Inflation. What paying workers costs. What is considered an “acceptable” level of poverty vs abject poverty as we get richer. New, expensive medical procedures. And as the world gets richer, defense gets more expensive.
We can’t pay 1930 salaries to workers, field a 1930s army, nor would we consider it humane for our elderly to end up with an impoverished 1930s standard of living with 1930s medical care.
Inflation is misleading for these purposes, too, because it includes hedonic adjustments. So a new better procedure or bigger apartment costing 40 pc more might only be 10 pc higher from an inflation point of view, even though you can’t really buy the old one.
Re: insurers— it is an oversimplification. Suffice it to say they are at scale where they have market power and thus don’t price where p=mc, and the regulatory pressures and price opacity push them even further away from efficiency. They are not completely insulated from costs or market pressures, but it’s fairly close.
GDP without qualification is 'real GDP', not 'nominal GDP', i.e it's already adjusted for inflation. I agree that costs need be adjusted for inflation
Nah.. I can't intuit what you are thinking or arguing. But I already addressed much more than you responded to. e.g.:
> > Inflation is misleading for these purposes, too, because it includes hedonic adjustments. So a new better procedure or bigger apartment costing 40 pc more might only be 10 pc higher from an inflation point of view, even though you can’t really buy the old one.
Educating kids the way we did in 1910 would certainly be cheap, but I don’t think anyone in the country is looking for that.
This is Baulmol's Cost Disease (https://en.wikipedia.org/wiki/Baumol_effect) in action, and it's something that advanced economies must take into account.
A barber today is not much more productive than a barber in 1900, but a haircut today costs much more than a haircut in 1900, even adjusted for goods inflation. Why is today's haircut evidently more expensive?
The answer lies in the labour supply. If haircuts didn't cost more today than in 1900, would-be barbers would work in goods-producing sectors that have seen real productivity growth and consequently 'naturally' improved wages.
In some sectors, this has led to the replacement of labour with capital. Domestic help was once hired by the ordinary middle class, but now we have kitchen and household appliances instead. We see fewer expensive hand-crafts and more factory-produced goods. Even fast food joints try to replace human service with ordering kiosks.
This replacement is much more difficult in the government sector, where transfer payments tend to relate to income rather than absolute provision of hard goods and where health-care and education are two of the sectors most affected by the Baulmol effect.
After the economic boom due to rising productivity, there weren't enough dirt poor people willing to work for peanuts, and today things like minimum wage and various benefits programs make it easier to not work for so little money a middle class family can easily afford it.
People would rather buy cheap factory goods than the more expensive hand made ones because they prefer to spend money on other things instead.
Google says the average barber haircut in 1900 for a man (women often did their hair at home) was 25 cents, which is just shy of $10 adjusted for inflation. Most places around me offer basic haircuts for $20.
In 1900, only the state of Minnesota had a requirement for barbers to be licensed (it was the first state to do so, in 1897). No beautician school requirement, no licensure payments, no state or federal income or sales taxes.
In short, it's surprising that the rise in cost of a haircut hasn't been higher.
I think there's something to Baulmol's theory, but there's a lot of hand waving that isn't really supported as well by the examples given here or elsewhere that I've seen. That, or the effect isn't all that it is claimed to be; it's almost tautological that as supply of workers for a low paying job dries up, the wages for the job have to go up to retain workers.
For reference, a visit to a family doctor is 30€, 28€ is reimbursed (you pay 2€ effectively)
It's not about poor areas. My city is middle-class AF and there's a 8€ barber there.
It's just that they have a list of exactly one haircut they apply to everybody, and a few more shaving styles.
Barbers are crazy priced (because hipsters and whatnot) and the typical chain (Jean Louis David) is 30€ or so.
That's precisely the Baulmol effect. When your next-best job is subsistence farming, being employed as domestic help is a step up. When your next-best job is (e.g.) something relatively well-paid in a factory or a phone exchange, being domestic help is no longer so attractive.
> That, or the effect isn't all that it is claimed to be; it's almost tautological that as supply of workers for a low paying job dries up, the wages for the job have to go up to retain workers.
I think we agree here. The mechanism of the Baulmol effect is pretty boring and pedestrian, but the outcome is surprising in aggregate. It's "why are we paying X times more for the same number of teachers?" and "why are there fewer tailors and more fast fashion?" and "why can't I find a handyman who won't refuse to fix something around my house because the job is 'too small'?" all wrapped up in one.
This implies that higher productivity gains result in higher wages, which is historically not the case. This explanation appears to only establish a weak correlation (productivity->wages) and stick to it where other factors like cost of living better explain even regional differences. Or what do i miss?
Unfortunately, MD compensation has more to do with a bottleneck in residency spots (post-medical school training), part of which may be artificially tight from lobbying efforts, but also there are real physical barriers to scaling up medical education. there are only so many operating rooms where a resident can be safely assigned and supervised.
However, I think there is a grain of truth to MD's perception of the Baulmol effect, just in the opposite direction. Despite claims of healthcare being privately-funded, about half of healthcare dollars in the US originate with a government agency of some form. This does not taking into account the fact that healthcare organizations don't pay taxes (501c3), get government-provided free labor (aforementioned residents), and have a workforce educated through government financing. Though not one-to-one, our salaries are impacted by what medicare/medicaid sets as procedure-related reimbursements. Though no MD could live off of medicare payments alone (I think total reimbursement for a PCP visit is $125), its a proxy, and is one of the big reasons why proceduralists (surgeons, anesthesiologists) make more than the thinking specialties (infectious disease, rheumatology). So - I think Baulmol here works in that the public/govt who agree to some compensation for MDs that is commensurate with other high-paying fields. There may be some perception that top students would actually choose ibanking over neurosurgery based on compensation, so the public is willing to pay in the same ballpark. Whether that belief is true is another conversation - and whether we really should be sending top students to medicine (where they tend to despise their job and look elsewhere for intellectual stimulation) is another story as well.
That would be scaling with population, not GDP.
> The payors and providers share the same incentive to raise rates because they each collect a percentage of premiums
This must be an oversimplification. Why would insurers ever reject a claim, or spend time negotiating lower rates, if they're only incentivized to see health costs increase?