My sense of things is that, in the last 50 or so years, we in The West have moved from a state of affairs where essentials (e.g., food) are relatively cheap and non-essentials (e.g., TVs) are relatively expensive to a state of affairs where essentials are relatively expensive and non-essentials are relatively cheap. Is this impression correct, and, if so, what has caused this? Is there any reason to think things might go back to the way they were?
Note that I’m not asking about whether standards of living are higher now (I’m pretty sure they are) or about inflation more generally.
What explains the reversal in relative costs of essentials and non-essentials?
byu/innocent_bystander97 inAskEconomics
Posted by innocent_bystander97
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if you look at what’s gotten more expensive over time, it’s generally been services. Food, for instance, has never been more affordable. Same with clothing. The things that have become less affordable are childcare, education, and, to a lesser extent, housing*
One explanation for this is baumol’s cost disease. Quoting the wikipedia:
> … the Baumol effect, or Baumol’s cost disease, first described by William J. Baumol and William G. Bowen in the 1960s, is the tendency for wages in jobs that have experienced little or no increase in labor productivity to rise in response to rising wages in other jobs that did experience high productivity growth.[1][2] In turn, these sectors of the economy become more expensive over time, because the input costs increase while productivity does not. Typically, this affects services more than manufactured goods, and in particular health, education, arts and culture.
There have been large increases in productivity in things like agriculture, computing, and manufacturing (especially at a global scale and especially for like semi conductors and computers). There haven’t been any in daycare. Increases in productivity put upward price pressure on daycare wages, but since daycare hasn’t gotten more productive, this mostly results in higher prices.
– https://newsletter.mikekonczal.com/p/a-better-aei-graphic-of-inflation
– https://www.ers.usda.gov/data-products/food-expenditure-series/interactive-charts-food-expenditures
– https://en.wikipedia.org/wiki/Baumol_effect
* Healthcare shows up as having grown in price a lot; this one is a bit tricky as it’s not adjusted for quality which has also grown a lot.