1/ There are two types of American industries: one that has had rapid innovation and falling prices, and one that has had the opposite.
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2/ In the first—e.g. software, manufacturing—consumers have grown accustomed to paying less for more. In the second—e.g healthcare, education, construction—they pay more for the same (or worse).
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3/ In the past fifty years, university costs have gone up 10x, health insurance costs have gone up 10x, and housing costs have increased by about fifty percent.
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4/ You’d expect these industries to get cheaper because of technology and globalization. Instead they are getting far more expensive (much faster than inflation) and the product isn’t getting better. Why is this the case?
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5/ One explanation is Baumol’s cost disease. Basically, these industries are getting more expensive because wages are going up, even though labor productivity isn’t, largely to offset the gains in other industries.
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6/ Put differently, As technology increases productivity for workers in productive industries, then unproductive industries have to pay their workers more to compete. That’s why salaries rise even though labor productivity doesn’t.
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7/ This seems to be partly true but not the entire story. Another explanation is possible bad government intervention. Not the fact that government intervenes, just that it’s poorly done. (e.g. Gov’t regulating healthcare via occupational licensing, education subsidies via loans)
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8/ Gov’t uniquely distorts these markets in ways that makes them neither market driven nor government provided (like other countries have) Opaque markets — no transparent pricing Entrenched industries — can’t modify regulations Intermediated markets — patient isn’t the customer
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You had me at Baumol’s disease, which I waited 4-5 tweets for and then totally lost me. People don’t actually want a purely market-driven housing system nor can markets alone provide universal access to education. Also you totally missed the explosion in credit access
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Replying to @kimmaicutler @eriktorenberg
That occurred over the last generation and a half - a portion of which has been capitalized into both housing prices and tuition costs. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf …
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