"Why are certain things getting so much more expensive?"
That list is pretty much rank ordered by the amount of non-substitutable human labor involved per unit. Everything in red is a pretty universal need (health, education, child care, housing, food), while the blues are mostly wants. So we want medical care, but that requires a lot of labor, and each of those workers requires housing, but that's supply constrained in much of the country, and they have be educated, but college cost is rising, and their employees need child care, and the child care workers need to go to the doctor ...
If there was a way to reduce the cost of living (my hobby horse is dramatically increasing the amount of by-right housing permitted to be built in an area), then that would ripple through all of these industries. High and increasing costs and wages make labor-intensive industries much more expensive by comparison.
Exactly- people don't/can't really comparison shop when it comes to medical procedures. They don't know how good their doctors are at it, this is all unpublished information.
Similarly college textbooks- if your professors assigns work from their book, then you need that book. You can't competitively shop on that.
As the response points out, all of these groups and then backed by accreditation systems to limit new entrants.
Starting from Patrick's question, and working through the list...
It suggests that some of our market-thinking has been off mark. Free-market economic policies have tended to define things in terms of market "freeness." How much intervention, etc. This is commonly how we think politically, because it relates directly to policies.
The way these affect reality is through the market structures themselves. We can regulate or deregulate barber shops and restaurants... but within wide margins they are likely to remain pretty good market structure. Lots of choice, competition, churn, etc. Hospital services or college tuition are structurally different. If we are "laissez faire" with hospitals, and have heavy handed regulation for restaurants... Restaurants would still behave like a more free market, just because of innate structure.
It would take a truly byzantine accreditation system to make restaurants look like textbooks or pharmaceutical drugs. Someone would literally have to assign you a dinner reservation.
I think you're right that some industries are more conducive to competition in general. However shouldn't we be more careful then in terms of creating barriers to competition?
If we treated restaurants like hospitals/healthcare we would give your employer a tax break in return for determining the set of restaurants you may dine at. Any new recipe or cooking method used by a restaurant would need to first be approved by the FDA. Restaurant chains would not be allowed to operate across state lines. Restaurant would have to accept below-market pricing for some proportion of customers (medicaid). Each restaurant would need to hire a law service to ensure they comply with HIPPA, and staff a department to allow import/export of your dining history.
But, I think a lot of economics gets stuck in a sort of theoretical mud. In theory, barriers to competition, entry or always have negative effects. Those negative effects can be small, big, or irrelevant relative to other effects related to the same policy.
What i am suggesting, is that industry structure determines these. So yes, there are theoretical policies that might make hairdressing worse or hospitals better in this regard. In reality though, policies are very often acting within margins where competitiveness doesn't move the needle much either way.
Assuming a thriving restaurant market exists, it will probably remain pretty competitive under any "normal" policy regime. No one is really going to implement FDA approvals for recipes or tax related employer funding schemes.
No one is going to implement a totally nonaccredited hospital system, where doctors & nurses don't have to be trained or licensed. At the very theoretical end, laissez faire dynamics might yield a market-based regulation system that accredits doctors and such without government intervention. But once again (a) that's very unlikely and (b) if it did happen that would still be regulation.
For 99% of real life scenarios, restaurants lend to a free market dynamic while hospitals do not. Governments are involved, but they do not create this reality. It is innate. One policy regime or another (short of communism or such) is not going to change that.
Does licensing of doctors and nurses really add much? Don't hospitals have sufficient incentive even without licensing to ensure that their doctors and nurses have the necessary skills?
Uber/Lyft have their problems, but one takeaway is that a simple rating system works better than complex licensing and medallions.
This is especially true in the U.S. There's no market as such because there's no pricing signals. The barriers to entry are super high: education and licensing of doctors is extremely restrictive, while construction of hospitals requires prior political approval ("certificate of need"!). All the HMO/PPO in-network thing also adds opaqueness, and discourages any negotiation by the consumer. This is madness.
Medical care and education have seen a massive torrent of government funding and regulation over the last 60 years, while the things that get cheaper live mostly in free markets.
Housing, childcare, textbooks, and food and beverages seem strongly market based, and private college tuition has risen far more than public, challenging your characterisation.
I note textbook prices took a dive about the time book-sharing services became prevalent.
It's fairly well established by now that the most significant drivers of housing unaffordability is the preponderance of zoning regulations that restrict the supply of new housing construction.
When recently the mechanized industries, particularly in metal, entered the housing field with the production of “prefabricated houses”, they were met by the resistance of property holders, especially of the banks, who hold mortgages on about 58 percent of all 1933 value of all urban real estate, and who fear that an influx of cheap modern dwellings would subtract substantially from the market value of existing structures. These banks and loan companies have been unwilling to finance prefabricated houses except in rare exceptions and then on a limited basis. Lumber companies and manufacturers of other materials which are being displaced in the production of prefabricated houses, have sought to prevent their construction through building-code restrictions and by organizing boycotts by dealers and building crafts. Moral and ethical rationalizations have been used against prefabricated houses....
Planned public housing projects such as slum clearance which afford the most efficient methods of utilizing advanced technologies in the building industry, crash against the wall of vested private-property interest. They meet the combined opposition of the owners of obsolete buildings, that nonetheless are still profitable, of landowners who demand prohibitive prices, of holders of mortgages who fear a depreciation of housing values through the increase in available homes. Achievements in building technology lie sterile in the face of the opposition of these interests.
Bernhard J. Stern, "Resistances to the Adoption of Technological Innovations", 1937.
This little-known work detail instances and dynamics in which opposition to innovation occurs. As the author notes: "The most potent of the cultural factors are clearly economic: Efforts to maintain economic advantage and hegemony over competing classes, and over competitors in the same industry and rivals in the same market in allied fields."[1]
In the case of housing, it is both a financialised asset, of value to present property owners, landlords, banks and financial institutions; and a mode of social and political control, directed against class, race, and ethnic interests: the working class, poor, blacks, immigrants, non-WASPs, etc. The mechanism vary but may include zoning, redlining, availability of mortgages or insurance, restrictive covenants, building codes, leasing limitations, and more.[2] Even non-housing aspects such as transit service, walkability, and bikability impact on this.
Housing densities in the US are exceptionally low by European and global standards, even (or especially) within major cities. Unmet need could be met not by creating tower forests but simply through low-rise multi-family dwellings. San Francisco is overwhelmingly three floors or less, with large tracts single or two-storey construction, ground floor often garage. Five-floor structures could readily double available housing. Similar dynamics exist throughout the country.
The result is resisted by entrenched economic interests capable of exerting influence, which is to say, suppliers with a capability to restrict supply of a price-inelastic good, and thus, disrupting an otherwise "free market". The perversion is that it's the very mechanisms of markets, property, profit, and accumulation, whichend up distorting them. "Wealth, as Mr Hobbes says, is power", wrote Adam Smith.
"Markets" in this case eat themselves.
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Notes:
1. I'd learned of this through the graduate student who'd done literary research on the article, and went on to speak and write about it occasionally, including premising some of his own fictional works off the same principle of resistances to innovation: Isaac Asimov.
2. Regulation and governance mechanisms are not inherently bad. But they're extraordinarily prone to capture.
Being able to pass local regulations is a perversion of the term "markets". By that logic, the entire world is a free market, even those countries where national governments have been "captured" to suffocate markets like Cuba and North Korea.
Either that, or we need to then come up with a term to describe "property rights free of any regulation". One of my links even describes it as "laissez faire" land use policy, which is what we mean when we say "markets".
The solution to the problem is to actually strengthen property rights: by allowing property owners to build whatever they please on their land without the permission of their local community. We already do that for life and speech — you can't vote to kill somebody, nor can you vote to prevent someone from publishing something. Why then can you vote to prevent someone from building an apartment building?
Smith's opus is often read as a critique of Communism. That's anachronistic: Das Capital was a critique of Smith, or at least what emerged in his name.
Smith was a critique not only of mercantilism, as is commonly acknowledged, but what we would now call capture and monopoly.
In any case — it's a huge stretch to suggest that allowing other property owners to dictate what you can and can't build on your own property constitutes "property rights".
No rights are absolute, and most uss of land carry some externality. I'm not willing to entertain that no consideration be given these.
That's also spectacularly missing the main point that price-inelastic goods and services (those affording economic rents) increase in price where supply can be constrained by some means, setting up an intrinsic and wholly market-consistent dynamic of increasing prices and decreasing supply relative to demand.
The same dynamic is present for most of the price-inflated goods on Collison's list, and goes a long way to explaining the behaviour he ponders.
> No rights are absolute, and most uss of land carry some externality. I'm not willing to entertain that no consideration be given these.
This is a bit of a deflection, since it’s entirely reasonable to enforce some property regulations based around reducing externalities (eg. you can’t construct a building that will collapse onto the sidewalk and injure/kill a passerby), while preserving general property rights. The US’s speech rights are pretty close to absolute, with some notable exceptions (imminent lawless action). The argument is to get our property rights to look the same.
> That’s also spectacularly missing the main point that price-inelastic goods and services (those affording economic rents) increase in price where supply can be constrained by some means
Nobody denies this, and it is entirely orthogonal to the question at hand: “does zoning regulation constitute a market-based regime?”. The answer to that question is, resoundingly “No”. If you think that this is “the market” at work, then we need to come up with a new term to describe “system that allows free enterprise, property, and trade free from regulation”. Whatever term we agree upon: that’s what we’re pushing for.
Private college tuition is as heavily affected by the flood of federal college funding as public colleges. Textbooks are just another way for colleges to ride on the federal gravy train.
Housing prices have no where near the same price growth, and last time they did it was also due to heavy federal subsidies.
Lastly, Childcare, Food and Beverages? You are grasping at straws there.
It is 95%, not 100%... and amazingly that looks accurate.
As an example, a 32" CRT with remote control (eg Sony Trinitron) cost about $1500-2000 back in 1997.
Today, you can buy a 32" TV for $85, delivered. And even though this will be "Brand X" and not Sony, it will have better picture quality, more functionality, be more reliable and use less power to boot.
That list is pretty much rank ordered by the amount of non-substitutable human labor involved per unit. Everything in red is a pretty universal need (health, education, child care, housing, food), while the blues are mostly wants. So we want medical care, but that requires a lot of labor, and each of those workers requires housing, but that's supply constrained in much of the country, and they have be educated, but college cost is rising, and their employees need child care, and the child care workers need to go to the doctor ...
If there was a way to reduce the cost of living (my hobby horse is dramatically increasing the amount of by-right housing permitted to be built in an area), then that would ripple through all of these industries. High and increasing costs and wages make labor-intensive industries much more expensive by comparison.