You can, but then those people have more money, and you have less. The money supply is much smaller than the supply of goods and services, because the same money circulates repeatedly. So simply doubling your money can tilt things a little more your way, but does not make the situation completely lopsided, because you can only spend the extra money once.
Also, to quote Jastram [0], "In spite of the romanticism of the Spanish Main and treasure ships, the supply of gold from the New World was just a trickle by later standards. Less than 1% of what was to be 1930 world production was produced in each of the years from 1500 to 1520." Over the next 80 years, it never got much above 1.3%.
[0] Roy W. Jastram, The Golden Constant (1977), pg. 41.
You make it sound easy, but there are relatively few billionaires in the US descended from historically wealthy families [0]. First off, this kind of compounding has only really been possible since the industrial revolution (~200 years). Before that, wealth came primarily from land ownership, which was zero-sum. Second, "no major bad luck" has been pretty hard to come by in most of the world across multi-generational time-scales. The US has had a historically exceptional period for the last 80 years or so, but there is no reason that has to continue. Third, "as long as descendants don't make errors" can also be a significant hurdle. Many Asian countries have a saying: wealth does not last past three generations (not meant to be taken literally, but people say it for a reason).
Also, to start compounding, you have to have enough to compound. Most people instead start off significantly in debt (student debt, mortgage/rent, etc.). Then they try to save enough to be able to raise their children and retire before they become too infirm to work, at which point they start compounding in reverse. All the while, they are competing with everyone else trying to do the same thing for how much they are willing to pay for scarce resources and how little they are willing to receive for their employment. Having your compounding achieve escape velocity is the exception, not the rule, and it has to be that way.
The submission is titled with "Cost Disease", though the Wikipedia article has the more neutral term "Effect". But it is important to remember that money is a relative resource, not a real resource. If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier, even if the prices in the latter sectors rise a lot.
Your conclusion falls victim to the same conflation you’re calling out. If some sectors become drastically more efficient, society has become wealthier in terms of money, but not necessarily in terms of real resources.
For example, consider a case where finance becomes much more productive (in terms of $ per employee-hour) and raises wages to attract smart people, leading to fewer people becoming doctors because finance is much more attractive. Is society wealthier? The money says yes. The line goes up. But finance doesn’t set a broken bone or treat cancer. This may well have made society less wealthy in terms of what ordinary people actually care about.
The Baumol effect says wages for doctors will also have to go up. Society can afford this because it now has commensurately more resources due to increased efficiency. It’s a tide that raises all boats, precisely because of this effect. This is why a taxi in London costs and pays better than the same service in Cairo.
> Society can afford this because it now has commensurately more resources due to increased efficiency.
Does it though? Suppose that Wall St has discovered a strategy, like high frequency trading, that produces nothing but allows the one doing it to extract a margin that would otherwise have gone to the second-fastest trader. Many people are employed in a competition to be the fastest because being the fastest is rewarded but it's a zero-sum game where nothing useful is produced and the players each have to continuously spend resources to keep running faster in order to stay in the same place.
What benefit is the person now paying more for healthcare getting in exchange for this?
> It’s a tide that raises all boats, precisely because of this effect.
What if it's not all boats? Suppose it causes doctors to get paid more because people who have the wherewithal to become doctors could also work in finance, but it doesn't cause retail clerks to get paid more because Wall St isn't hiring them away from their existing jobs, and in the meantime they now have to pay more for healthcare.
High frequency trading does create benefits. It speeds up market corrections, increases liquidity, and means buyers and sellers get quicker execution closer to consensus market value.
If financiers and doctors are wealthier, they have more disposable income, some of which they will spend in retail, benefiting retail clerks. They will also get taxed more, benefiting other tax payers.
The Baumol effect is sometimes described as a disease. It isn’t. It’s fundamentally redistributive.
> It speeds up market corrections, increases liquidity, and means buyers and sellers get quicker execution closer to consensus market value.
This is the BS that Wall St says whenever people complain about them doing it. Nobody actually benefits from getting their liquidity in 8ms instead of 8.2ms, and in fact it costs them the money the high frequency trader was making compared to having the exchange's computers do it without taking a margin for itself.
> If financiers and doctors are wealthier, they have more disposable income, some of which they will spend in retail, benefiting retail clerks.
Or they'll further outbid the people in retail on things like housing, making them poorer yet.
> They will also get taxed more, benefiting other tax payers.
Only if the other taxpayers actually get taxed less instead of the government giving the extra money to cronies.
> it doesn't cause retail clerks to get paid more because Wall St isn't hiring them away from their existing jobs
Nobody with an existing job actually has to switch professions for Baumol to occur. As the pay gap widens, more kids would study finance and fewer kids would consider retail an adequate career, leading to a relative shortage of retail labor, raising retail wages.
Your premise is that the people who work in retail have the option of studying finance or medicine. Suppose they work in retail because they scored at the 20th percentile on entrance exams and couldn't get into college.
The 20th percentile probably wouldn't go into finance. But there's a "average" cutoff somewhere. Maybe 50th percentile. Maybe 80th. It doesn't matter. That cutoff will move if demand shifts.
Suppose the cutoff to get into finance is at the 70th percentile of the general population and 99% of retail clerks are below the 50th percentile or otherwise have some reason not to even though those jobs already pay significantly more. How much more are they going to get paid because of that?
Or let's even suppose that the amount isn't totally inconsequential. Say they end up with an extra $1000/year. But now they're also paying $1500/year more for medicine. They're still down $500/year.
Throwing out random numbers is not a convincing argument about how things would actually work in reality.
Consider the fact that median real income tends to move up [1]. This is the metric that matters. It's the 50th percentile person, so mega rich outliers are ignored. And it weighs incomes against the CPI, which incorporates the price of medicine, construction, education, as well as consumer electronics, food, and pretty much everything people spend money on in realistic proportions. That's objective evidence that people actually get richer, even though the price of labor does tend to go up across the board, relative to goods.
> Consider the fact that median real income tends to move up [1]. This is the metric that matters.
Well, it's what matters if the CPI metric is perfect and doesn't e.g. over-weight things like food that haven't increased in cost as much as some other things.
And again, nobody is claiming that efficiency hasn't improved or that that isn't good. The issue is, if efficiency improves by 300% and then you get a 70% improvement out of it, that's bad -- people should have gotten the whole thing instead of having rent seekers capture a huge proportion of the improvement.
And for some specific subset of "efficiency improvements" the result isn't even guaranteed to be positive for the average person, so we don't need to lump them all together into an aggregate.
Exactly. Even though Baumol himself used the phrase "Cost Disease", I think that framing distracts from the fact that it is a result of something desirable happening, namely increased efficiency in some sectors. You could also posit a case where some sectors become less efficient, due to badly conceived regulations, exhaustion of non-renewable resources, an unchecked monopoly, or some other factor, but you don't need a special mechanism to explain why prices rise in such a scenario.
> ...consider a case where finance becomes much more productive... leading to fewer people becoming doctors because finance is much more attractive.
This is the opposite of what one would expect from a sector whose efficiency increases, as modeled by Baumol. See the first bullet in the article: "The share of total employment in sectors with high productivity growth decreases, while that of low productivity sectors increases" (also see the detailed analysis in the Technical Description section). It might be theoretically possible that induced demand could still increase overall employment in a sector as its efficiency increases, but I think you have to make an argument why that would be true. During the industrial revolution, automation eliminated 98% of the labor required to produce a yard of cotton cloth, but between 1830 and 1900 the number of weavers in the US increased by a factor of 4, because demand increased due to lower prices [0]... although the US population also increased by a factor of 6, so as a percentage of the workforce weavers still declined, even as people consumed much more cloth per capita.
[0] James Bessen, Learning by Doing - The Real Connection between Innovation, Wages, and Wealth (2015), pp. 96–97.
I picked finance for my example because demand is practically unlimited. People only need so many clothes, but when your business comes from making money directly, there’s a lot of room for growth.
Imagine some new math allows HFT to make more money. HFT firms wouldn’t start laying off quants. They’d probably hire more to try to capture more of that new money, and they’d have more money available for hiring.
It’s not like their wages will always go up exactly in proportion to your income. Goods and services that are afflicted will become less accessible if your own wages increase at a lower rate.
Some finance is needed and beneficial. The ability to form corporations and raise money through the stock market enhances many other fields of endeavour.
But this can go too far. In London during 2000-2008, finance consumed every spare IT worker, as well as mathematicians and physicists. Salaries were far higher working for a bank than working in any other IT-related industry or start-up. Did this produce great works? Is London now better off because of this? In a word, no.
The problem I have with these arguments is that they're awfully close to the anti-tourism arguments you hear in tourist towns such as Tahoe. You have this influx of visitors and money, and there's a considerable number of residents who see it as uniformly negative: congestion, high property prices, and so on. Imagine what it could've been without all these rich tech bros!
But then, the US is full of picturesque small towns where the original heavy industry (logging, copper mine, steel mill) disappeared and tourism did not fill the gap. And all the young people moved out in search of better opportunities, except for the ones addicted to meth. There's no money, no jobs, no hope.
Every socioeconomic shift has downsides, but it doesn't automatically mean that the alternative is better. Broad economic gains tend to lift all boats because money changes hands.
In the case of London, it was misallocation, not an influx of anything. It would have been better if the programmers had been founding start up companies, and the physicists had been researching science, instead of working for banks.
Advertising enables innovation-producing firms to drive awareness of their services in a cost effective manner, and for less informed consumers to understand what is available on the market. Your typical physician might not be fully caught up on what is the state of the art in arthritis treatments, but advertising enables this to happen.
Advertising as a source of consumer information is a market for lemons in and of itself. Everyone is free to claim innovation and deliver trash, and internet brands are a dime a dozen. Even just keeping out overt fraud/scams or propaganda campaigns is apparently a losing battle for platforms.
Reviewers/Influencers/interest-publications are often just a half-step above banner ads, but at least has more incentives than just "loudly capture attention" and "publish anything that pays the algorithmic sticker price".
Lady's earrings (see my name), Pixel 10 (I'm theoretically an iPhone developer), cat food (I don't own any pet let alone a cat), special offers from a supermarket I would have been shopping at anyway even if they had not told me about the offers, a sponsored government message because apparently the Bundesministerium für Gesundheit don't have a better method of contacting German residents than by buying ads from a US social network (I have previously seen such from the British government telling me that some breed of dog was now banned even though I don't own a dog and also live in Germany)…
… but none of that's what's importantly wrong.
Cost effective? It's an auction, each ad in isolation may be fair (but there's reason even then to be suspicious), but in aggregate the ad sector is an all-pay auction.
There's a massive over-supply of solutions because all the startups chase the same ideas at about the same times, and the only one of them to get big is the one that pays enough to the gatekeepers of eyeballs to win the all-pay auction bidding for mindshare.
If everyone stopped advertising, the knowledge of solutions would still diffuse, the winner would be so by word of mouth. The difference is that the 1200 "trusted partners" on all the GDPR popups wouldn't collect rent on advising people on the best strategy for selling their user's privacy and battery life and mobile data allowance for money that those users never get to see, and the people buying those eyeballs wouldn't be wasting their VC runway making something other than the product.
The fact that your Facebook ads are worse is probably because you're in the EU. I'm in the US, and I am getting fairly relevant ads for Broadway shows, data infrastructure products, discounted hotel packages, and climbing gym subscriptions - things that I am actually considering purchasing. And we haven't even brought up intent-based ads (Google search).
Word of mouth benefits incumbents. Advertising at least enables newcomers to temporarily burn money to gain mindshare, while “slow diffusion” will lock society into a “nobody ever got fired for buying IBM” state forever.
> And we haven't even brought up intent-based ads (Google search).
OK, those also suck, for different reasons.
If I search for a thing, a search engine's entire job is to show me about that thing. That the engine's website puts a different thing that whatever the search algorithm thought was the best thing at the top because an advertiser paid for it to be so, is strictly worse. It's worse when the ad is not correct for obvious reasons, but it's also worse when the ad is also the best thing to show me, because in that condition it was already at the top and shouldn't have needed to pay to get there.
> Word of mouth benefits incumbents.
Ads generally (but not always) benefit whoever is richest, which is usually (but not always) the incumbent. This is why Coca Cola spends so much money on ads, even when those ads say nothing about the product itself e.g. the current GenAI Christmas ad.
> Advertising at least enables newcomers to temporarily burn money to gain mindshare, while “slow diffusion” will lock society into a “nobody ever got fired for buying IBM” state forever.
How long had ChatGPT been out before OpenAI's first ad for it?
The Google search engine itself, I heard about from word of mouth back in the 90s when all of us were using AltaVista, which I also only knew about from word of mouth. Firefox, word of mouth. LiveJournal and then Dreamwidth, word of mouth. Facebook, word of mouth. Skype, Telegram, AeroPress, Huel, these are all things I learned about from word of mouth.
If I understand correctly, "word of mouth" is also known in marketing-speak as "going viral".
You are talking about consumer marketing. I am talking about B2B marketing for prescription medications, enterprise SaaS, etc. These are separate markets and the analogies don't quite hold here - the scam problem etc is practically nonexistent for high-LTV goods with high bid costs, and newcomers are typically well funded enough to periodically outbid incumbents (or implement better targeting). The big-ticket B2B products that one hears of from word-of-mouth are usually the worse ones, since there is rarely any "going viral" to speak of.
> That the engine's website puts a different thing that whatever the search algorithm thought was the best thing at the top because an advertiser paid for it to be so, is strictly worse.
This is not clearly worse than the result being selected by the whims of some arbitrary Google engineer, or being easily gamed by SEO blogspam bots. At least the advertiser stands to lose something if they bid incorrectly.
>How long had ChatGPT been out before OpenAI's first ad for it?
Just because some products were able to grow organically doesn't imply that paid marketing never benefits startups. This is a false equivalence.
I also find it funny that the vast majority of your example products (everything except Huel or Aeropress?) make a lot of money from advertising. Maybe consider why they still exist.
The only way this should happen is if it’s a fake arthritis treatment meant to detect doctors who learn about treatments from advertising instead of legitimate sources, so they can be prevented from practicing medicine.
What are legitimate sources in your definition? Should physicians be expected to spend all their free time reading every single study in every medical journal or conference, even for niche areas that they don't usually encounter? Should the average diabetic/arthritic patient need to obsessively pore over academic reports to stay informed about their condition? Should advertisers be banned from sponsoring journals or conferences? This is an extremely ill informed line of reasoning.
Doctors should learn about new drugs the traditional way - physically attractive drug company reps taking them out for expensive dinners and gifting them branded golf equipment.
Journals less commonly but pretty much every conference out there of any scope is sponsored by companies. In fact, absent sponsors, very few conferences would exist other than small volunteer-run ones.
People (and their companies in many cases) have limited budgets. I do pay out of my pocket for some conferences, and conference organizers and (previously) employers in other cases. You're probably not going to convince me that I'm better off sitting at a desk than getting out and collaborating with people at an event from time to time. For that matter, why should companies sponsor open source projects? If they're that valuable, individuals should just pay for them I guess.
And you’re not going to convince me that collaboration is so valuable that it’s worth corrupting the whole medical establishment, and simultaneously not valuable enough for you to pay what it costs to do it.
I have nothing to do with the medical establishment. I do know that the conferences I do attend are subsidized by companies in the tech space in various ways. You're welcome to bemoan that of course although I'm pretty sure neither of us are in a position to overturn decades-long (at least) practice.
Got it. So you want attention to be controlled by the whims of academic/government/publishing bureaucrats or black-box ranking algorithms who are the arbitrators of legitimacy. I can't say I agree with that opinion, but different strokes for different folks.
I’m very confused. Why would “black-box ranking algorithms” be on the no advertising side?
Medicine has a pretty good system for getting knowledge out to doctors as far as I can tell. I fail to see how advertising contributes to this in any way. Banning advertising is the opposite of controlling attention.
I’d like a total ban on all advertising, but I at least see some merits in the discovery argument for consumer goods even if I don’t agree with it. But saying advertisement is necessary so doctors can find out about new treatments? I hope this is just subtle satire, because, what?
> Medicine has a pretty good system for getting knowledge out to doctors as far as I can tell.
Yes, it does - it’s called advertising. In the US, the average promotional spend per physician exceeds $20k/yr. As a result, a lot more patients are able to quickly benefit from new medications like Dupixent or Ozempic as a result of wider awareness.
Suppose we banned Google ads and you are searching for a plumber. You are now entirely at the whims of whoever designs the ranking algorithm on Google/the Yellow Pages, who has nothing at stake here. Meanwhile, advertisers have to bid for your attention - making them at least somewhat aligned with your buying intent.
The same applies for doctors searching for state of the art diabetes treatments. It’s hard to say that relying on a fuzzy notion of “legitimacy” (or entrenched status-quo cliques) is a more fair system.
Your hypothetical is the world I actually live in, except I have to scroll past the ads first. It’s amazing that you’re so invested in advertising as a concept that you’d think a guy who keeps ranting about banning advertising would ever select a plumber from an ad.
The only purpose Google ads serve to me is to take up space and waste my time locating where the ads end and the real results begin.
Otherwise, they’re at best useless. Being able to distinguish the ads from the real results is an important online safety skill these days to avoid getting ripped off or outright scammed. They’re no longer merely parasitic, but are now actually dangerous.
If your argument is that advertising medical treatments to doctors is just like the mundane advertising I see on Google, you’re doing an excellent job of making my case for me.
Your value to advertisers is probably less than 1% of that of a single doctor or corporate VP. It makes sense that your queries are lower intent - this is hardly contradictory. Fortunately, you are an edge case wrt how firms are actually spending their money, so we’ll leave it at that.
If you want to argue that advertising is different for doctors than it is for me, and it’s useful for them despite being a drain and a danger for me, then go for it. But that’s the opposite of the argument you laid out.
Yes, advertising is more relevant and works better for people with power over large purchasing decisions as the bidders have more at stake. Maybe you aren't in the market for plumbers or running shoes, and are instead looking for "download vlc media player". This doesn't contradict anything I said?
Ok, you must be taking the piss. VLC doesn’t advertise. If you search for VLC downloads and click an advertisement for VLC, you’re going to be downloading malware. Even someone who thinks advertising is a modern miracle must be aware of this.
I’m completely lost. You keep talking about how advertising to doctors and B2B is totally different from advertising to people like me. At the same time you keep talking about my personal experience with advertising. Why?
If you search for low-value consumer queries or aren't a buyer for high-ticket B2B items, you will get less relevant ads. Your personal experiences don't extrapolate well here: advertising for high-value goods is totally different from advertising for low-value goods.
Sure. I can totally buy that advertising is different for different people. Although I don’t think it’s good regardless. The part that confuses me is that you keep bringing up my experience of advertising despite repeatedly saying it’s not comparable.
I was trying to point out the selection bias in your experiences, since your queries are probably lower-intent than for the typical consumer. Good discussion though.
I get that. But you're the one who brought up my experiences in the first place! The last few messages have been, essentially, "Doctors need advertising to find new treatments just like you need advertising to find plumbers." "I don't need, and actively avoid using, advertising to find plumbers." "Your experience isn't comparable, it's not relevant to doctors finding medical treatments." Followed by many repetitions of the last part. I get it. The part I don't get is why I'm supposed to believe advertising is good for doctors, given your previous argument made no sense (what with comparing it to my own experience with advertising) and you haven't given a new one.
> If some sectors of the economy become drastically more efficient, and some do not, overall society has become wealthier, even if the prices in the latter sectors rise a lot.
That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.
Suppose people used to spend 20% of their income on housing and healthcare and 20% on apparel and electronics. Then housing and healthcare triple in price, apparel drops by two thirds, electronics drops by 98%, and everything else stays the same. Are they better off? No, because the most you can improve the cost efficiency of something is 100% (it becomes free), but the things that that cost more can increase in cost by more than 100% of the original cost, and some of them have.
> That's assuming all sectors have become more efficient. Some, like construction, have become less efficient. And that's a big problem when it's relevant to necessities like housing.
Housing prices aren't going up because of construction costs alone. The biggest increase is from the cost of land. For that the cost of a house on top has become less and less relevant. If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.
The biggest increase is from the cost of zoning making land artificially scarce. But construction costs layer on top of that because of the nature of it: Instead of being able to build 20 new housing units on a lot that currently only has one and enough land to add more without destroying the existing building, adding more is now restricted to a small strip of the downtown where the lots already each contain 10 housing units. Which effectively doubles your construction costs to add 20 housing units because you still have to build 20 housing units but now you have to destroy 10 in order to make space, and then do that twice to actually add 20.
Which is a disaster if construction also got twice as expensive.
> If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.
If construction became really cheap and there wasn't an artificial limit on how much housing you could build on a given lot then there would be tons of cheap housing and billionaires wouldn't find it a useful place to park money because it would have lower returns than competing investments.
Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses. This is also why zoning doesn't matter. Look at the big picture. Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real estate are skyrocketing the same, regardless of use. What those areas do have in common: general availability of real estate to international investors.
Properties aren't bought up anymore to develop them or have any returns from use. They are being bought as a non-depreciating asset. Want to effortlessly park money and not have the money rot? Buy land. Never mind what happens to stand on top of it. You can see more and more of those rotting real estate plots all over the western world. And there's always someone who wants to park money.
Your thinking isn't wrong on a smaller scale. All those aspects matter for a local housing market. But the overall trend is governed by something else.
> Even if construction would be zero it wouldn't make more than a dent in the overall trend because the investments are done into land not houses.
This is fairly simple arithmetic. Suppose we attribute the cost of a single family home (one housing unit) entirely to land, and then the cost of land doubles. Obviously the cost of the single family home doubles.
Now suppose construction is cheap and zoning doesn't prohibit this. For 10% of the cost of the land, we could build a condo tower on that same piece of land. Ten stories, 100 housing units. The cost of a unit just went by down by a factor of ~100. The price of the land doubling is dwarfed by the increase in the number of permissible units per plot of land.
> Pretty much every argument you made can be easily refuted by looking at any other jurisdiction that has completely different zoning laws and completely different construction prices and yet prices for real estate are skyrocketing the same, regardless of use.
The places with less restrictive zoning objectively do have lower housing costs, and even most of the places with "less restrictive zoning" still have non-trivial zoning restrictions. For example, name the major US city that isn't accompanied by a significant land area zoned exclusively for single family homes.
> Now suppose construction is cheap and zoning doesn't prohibit this. For 10% of the cost of the land, we could build a condo tower on that same piece of land. Ten stories, 100 housing units. The cost of a unit just went by down by a factor of ~100. The price of the land doubling is dwarfed by the increase in the number of permissible units per plot of land.
That's a brilliant plan! Let me buy the piece of land where that high rise stands with money you can't afford. Oh, you mean you have split ownership between all the owners of the units so you now can afford it? I'll buy half of the units then and rent them out. And when things are not looking good for people, I buy some more when they can't afford their loans anymore. Can't let those units depreciate, can we? My friends are in on the party and together we're keeping the demand up. And those prices go up and up. Oh, the cost of each unit has now doubled and tripled while your wages haven't? Too bad for you. I can still afford them and now you have been out competed by me.
It's the same game just with a lower starting point.
> If some sectors of the economy become drastically more efficient... overall society has become wealthier
That's a weird one - what's your metric for the "wealth of overall society"? Stock market indexes can't be it because those are subject to extreme levels of unreported inflation and gaming.
How can you measure something that is subject to extreme inflation when that inflation is not only unmeasured but not even acknowledged as a phenomenon?
At present, the "wealth of overall society" is a unicorn metric as opposed to the perfectly measurable and extreme levels of income and wealth inequality. In other words, the overall losses from skewed distribution dwarf the gains from higher efficiencies.
If the orchestra performs less often because the violists have better paying jobs in a factory making the latest and greatest TVs, more homes will have the latest and greatest TVs.
Of course, this relies on the assumption most work - and hence most productivity - is a net social good. If the violinists have instead got jobs operating an orphan-crushing machine, that would be a bad thing. But hopefully your society is structured in such a way that the average worker is contributing to the prosperity of their local community.
GDP produced divided by costs required measures intensity. These will be typically normalized (inflation removed) or, if a ratio, can be nominal since both have the inflation ratioed out.
GDP is known to be an imperfect measure, especially for capturing cottage industry and due to the distribution effect you described, but it's not horrible to start with.
The main metrics are mean and median real income (i.e. inflation-adjusted). Baumol's only occurs if mean real income rises. Unless inequality rises simultaneously, then median real income (the metric most people care about) will rise as well.
Suppose that every single person in society receives the same compensation and has the same wealth, i.e. there is perfect equality.
Society produces housing and other necessities and people consume them in some amount and then have what's left as disposable income to spend on whatever they like, e.g. for going on dates.
Then a law is passed prohibiting the construction of housing with more than two stories. Building ten housing units on ten lots with ten foundations requires more labor than constructing ten units all on the same lot, so the price of housing increases, people have to spend more on housing and have less money left to buy flowers and some people quit their jobs at the flower shop to go pour concrete (while still getting paid exactly the same amount as before).
There is zero change in inequality but the cost of something has gone up and people have to eat it by getting less of something else.
Baumol does not describe general inflation. It specifically describes when prices go up in some sectors because of an increase in productivity in another sector.
Baumol is also rooted in the concept of price elasticity, which in your contrived example seems not to exist.
Because people claim that higher costs are a result of Baumol and are hypothetically something good or normal when it's actually regulatory costs and government capture stealing from working people. "Don't worry, prices are only up because we got so much more productive, not because of artificial scarcity or because it now requires 10 people to do certain things that used to take one."
> Baumol is also rooted in the concept of price elasticity, which in your contrived example seems not to exist.
Because the example is housing, which is a necessity and therefore has fairly inelastic demand. If the price goes up, you pay it, because otherwise you're homeless. And then people buy flowers less because they can't afford it, so people lose their jobs at the flower shop, but new jobs open up in construction because it became more labor-intensive and has fairly inelastic demand.
> It specifically describes when prices go up in some sectors because of an increase in productivity in another sector.
Here's the less contrived example: Productivity improves in things like electronics or manufacturing, giving people more disposable income. But there is certain amount of disposable income people have to be left with before they'll revolt, and the increase in efficiency leaves them with more than that. Which allows the government to increase regulatory overhead or real dollars per capita collected in taxes or pass rules that artificially increase scarcity at the behest of campaign donors, without making people feel like they've lost ground.
But the efficiency improvements should have allowed them to gain ground, which is what has been taken from them.
Sure, there are plenty of ways that the government can interfere in an otherwise fair market. That's not the point. Absent some sort of market interference, Baumol is empirically good at predicting price movements.
> there are plenty of ways that the government can interfere in an otherwise fair market
There's no such thing as "otherwise fair market" outside of government regulation. Ergo, any "interference" is for someone's benefit, and as a rule that's not the government. In other words, seeking economics explanations to political phenomena isn't going to lead to anything useful.
> Baumol is empirically good at predicting price movements.
Until something else explains the facts better - AnthonyMouse wrote about a better theory that can actually be expanded to a fairly precise descriptive model, despite the fact that the quantitative part of it would be politics dependent.
The trouble is that the same empirical data is also consistent with the theory that when efficiency improves it attracts market interference to capture the surplus.
And then it could be either one, or some combination of both, but the people doing the capturing prefer to direct attention to an alternative explanation so they can continue their extraction.
South Korea went through an astounding period of economic growth. In 1961 its per-capita income was US$93 (inflation-adjusted). Ghana, one of the poorest nations in Africa, had more than double that (US$190). In 2024, Korea's had grown to US$36,624. That is almost 40,000% growth in a single lifetime. It is hard to conceive of in most places where GDP growth averages 1...2% per year. The difference between working hard to get ahead and trying to sit out and keep doing what you were always doing was literally the choice between affluence and destitution. So no wonder you have a population hyper-focused on their careers who pushes what children they have as hard as they can, so that none of them have any time for family now. The opportunity cost of anything else was enormous.
The positive news (if it can be called that), is that this level of growth cannot continue, so something will have to change.
> The author doesn't talk at all about the hardware aspect of this stuff such as the surprisingly short lifetime of the GPUs that are being rolled out at a break-neck pace.
There is literally a section that begins, "What will be the useful life of AI assets?" In bold.
Sure, but an informed opinion would mention that not only do these chips become obsolete quickly, but the ones that will survive long enough to become obsolete are likely to have a very fast and high failure rate.
Buffett has repeatedly said that Berkshire's size means it will no longer be able to deliver outsized outperformance. He also says that most people should invest in index funds. It is perfectly reasonable to just buy the S&P if that aligns with your financial goals.
> BRK-B's 5 year return is 2% per year more than SP500.
That said, 2% per year is generally considered a lot in diversified mutual fund / ETF land. You might not be able to charge hedge-fund level 2-and-20 fees for delivering that, but you could certainly charge multiples of what the low-cost indexers do (instead, Berkshire charges you approximately nothing). Now, Berkshire is a conglomerate, not a fund, and you could argue 2% is an appropriate risk premium for a single stock, even one as diverse as Berkshire (which is still less diverse than the S&P). But it is pretty impressive for something that is not a tech company. Those are the only things in the S&P that seem to be generating any returns these days (besides Berkshire, JP Morgan is the only other non-tech company with a market cap over $1tn, and arguably banks really are tech companies now, too).
> Apple is still 21% of BRK's publicly listed holdings
The public company investments are a minority of Berkshire's current value. The majority comes from wholly-owned operating companies and insurance businesses.
Teach them basic financial literacy. The time value of money, the power of compounding, the relationship between risk and expected returns. Grade school does not cover any of this.
It does not matter what your income is if you cannot budget and save.
Financial literacy is a red herring. If one only stores their savings in gold or an index fund, that gets them practically all the way there. It takes all of two minutes to teach it. It compounds itself.
Risk too is sort of a red herring. Just buy in whenever it dips, and you are set. Diversify just enough to dilute the aggregate risk, and it practically disappears.
Savings are not even possible with low income, only with medium to high income. The lesson to learn is to avoid wasteful excessive spending that benefits oneself only in the moment.
Yes, keep focused on the future, deny the moment. Avoid testing your own experience about what waste and excess mean. Follow the herd and treat participation algorithmically. Buy in. All key points for a satisfying life well lived.
Plenty of people have bought what they thought was the dip, only to watch an instrument go to almost zero and never recover. Look at Bed Bath and Beyond. It’s not quite that simple.
If you buy junk with all of your money, that's on you. I mentioned gold and (broad) index funds, although a few select cryptocurrencies also work. Buying junk must be restricted to a very small amounts only, to what one is willing to risk.
> ...then they could very well contribute by submitting a patch along with their issue report.
I don't want to discourage anyone from submitting patches, but that does not necessarily remove all (or even the bulk of) the work from the maintainers. As someone who has received numerous patches to multimedia libraries from security researchers, they still need review, they often have to be rewritten, and most importantly, the issue must be understood by someone with the appropriate domain knowledge and context to know if the patch merely papers over the symptoms or resolves the underlying issue, whether the solution breaks anything else, and whether or not there might be more, similar issues lurking. It is hard for someone not deeply involved in the project to do all of those things.
> I have been continually confused as to why it is being forced down everyone's throat.
Have you never sat on public wifi and tried to open an http site? These days it is highly likely to be MITM'd by the wifi provider to inject ads (or worse). Even residential ISPs that one pays for cannot be trusted not to inject content, if given the opportunity, because they noticed that they are monopolies and most users cannot do anything about it.
You don't get to choose the threat model of those who visit your site.
Have you ever opened your work laptop? It is likely MITM'd so that your employer can see everything you read and post on the internet and HTTPS won't help you.
Have you never sat on public wifi and tried to open an http site? These days it is highly likely to be MITM'd by the wifi provider to inject ads (or worse).
I honestly don't remember a single case where that happened to me. Internet user since 1997.
> "Distress in auto lending broadly is often seen as a bellwether to changing circumstances in the US economy, because Americans particularly in the lower-income brackets tend to put their highest priority in auto payments," said Brett House...
Or, put another way, when the bills come in, people make their car payments first, because they have to get to work. So either there are other bills people aren't paying, or people aren't going to work. Both seem bad. One purported cause of increased auto loan defaults is that people are having to make student loan payments again, although that would suggest they aren't prioritizing the auto payments.
Also, to quote Jastram [0], "In spite of the romanticism of the Spanish Main and treasure ships, the supply of gold from the New World was just a trickle by later standards. Less than 1% of what was to be 1930 world production was produced in each of the years from 1500 to 1520." Over the next 80 years, it never got much above 1.3%.
[0] Roy W. Jastram, The Golden Constant (1977), pg. 41.
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