US consumers remain unimpressed with this progress, however, because they remember what they were paying for things pre-pandemic. Used car prices are 34% higher, food prices are 26% higher and rent prices are 22% higher than in January 2020, according to our calculations using PCE data.
While these are some of the more extreme examples of recent price increases, the average basket of goods and services that most Americans buy in any given month is 17% more expensive than four years ago.
Sure, if all companies in a market formed a cartel and engaged in price-fixing, and it wouldn’t be a competitive market.
In a situation like that, you’d still have price elasticity of demand working the same way – that’s on the consumer – but supply could be artificially-constrained by the cartel to be lower than would normally be the case.
Sure, if they form a cartel, you don’t have a competitive market. Note that I would guess that the soft drink world is probably not an easy one to create a cartel in, because it’s probably not that hard for a competitor to enter – there are a number of store brand colas – but there will be products where it’d probably be easier – say, airliners or something like that.
I don’t think that the article is saying that all things do – they’re giving examples of some things that do. They give four examples:
The first is homes. Homes do cost more, but I would be surprised if that is due to formation of a cartel of homebuilders – there are a lot of homebuilding companies, and cartel formation is harder the more companies are in a market.
googles
Here’s a list of hundreds.
So, okay. Why do houses cost more?
That one I have looked at before.
They actually don’t, or at least not much.
House prices are higher. But they aren’t for the same houses – new homes have gotten substantially bigger. If you want an apples-to-apples, you want to look at how the same home changes. The Case-Shiller index tracks repeat sales to eliminate this as a factor. Someone’s graphed this (the red line) since 1974 and put CPI up, to account for inflation (the black line).
The long run trend since the 1970s is to follow inflation fairly-closely. What you see there are instead two large “surges” – and we are in the middle of the latter. The first was during the runup to the financial crisis, when a lot of money was lent out and drove a bubble. After that popped, about 80% of the increase in house prices since 1974 was due to inflation.
There’s been a new surge since then, which started with the COVID pandemic. The Federal Reserve held interest rates down during the pandemic to avoid a recession. That made it cheaper to borrow money, so a lot of people borrowed more and more and bid up house prices. But that’s a short-term thing, not a since-the-1970s trend.
Here’s an article from the Fed back when the surge started talking about it.
The second is college tuition.
Similarly, I think that it’s pretty safe to say that all the universities and colleges out there have not formed a cartel, as they’re a lot of them out there, and it’d be pretty difficult to do.
I haven’t looked at this one before, a quick google makes it look like this is may be something of the fact that they’re measuring “sticker price”, not what people actually pay.
The way universities work, there’s an advertised price, which is the highest price that anyone pays. Then there are various forms of financial aid, which reduce the actual amount that an individual pays; typically, this is need-based aid, where poorer students pay less.
Looking at this, it looks like what’s happened is that government subsidy directly to universities has fallen off…but aid to students has risen. The former doesn’t contribute to the advertised tuition price (the university gets money directly, doesn’t need tuition money) but the latter does (the student pays tuition but then gets financial aid).
googles
Yeah. Apparently that was part of a shift from state-level subsidy to federal-level subsidy:
https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/10/two-decades-of-change-in-federal-and-state-higher-education-funding
Hmm. That’s probably advantageous; one of the few things that I think that the US has probably done wrong from a policy standpoint is having a good deal of educational subsidy still be local rather than federal, as it creates problems if people are educated in one place and then move to work in another. That’s a very serious problem in the European Union, and while the US has more-centralized subsidy, still a lot was non-federal.
But I’ll say that I haven’t looked to dig into college costs changes over time before, the way I have housing, so this is an off-the-cuff take. But if it is an artifact of a shift to federal subsidy, I’d probably say that it’s a good thing, fixing a problem that was present in the past.
Let me continue going through your comment in a child comment, so this doesn’t get too long.
@GrymEdm@lemmy.world
Okay, the next one is healthcare costs, which they say have risen by about 50% by their metric since 1972. So, I haven’t dug into that, but there I could believe that you might legitimately have the sort of cartel you’re worried about. Well, okay, not a cartel, but regulatory capture. A doctor can only practice in a state if the medical board approves, and doctors can influence the standards set by the medical board – that is, block out competition, something that most industries can’t do. Doctors do make pretty high salaries in the US, much higher than in many other countries, and I’ve read articles before that are pretty critical of the role that the regulatory system places in creating the barriers to entry.
https://www.economist.com/united-states/2023/10/31/why-doctors-in-america-earn-so-much
So I’ll grant that in that case, we may legitimately have a non-competitive market producing an increase in prices.
Next one is the price of a car.
So, I think that there are a couple factors that you can look at here. The first – and here, the article specifically talks about it – is that this isn’t a like-for-like comparison, kind of like what I mentioned with housing. If people want to spend more on a car, that can mean that there are more people buying fancy, luxury cars, not that the car has become unaffordable. They do mention the Corolla as a baseline, which is more-or-less what I would have done, and adjusted for inflation. They do say that it’s about 30% higher, but also point out that the 1972 vehicle is not really equivalent to the 2022 vehicle, as the 2022 vehicle has a lot more hardware and features.
They don’t mention it, but I’d also point out that they were measuring this in 2022; during the COVID-19 crisis, there was a severe shortage of chips to automakers, which dramatically constrained supply and idled a lot of production, and while I wasn’t paying attention to the prices of new cars, I assume that they spiked then. I do know that the price of used cars spiked as a result.
So, I won’t run the numbers there, but I think that I’d want a stronger argument with some numbers for a cartel, if that’s the concern. I’ll grant that automakers are few enough that I could legitimately believe creation of a cartel (and you can definitely point at cases where cartel behavior has shown up, as with Dieselgate in the European Union, where automakers colluded not to offer large urea tanks).
Oh, and it looks like I counted incorrectly – there’s a fifth one:
Ehhh. Okay. This is not something that I’ve looked at before, but I’m not sure that Disney World – a single business – is representative of vacationing in general. I’ve watched video from Disney World, and my vague impression is that Disney World, at least today, is somewhat-upscale. They didn’t have all the resorts and stuff that they have today.
googles
Yeah, it sounds like they’re offering a more-elaborate experience than in the 1970s:
https://mickeyblog.com/2021/02/05/looking-back-at-walt-disney-world-during-the-1970s-part-ii/
I’d think that maybe something like…hmm…airfare plus hotel fees plus restaurant meal costs at popular vacation spots might be a better metric, maybe?
So, you’re thinking “well, if productivity rose, labor costs are an input, and there’s a competitive market, then we would expect to see price drops”?
Well, some things have also dropped; I mean, you’re looking at a list of things that’s cherry-picked to find increases. A personal computer, a flight on an airplane. I’d guess that energy prices are probably down since the 1970s:
googles
Yeah, in inflation-adjusted terms:
https://www.usinflationcalculator.com/inflation/electricity-prices-adjusted-for-inflation/
Productivity increases aren’t evenly spread across all sectors. You wouldn’t expect to see a productivity increase in one field directly translate into a price decrease, even in a competitive market, in another.
Let’s see if we can find something talking about productivity on a sector basis.
https://www.mckinsey.com/mgi/our-research/rekindling-us-productivity-for-a-new-era
So, this has a graph measuring 2005-2019 productivity growth by sector. The worst-ranked sector was construction, where productivity dropped at a compound annual growth rate of -0.9%. In information technology, productivity rose at a compound annual growth rate of 5.5%.
And to just grab those two as an example, I think that that’s probably not wildly out-of-line with what we’ve seen. Housing prices have risen a bit, based on the data I covered in my parent comment. Software’s generally cheaper than it has been in the past.
The author claims that there’s a fair bit of correlation with the degree to which a given sector was impacted by the advent of computers. I could believe that; Moore’s Law dictated that, for much of the 20th century, we saw exponential growth in transistor density, and any field that could benefit from more computing power had a factor that was exponential affecting it. That tailed off in about 2003, though, and performance improvements in computing since then have in significant part been in parallel computation, which isn’t exactly a drop-in improvement for everything the way serial computation is.
Inelastic demand for something (and I assume that you’re not talking about the labor market, as I was, but rather what the industry produces) doesn’t entail that an increase in productivity doesn’t cause the price to drop. It’ll mean that as the price falls, no more of the thing is sold, but as long as the market is competitive, one would expect to see a price fall off.
I’ll continue in the child comment.
@GrymEdm@lemmy.world
So, you’re correct that a patent grants a (limited-term) monopoly, and in the presence of a monopoly, you don’t have a competitive market. Generic drugs are competitive, but ones still under patent protection – I believe that a pharmaceutical patent lasts as long as an ordinary utility patent, 20 years – aren’t. Is that good or bad? Well, the concept of having a limited period of monopoly to fund the fixed R&D costs of producing new things has been a pretty long-running convention. The funds are going to have to come from somewhere. That model has drug users pay the price for the first 20 years, at which point you have a competitive market that drops down towards cost of production. Is that a good model? Well, it means that one has to wait 20 years for competitive prices. On the other hand, it has funded the creation of drugs, and the money will need to come from somewhere (or else the users will die). Should there be a different model? I mean, there could be. But one way or the other, the money would still have to be coming from somewhere. The government could tax and provide subsidies to pharmaceuticals. Sometimes that has happened – with the COVID-19 vaccine, for example, everyone paid for it and the government paid for everyone to take it, since it impacted everyone else.
I mean, they aren’t going to be seeing competition for 20 years after invention, sure, but they do after that. If you want to say “competition takes some time to show up after invention”, I’d agree with that, but I think that saying that it’s a myth is kind of over-broad.
Yeah, any economic change – technological, changes in trade, changes in education, etc – is going to tend to produce disruption, shift workers around. But what’s the alternative? I mean, this is broader than just questions of wage and productivity. Let’s say that you legitimately don’t need, oh, a bunch of farriers any more, because now people are using cars instead of horses and don’t need their horses shoed. I mean, one can’t just freeze the economy, or the world would look like it did whenever one froze the economy. Photography impacted portrait painters, television impacted theater actors, electronic computers impacted human computers, farm machinery impacted fieldworkers, telecommunications impacted postal workers. But…that impact has to happen if one is to realize the benefits of those technologies.
Should wages should be used as the mechanism to allocate workers? Well, the benefit there is that the people who most want to stay are the ones who do. You can have a command economy, and you have that oil boom in North Dakota, and oilfield workers are needed, and you could have the government say “you ten people go to work in North Dakota or you go to jail”. If you use wages as the mechanism to determine who goes, then it winds up being the individual workers deciding for themselves who wants to enter or leave an industry; that will filter based on how those people actually feel about the industry.
There are things that maybe we could do to improve re-entry into the workforce, even given labor reallocation. We have tried government-subsidized retraining programs, and my impression is that we haven’t had phenomenal success. Maybe it’s possible to have more-effective retraining.
Some of it is labor mobility, the ability of someone to move from an area with low demand to an area with high demand.
It might be that homeownership is a negative for labor mobility; it’s harder to move if one also has to sell and buy a home. Some countries, like Germany, have a much higher rate of renters. That could provide some other benefits; people who work in an area seeing population outflow tend to get hit both by layoffs and declining house values. But I think that many people like owning their house, and that seems like a pretty substantial shift.
It’s harder to move if you have a multigenerational household, but we’ve generally already moved away from those.
Remote work might help, for some fields. Not every field can do that.
I don’t think I agree with that as a broad statement. I think that you can find areas – and you’ve mentioned some, like drugs that are still under patent where there are not competitive markets, and there, sure, that won’t happen. But in a competitive market, decreases in input costs – labor or any other – will tend to translate into reduced prices. I don’t think that it’s reasonable to say “the economy as a whole consists of cartels”.
Sure, I’d agree with that – there’s no direct link between productivity and wages, work time, or avoiding layoffs.
So, I don’t think that it’s realistic to freeze the economy in place. When the environment changes, for technological or other reasons, one is going to have to reallocate workers. You can maybe argue that we could provide greater retraining subsidy or something like that, maybe in some cases slow the rate of change, but I don’t think that just not changing is a realistic solution. In a world where the environment changes, there are going to be people who are gonna have to stop doing what they were previously doing. No matter how your economy is structured, that’s gonna be a constraint.
And sure, the way that gets expressed is via profit – that is, if the company down the road is using one guy in a Bobcat and our company is using five guys with shovels, in a competitive market, that company is gonna undercut our prices and take our business. Competition means our profit drops off, we start losing money, need to take the Bobcat route ourselves or go out of business. But I don’t see as how it changes all that much. If there were a command economy, you’d still have to either have someone say “okay, no more shoveling, now it’s Bobcats”, and the same disruption happens or you have to freeze the economy.