Opinion: Why Americans are bummed out about the economy | CNN
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Because grocery bills and rent prices are unlikely to return to where they were just a few short years ago, the psychological scars from the war on inflation will linger, write Dana M. Peterson and Erik Lundh.

US consumers remain unimpressed with this progress, however, because they remember what they were paying for things pre-pandemic. Used car prices are 34% higher, food prices are 26% higher and rent prices are 22% higher than in January 2020, according to our calculations using PCE data.

While these are some of the more extreme examples of recent price increases, the average basket of goods and services that most Americans buy in any given month is 17% more expensive than four years ago.

  • tal@lemmy.todayEnglish
    26·
    9 months ago

    @GrymEdm@lemmy.world

    Okay, the next one is healthcare costs, which they say have risen by about 50% by their metric since 1972. So, I haven’t dug into that, but there I could believe that you might legitimately have the sort of cartel you’re worried about. Well, okay, not a cartel, but regulatory capture. A doctor can only practice in a state if the medical board approves, and doctors can influence the standards set by the medical board – that is, block out competition, something that most industries can’t do. Doctors do make pretty high salaries in the US, much higher than in many other countries, and I’ve read articles before that are pretty critical of the role that the regulatory system places in creating the barriers to entry.

    https://www.economist.com/united-states/2023/10/31/why-doctors-in-america-earn-so-much

    Why doctors in America earn so much

    According to the Association of American Medical Colleges (AAMC), in a decade America will have a shortage of up to 124,000 doctors. This makes no sense. The profession is lavishly paid: $350,000 is the average salary according to a recent paper by Joshua Gottlieb, an economist at the University of Chicago, and colleagues. Lots of people want to train as doctors: over 85,000 people take the medical-college admission test each year, and more than half of all medical-school applicants are rejected. And yet there is a shortage of doctors. What is going on?

    Yet there is another explanation for the doctor shortage, which has to do with the pipeline into the profession, and which the American Medical Association has played a part in creating. It takes longer to train a doctor in America than in most rich countries, and many give up along the way. Future physicians must first graduate from university, which typically takes four years. Then they must attend medical school for another four years. (In most other rich countries, doctors need around six years of schooling.) After post-secondary education, American doctors must complete a residency programme, which can last from three to seven years. Further specialist training may follow. In all, it takes 10-15 years after arriving at university to become a doctor in America.

    If the expense and length of the training were not off-putting enough, the number of places in the profession has also been artificially held down. In September 1980 the Department of Health and Human Services released a report warning of a troubling surplus of 70,000 physicians by 1990 in most specialties. It recommended reducing the numbers entering medical school and suggested that foreign medical-school graduates be restricted from entering the country. Despite the shortage, doctors trained abroad must still sit exams and complete a residency in most states regardless of their years of experience.

    Medical colleges listened, and matriculation flatlined for 25 years, despite applications rising and the population growing by 70m over the same period (see chart). In 1997 federal funding for residencies was capped, forcing hospitals to either limit programmes or shoulder some of the financial burden of training their doctors. Some spots have been added back, but not nearly enough. Many potential doctors are being shut out of the profession. “Not everyone who would be willing to go through that training and could do it successfully is being allowed to,” says Professor Gottlieb, the economist.

    Nurse practitioners and physician assistants have been given responsibilities typically reserved for doctors, such as writing prescriptions. Foreign-trained doctors have filled some of the gap too. Yet the shortage persists. This looks a lot like a labour market that has been rigged in favour of the insiders.

    So I’ll grant that in that case, we may legitimately have a non-competitive market producing an increase in prices.

    Next one is the price of a car.

    1972: $26,100

    2022: $48,200

    So, I think that there are a couple factors that you can look at here. The first – and here, the article specifically talks about it – is that this isn’t a like-for-like comparison, kind of like what I mentioned with housing. If people want to spend more on a car, that can mean that there are more people buying fancy, luxury cars, not that the car has become unaffordable. They do mention the Corolla as a baseline, which is more-or-less what I would have done, and adjusted for inflation. They do say that it’s about 30% higher, but also point out that the 1972 vehicle is not really equivalent to the 2022 vehicle, as the 2022 vehicle has a lot more hardware and features.

    They don’t mention it, but I’d also point out that they were measuring this in 2022; during the COVID-19 crisis, there was a severe shortage of chips to automakers, which dramatically constrained supply and idled a lot of production, and while I wasn’t paying attention to the prices of new cars, I assume that they spiked then. I do know that the price of used cars spiked as a result.

    So, I won’t run the numbers there, but I think that I’d want a stronger argument with some numbers for a cartel, if that’s the concern. I’ll grant that automakers are few enough that I could legitimately believe creation of a cartel (and you can definitely point at cases where cartel behavior has shown up, as with Dieselgate in the European Union, where automakers colluded not to offer large urea tanks).

    Oh, and it looks like I counted incorrectly – there’s a fifth one:

    Vacation (admission to Disney World) 1972: $1,170 for a three-night/four-day stay at Disney World for two adults and two kids 2022: $2,670 for the same

    Ehhh. Okay. This is not something that I’ve looked at before, but I’m not sure that Disney World – a single business – is representative of vacationing in general. I’ve watched video from Disney World, and my vague impression is that Disney World, at least today, is somewhat-upscale. They didn’t have all the resorts and stuff that they have today.

    googles

    Yeah, it sounds like they’re offering a more-elaborate experience than in the 1970s:

    https://mickeyblog.com/2021/02/05/looking-back-at-walt-disney-world-during-the-1970s-part-ii/

    As a reminder, it only consisted of one theme park, one mediocre water park, Discovery Island, and an outlet mall at the time [1979].

    I’d think that maybe something like…hmm…airfare plus hotel fees plus restaurant meal costs at popular vacation spots might be a better metric, maybe?

    Yet we know that people are over 3x as productive per person over the same period, so clearly companies are not passing along savings in the form of cheaper goods.

    So, you’re thinking “well, if productivity rose, labor costs are an input, and there’s a competitive market, then we would expect to see price drops”?

    Well, some things have also dropped; I mean, you’re looking at a list of things that’s cherry-picked to find increases. A personal computer, a flight on an airplane. I’d guess that energy prices are probably down since the 1970s:

    googles

    Yeah, in inflation-adjusted terms:

    https://www.usinflationcalculator.com/inflation/electricity-prices-adjusted-for-inflation/

    Productivity increases aren’t evenly spread across all sectors. You wouldn’t expect to see a productivity increase in one field directly translate into a price decrease, even in a competitive market, in another.

    Let’s see if we can find something talking about productivity on a sector basis.

    https://www.mckinsey.com/mgi/our-research/rekindling-us-productivity-for-a-new-era

    So, this has a graph measuring 2005-2019 productivity growth by sector. The worst-ranked sector was construction, where productivity dropped at a compound annual growth rate of -0.9%. In information technology, productivity rose at a compound annual growth rate of 5.5%.

    And to just grab those two as an example, I think that that’s probably not wildly out-of-line with what we’ve seen. Housing prices have risen a bit, based on the data I covered in my parent comment. Software’s generally cheaper than it has been in the past.

    The author claims that there’s a fair bit of correlation with the degree to which a given sector was impacted by the advent of computers. I could believe that; Moore’s Law dictated that, for much of the 20th century, we saw exponential growth in transistor density, and any field that could benefit from more computing power had a factor that was exponential affecting it. That tailed off in about 2003, though, and performance improvements in computing since then have in significant part been in parallel computation, which isn’t exactly a drop-in improvement for everything the way serial computation is.

    Inelastic demand for necessary products like fuel, utilities, food, health care, etc also means that in many industries increased productivity does not need to translate to savings.

    Inelastic demand for something (and I assume that you’re not talking about the labor market, as I was, but rather what the industry produces) doesn’t entail that an increase in productivity doesn’t cause the price to drop. It’ll mean that as the price falls, no more of the thing is sold, but as long as the market is competitive, one would expect to see a price fall off.

    I’ll continue in the child comment.

    • tal@lemmy.todayEnglish
      24·
      9 months ago

      @GrymEdm@lemmy.world

      Pharmaceutical companies, either as an industry of multiple providers or where they hold exclusive patents, will raise prices of products to whatever they can get away with because people will either pay or die.

      So, you’re correct that a patent grants a (limited-term) monopoly, and in the presence of a monopoly, you don’t have a competitive market. Generic drugs are competitive, but ones still under patent protection – I believe that a pharmaceutical patent lasts as long as an ordinary utility patent, 20 years – aren’t. Is that good or bad? Well, the concept of having a limited period of monopoly to fund the fixed R&D costs of producing new things has been a pretty long-running convention. The funds are going to have to come from somewhere. That model has drug users pay the price for the first 20 years, at which point you have a competitive market that drops down towards cost of production. Is that a good model? Well, it means that one has to wait 20 years for competitive prices. On the other hand, it has funded the creation of drugs, and the money will need to come from somewhere (or else the users will die). Should there be a different model? I mean, there could be. But one way or the other, the money would still have to be coming from somewhere. The government could tax and provide subsidies to pharmaceuticals. Sometimes that has happened – with the COVID-19 vaccine, for example, everyone paid for it and the government paid for everyone to take it, since it impacted everyone else.

      So again cheaper products and competition is a myth.

      I mean, they aren’t going to be seeing competition for 20 years after invention, sure, but they do after that. If you want to say “competition takes some time to show up after invention”, I’d agree with that, but I think that saying that it’s a myth is kind of over-broad.

      Speaking of getting fewer people to do the same work, companies lay off people all the time when individual productivity or automation goes up. You talk about employing 1/5th the Bobcat workers and net lost 4 workers being forced to find other work. This may make economic sense but it’s terrible societal sense. It results in financial insecurity and homelessness among educated, capable people with all the associated national problems like mental health, crime, drug addiction, etc.

      Yeah, any economic change – technological, changes in trade, changes in education, etc – is going to tend to produce disruption, shift workers around. But what’s the alternative? I mean, this is broader than just questions of wage and productivity. Let’s say that you legitimately don’t need, oh, a bunch of farriers any more, because now people are using cars instead of horses and don’t need their horses shoed. I mean, one can’t just freeze the economy, or the world would look like it did whenever one froze the economy. Photography impacted portrait painters, television impacted theater actors, electronic computers impacted human computers, farm machinery impacted fieldworkers, telecommunications impacted postal workers. But…that impact has to happen if one is to realize the benefits of those technologies.

      Should wages should be used as the mechanism to allocate workers? Well, the benefit there is that the people who most want to stay are the ones who do. You can have a command economy, and you have that oil boom in North Dakota, and oilfield workers are needed, and you could have the government say “you ten people go to work in North Dakota or you go to jail”. If you use wages as the mechanism to determine who goes, then it winds up being the individual workers deciding for themselves who wants to enter or leave an industry; that will filter based on how those people actually feel about the industry.

      There are things that maybe we could do to improve re-entry into the workforce, even given labor reallocation. We have tried government-subsidized retraining programs, and my impression is that we haven’t had phenomenal success. Maybe it’s possible to have more-effective retraining.

      Some of it is labor mobility, the ability of someone to move from an area with low demand to an area with high demand.

      It might be that homeownership is a negative for labor mobility; it’s harder to move if one also has to sell and buy a home. Some countries, like Germany, have a much higher rate of renters. That could provide some other benefits; people who work in an area seeing population outflow tend to get hit both by layoffs and declining house values. But I think that many people like owning their house, and that seems like a pretty substantial shift.

      It’s harder to move if you have a multigenerational household, but we’ve generally already moved away from those.

      Remote work might help, for some fields. Not every field can do that.

      As US economics function now, companies do not pass along the value of increased productivity to their customers in savings,

      I don’t think I agree with that as a broad statement. I think that you can find areas – and you’ve mentioned some, like drugs that are still under patent where there are not competitive markets, and there, sure, that won’t happen. But in a competitive market, decreases in input costs – labor or any other – will tend to translate into reduced prices. I don’t think that it’s reasonable to say “the economy as a whole consists of cartels”.

      nor to their employees in increased wages, shorter work weeks, or stable employment (re: layoffs).

      Sure, I’d agree with that – there’s no direct link between productivity and wages, work time, or avoiding layoffs.

      Instead they maintain or raise prices depending on what they can get away with and employ as few people as possible to maximize profit.

      So, I don’t think that it’s realistic to freeze the economy in place. When the environment changes, for technological or other reasons, one is going to have to reallocate workers. You can maybe argue that we could provide greater retraining subsidy or something like that, maybe in some cases slow the rate of change, but I don’t think that just not changing is a realistic solution. In a world where the environment changes, there are going to be people who are gonna have to stop doing what they were previously doing. No matter how your economy is structured, that’s gonna be a constraint.

      And sure, the way that gets expressed is via profit – that is, if the company down the road is using one guy in a Bobcat and our company is using five guys with shovels, in a competitive market, that company is gonna undercut our prices and take our business. Competition means our profit drops off, we start losing money, need to take the Bobcat route ourselves or go out of business. But I don’t see as how it changes all that much. If there were a command economy, you’d still have to either have someone say “okay, no more shoveling, now it’s Bobcats”, and the same disruption happens or you have to freeze the economy.