Baumol's Cost Disease

Role and Limits of Baumol’s Cost Disease

• General agreement that the Baumol effect is real and explains some relative price and wage shifts, especially where productivity lags.
• Strong disagreement on how much it explains in the modern US: some say it’s overused as a rhetorical shield to obscure rent extraction, concentrated corporate power, and regulatory failure.

Housing, Land, and Regulation

• Several argue housing costs are driven more by land scarcity and zoning than by construction productivity or market concentration.
• Examples: teardown lots where land cost dominates; inability to split lots or build multifamily units due to zoning.
• Point that “invisible land value tax” rises with fixed high‑productivity metro areas and limited creation of new economic centers.

Services, Local Labor, and Automation

• Mental model: sectors with high share of non-automatable local labor (childcare, education, medicine) see structurally higher inflation.
• Cultural/regulatory constraints (e.g., teacher–student ratios, medical workflows) limit productivity gains.
• Some see this as justification for deregulation in healthcare, childcare, education, and housing to enable more supply and competition.

Wealth, Productivity, and Distribution

• Dispute over whether higher productivity in some sectors always means “society is wealthier.”
• Critics emphasize real resources and services (e.g., doctors vs finance quants) and note that rising mean income with rising inequality may not improve median welfare.
• Concern that productivity gains invite new regulation/tolls that capture surplus instead of benefiting workers/consumers.

Finance, Advertising, and “Socially Useless” Productivity

• Debate whether high-productivity finance (e.g., HFT) delivers real social value or merely reallocates rents.
• Similar split on advertising: one side sees it as vital information infrastructure, especially B2B and medical marketing; others see it as wasteful, distortionary, and prone to scams, preferring non-advertising channels.

Discretionary vs Non‑discretionary Goods

• Observation that “red” sectors (healthcare, housing, college) are low-elasticity, often financed (insurance/loans), and heavily regulated, which may damp price sensitivity and automation incentives.
• Counterpoint: even “non-discretionary” goods (food, housing location) have substitution and policy choices; many pathologies blamed on Baumol are framed instead as regulatory capture.

Examples and Edge Cases

• Discussion of software: some note SaaS price hikes (e.g., Photoshop), others point to cheaper or free alternatives and argue effective quality‑adjusted prices have fallen.
• Dental hygienists cited as a clear Baumol-style case: hard to automate, reimbursement‑capped revenue, wage pressure after labor exits.
• Multiple comments stress Baumol is distinct from generic inflation; it specifically concerns cross-sector wage equalization driven by uneven productivity growth.