retain the same number of doctors?
- derektank 10mo agoGiven the demand for healthcare is extremely inelastic, almost certainly.
- ip26 10mo agoIt’s not like their wages will always go up exactly in proportion to your income. Goods and services that are afflicted will become less accessible if your own wages increase at a lower rate.
- derf_ 10mo agoExactly. Even though Baumol himself used the phrase "Cost Disease", I think that framing distracts from the fact that it is a result of something desirable happening, namely increased efficiency in some sectors. You could also posit a case where some sectors become less efficient, due to badly conceived regulations, exhaustion of non-renewable resources, an unchecked monopoly, or some other factor, but you don't need a special mechanism to explain why prices rise in such a scenario. > ...consider a case where finance becomes much more productive... leading to fewer people becoming doctors because finance is much more attractive. This is the opposite of what one would expect from a sector whose efficiency increases, as modeled by Baumol. See the first bullet in the article: "The share of total employment in sectors with high productivity growth decreases, while that of low productivity sectors increases" (also see the detailed analysis in the Technical Description section). It might be theoretically possible that induced demand could still increase overall employment in a sector as its efficiency increases, but I think you have to make an argument why that would be true. During the industrial revolution, automation eliminated 98% of the labor required to produce a yard of cotton cloth, but between 1830 and 1900 the number of weavers in the US increased by a factor of 4, because demand increased due to lower prices [0]... although the US population also increased by a factor of 6, so as a percentage of the workforce weavers still declined, even as people consumed much more cloth per capita. [0] James Bessen, Learning by Doing - The Real Connection between Innovation, Wages, and Wealth (2015), pp. 96–97.
- jgalt212 10mo agoIf people are under or unemployed, do they now value leisure time higher? It's a slippery slope. You have to fix some things.
- bigbadfeline 10mo ago> If some sectors of the economy become drastically more efficient... overall society has become wealthier That's a weird one - what's your metric for the "wealth of overall society"? Stock market indexes can't be it because those are subject to extreme levels of unreported inflation and gaming. How can you measure something that is subject to extreme inflation when that inflation is not only unmeasured but not even acknowledged as a phenomenon? At present, the "wealth of overall society" is a unicorn metric as opposed to the perfectly measurable and extreme levels of income and wealth inequality. In other words, the overall losses from skewed distribution dwarf the gains from higher efficiencies.
- michaelt 10mo agoIf the orchestra performs less often because the violists have better paying jobs in a factory making the latest and greatest TVs, more homes will have the latest and greatest TVs. Of course, this relies on the assumption most work - and hence most productivity - is a net social good. If the violinists have instead got jobs operating an orphan-crushing machine, that would be a bad thing. But hopefully your society is structured in such a way that the average worker is contributing to the prosperity of their local community.
- tomrod 10mo agoGDP 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.
- BurningFrog 10mo agoGDP 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.
- tomrod 10mo ago
- BurningFrog 10mo ago> money is a relative resource I think this is the better way to think of money and wealth: Money is the unit of measure for wealth. It's not in itself wealth.
- potatoman22 10mo agoThat doesn't quite make sense to me. A meter is a unit of measure for distance, but a meter is a distance.
- BurningFrog 10mo agoYeah, it's not the same as physics units. Money does have real value, but only because it can be traded for valuable things. But money in itself, as bills or numbers in a bank account, is useless until you trade it for something "real".
- appreciatorBus 10mo agoThe 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…
- AnthonyMouse 10mo ago> 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. 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. Suppose people used to spend 20% of their income on housing and healthcare and 20% on apparel and electronics. Then housing and healthcare triple in price, apparel drops by two thirds, electronics drops by 98%, and everything else stays the same. Are they better off? No, because the most you can improve the cost efficiency of something is 100% (it becomes free), but the things that that cost more can increase in cost by more than 100% of the original cost, and some of them have.
- AnonymousPlanet 10mo ago> 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 still trend upwards since there's always some billionaire's money to be parked somewhere.
- AnthonyMouse 10mo agoThe 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 housing units. Which effectively doubles your construction costs to add 20 housing units because you still have to build 20 housing units but now you have to destroy 10 in order to make space, and then do that twice to actually add 20. Which is a disaster if construction also got twice as expensive. > If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere. If construction became really cheap and there wasn't an artificial limit on how much housing you could build on a given lot then there would be tons of cheap housing and billionaires wouldn't find it a useful place to park money because it would have lower returns than competing investments.