Saturday, March 24, 2012

People And Prices: Following The People Equals Following The Money

The Atlantic is doing a series of articles developing the thesis that prices are people.  So far, the authors have been silent on the question of whether it's better to view people as prices or as corporations.

Stephen J. Rose points out that most people spend less on necessities than their parents or grandparents did.
Advances in technology and education have created massive productivity gains, which have made things cheaper and easier to obtain. Consider necessities like food and clothing, which gobbled up 42% of our spending in 1947. Six decades later—even in the face of exorbitant spending on frivolities like high-end coffee and designer clothes—food and clothing accounted for only 16% of spending.
Derek Thompson ups the ante a bit arguing that people are price destiny.

There is more to prices than employment figures, of course. Productivity and technology matter. Scarcity matters. Demand matters. But labor is such an important cost that at the broadest level, it can appear almost determinative.
Across the economy we can see that items that require fewer and fewer American workers per completion (think: socks) get cheaper, while services that can't find similar ways to replace American workers (think: health care, education, government) don't get cheaper at all. In fact, they often get more expensive.
In a second article, Thompson makes another comparison
Human-work costs money, and the more human-workers you need to complete a task, the harder it is to make that task cheap. Hand-stitched bags are more expensive than robot-stitched bags. If you own a closet full of purses, you're way ahead of me on this observation.
 Thompson also adds a little nuance to his earlier argument about the labor intensive service sector.
Yep, prices are people. "Baked into the price of everything we buy is the rising cost of advertising, accounting, legal services, insurance, real estate, consulting, and the like -- jobs performed by the high-wage workers of our modern economy," Rose elaborates.
From the stuff getting expensive the fastest, like hospital stays and elite college tuition, to the prices that are falling the fastest relative to wages, like television and freeze-dried prepared foods, we are paying for people -- just as we always have. The big idea here is that prices follow workers.
In short, accountants, lawyers, real estate agents, and insurance agents drive up the cost of everything. So do teachers and nurses.  Yet, no one seems to express outrage about the costs the other professions add to goods and services. On the other hand, a local woman getting a haircut next to me has no compunction uttering "those damned teachers have too much already."

I doubt that the other professions that Thompson lists add more to the economy than educators.  I'm not an economist, but as a simple thought experiment, I suggest imagining the country with 50% fewer real estate agents or 50% fewer insurance agents.  I'm sure there would be a negative impact, but I suspect the damage would be limited.  Now imagine the country with 50% fewer teachers and professors.  I expect that the economic impact would be cataclysmic, especially if one takes in the long term impacts.

Thompson seems to want to take his series in another direction, he writes,
As the economy leans more heavily on certain low-productivity sectors like health care to soak up workers from a growing population and recovering economy, health care will almost certainly become more expensive. But what if we solve the health care cost crisis? This is the trend we're going to pick up in the next installment of the Prices Are People series: If we make sectors like health care and education cheaper, where will the people go? 
I'm pretty sure the answer won't be real estate or insurance.

1 comment:

D.E. Bishop said...

"those damned teachers have too much already."

The reason people make such comments is due to the efficiency of the GOP/Koch/1% propaganda machine in creating a false conflict.

Of course the teachers don't make too much money. Of course their benefits aren't too generous. But in this false conflict setup, it's made to look as if the teacher's good fortune, such as it is, comes out of the misfortune, such as it is, of the hairdresser.

Thus the falsely created conflict is the teacher v. the hairdresser.

In fact, the real conflict is, broadly stated, between the 1% and everyone else. The teacher and the hairdresser are on the same side!

This "divide and conquer" routine is as old as time. And it is a lie. When the 1% owns the media, they can perpetrate the lies. And they do.

These economic conflicts are not horizontally based; they are vertical.