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by oli5679 3409 days ago
Baumol's model is interesting. It's definitely part of the story.

It seems that there are other factors at play as well though. Scott shows that wages haven't risen as fast as costs in many of the problem sectors, and that there is significant cost variation between countries with similar wealth levels.
1 comments
joe_the_user 3409 days ago
An extension to Baumol would be that not only have wages in non-productive industries had to keep up with wages in productive industries but capital spending rates in non-productive industries have kept up with capital spending rates in productive industries. At least in education and health care, you see buildings, equipment, administrators and so-forth taking more and more of the expenses relative to the salaries of service provider.

Admittedly that's automatic given cost increases without concomitant salary increases but I think one can this to standards of capitalization of productive industries bleeding over to non-productive industries. And there's a constant belief/hope/snake-oil that these increases in capital spending will make the industries productive. Indeed, the "captains" of these would never frame the industries as static, non-productive support industries.

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bluGill 3409 days ago
Except that that doesn't seem to be the case. A house in 1960 costs an inflation adjusted $100,000 today - The average house last year sold for about $300,000. So we can say infrastructure is 3 times as expensive - that doesn't seem to account for the 10x cost increase.
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joe_the_user 3409 days ago
Obviously, the kind of thing I speculate on above is an industry-by-industry effect.

However, as mentioned in the article, the average house that is built today is larger than a house built in 1960 and that can account for some of the increase also.

Moreover, a 3x increase in one cost factor is a good start on explaining a 10x increase in overall costs. You can't expect any economic process, from grocery bills upwards, to yield an exactly proportional result between two "back of the envelope" estimates, now can you? One inflation estimator might not be akin to another etc, etc.

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