A reader explains why it’s so much cheaper to buy goods than services:
Three words: Baumol’s. Cost. Disease. The basic idea is that as productivity increases over time (i.e., more widgets built, more burgers flipped), it can’t increase over time for work that is denominated in … time. Hours of child care. Hours of surgery. Hours of psychotherapy. Credit hours in education. You can’t cram more hours into an hour. So as wages rise, the per-hour cost of an hour has to just plain rise, in order to keep up.
His own example:
My wife and I have two small daughters. At present, full-time care for both costs about $1,600 a month. For comparison, our modest apartment costs us $1,800 a month. And the child care is modest, too! It was modest in a preschool until recently, and currently in a home daycare. The preschool was one of the cheaper day-care centers. The home day care is a little on the high side at the same price.
And here’s the rub: daycare workers are badly undervalued, undertrained, and underpaid. And even at that price they’re this expensive! I know a preschool that really pays and trains its teachers well. It costs about twice as much as ours did.
So my position is that good child care is fundamentally unaffordable. In the past, it was subsidized at the cost of women’s futures. Now, it is less and less subsidized – and less and less affordable.
Another reader takes issue with Derek Thompson:
Now consider education, health, and childcare, the blue sectors above where prices are rising considerably faster than average. These are service industries that employ local workers. They are not, to use the economic term, “tradable.”
Wrong! Education does not always employ local workers. I can send you evidence to show that STEM teachers are being imported by the dozen from India. I know them personally, I know the agency, and how it was investigated by DOL. Many years ago, tutoring, or doing your homework for a fee, was off-shored to India.
Healthcare was off-shored even before that: medical transcription, reading radiological reports. That trend reversed a bit because of the quality, but even then that has depleted the economy, rather than create value. I think the right explanation is that electronic consumable and durables become cheaper over time, like generic drugs, because the initial investment has been recouped. It is just economies of scale.
The Dish 