alt Hacker NewsThe 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.
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The 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…
> 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.
> 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.
If people are under or unemployed, do they now value leisure time higher? It's a slippery slope. You have to fix some things.
> 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.
Your 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.