I think this is what Baumol’s cost disease is about (productivity growth on one sector drives up labor costs and ultimately prices in other sectors, such as healthcare, construction). Basically, when software or AI is super lucrative,
1. students go into new lucrative thing
2. supply of doctors goes down
3. doctor wages go up
4. hospital margins go down
5. Hospitals raise their prices to stay in business
6. Wealthy engineers are able to afford higher prices
7. Services that are transitively consumed by the high-productivity sector stabilize at a higher price. Services not transitively consumed by the high-productivity sector go out of business.
- I remember visiting a developing country about 15 years ago and seeing people getting paid to stand there and hold a rope, because I guess their time was cheaper than cones, which I think is the inverse of this.
- I also think that, in the limit, society consists of a handful of economically viable occupations and infinite cheap stuff. Nothing else is worth the prices that a seller would have to charge to afford employees.
- I also think that we’re entering a stabilization phase.
It also preferentially benefits as a function of margin. If Nvidia's prices double, it logs two thirds of that as earnings. For Kroger it turns into like a penny of extra profit for every dollar of price rises.
More like a temporary market fluctuation or maybe bubble.
> More like a temporary market fluctuation or maybe bubble.
A bubble that is obscuring that most of the economy is pretty weak.
It increasingly looks like everything is getting K-shaped. Not just the income of labor, but the earnings of corporations.
I think this is what Baumol’s cost disease is about (productivity growth on one sector drives up labor costs and ultimately prices in other sectors, such as healthcare, construction). Basically, when software or AI is super lucrative,
1. students go into new lucrative thing
2. supply of doctors goes down
3. doctor wages go up
4. hospital margins go down
5. Hospitals raise their prices to stay in business
6. Wealthy engineers are able to afford higher prices
7. Services that are transitively consumed by the high-productivity sector stabilize at a higher price. Services not transitively consumed by the high-productivity sector go out of business.
- I remember visiting a developing country about 15 years ago and seeing people getting paid to stand there and hold a rope, because I guess their time was cheaper than cones, which I think is the inverse of this.
- I also think that, in the limit, society consists of a handful of economically viable occupations and infinite cheap stuff. Nothing else is worth the prices that a seller would have to charge to afford employees.
- I also think that we’re entering a stabilization phase.
10 replies →
inflation of a bubble.
If it was inflation it be all stocks.
Inflation isn't uniform across an economy.
It also preferentially benefits as a function of margin. If Nvidia's prices double, it logs two thirds of that as earnings. For Kroger it turns into like a penny of extra profit for every dollar of price rises.