Baumol's Cost Disease

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.

That's not how it works: Most things that people call non-discretionary still have opportunities for market effects. Take food: You might have spikes for, say, beef, but what is necessary is just enough calories, not necessarily having them come from beef. Therefore, you can switch preferences, eat something else, and not be affected by the price increases. Poeple rarely do though, because the amount of money spent on food is significantly lower than historical, precisely due to agricultural productivity improvements. In the US, we also have to consider the effects of recent tariffs: When supply gets far more expensive, prices go up in a market, regardless of whether people must eat or not.

For housing, there's also significant location effects: One doesn't have to live in, say, Manhattan. People trade time for location, and then select the space they want. A whole lot of the space Americans use is completely optional. Go look at cities in Asia, or in Spain: You can have a city with an average density similar to NYC's Upper East side, but not even NYC comes close. That's not about a limitation of supply, but very specific policy choices.

It's similar in other mandatory things: In healthcare, the amount of things that are actually mandatory isn't that large, training to become a doctor is offered to far fewer people that would want the job, drugs can be handed long monopolies... It's not about non-discretionary, but mostly a regulatory problem. Same with American colleges, which waste an order of magnitude more money in what is shaped like an old luxury good. Anyone that has gone to a public university in continental Europe and to a US college can tell you it's a completely different good, and the American approach isn't all that focused on efficient education, as it's still shaped like a finishing school. And again, it's not necessary.

So I'd argue it's almost always regulation written to help certain incumbents, instead of inability of market forces to keep prices low even when it appears that a good is non-discretionary.

Don’t automation technologies improve the productivity of labor?

If I can make one widget per hour, and some new tool lets me make 10 widgets per hour?

Conventional economic theory suggests the gain will be split between the widget-maker and the widget-consumer, in proportions determined by the relative slopes of the supply-demand curves, but definitely the product will become somewhat cheaper.

Evidence for claim #2? The sectors where the Baumol effect has been most painful (housing, childcare, education, with the exception of healthcare) are ones that have much higher levels of competition and distribution than areas where prices have rapidly dropped. Construction Physics, for example, did an analysis [1] that showed that the top multifamily housing developer has 2% marketshare; the top residential housing developer (DR Horton) has 8.4% and subs out almost all the work, and the top 4 together have only 20% of the market. Compare with tech markets like browsers, search engines, or operating systems where the top firm alone often has 80% market share.

[1] https://www.construction-physics.com/p/why-are-there-so-few-...

I’d speculate that the cause of higher costs is excess government spending over the past few years, creating a lot more dollars chasing fewer resources.

At least the URL immediately calls out the fact the site is nothing but AI spew.

Technically not a source, and even less so than wikipedia.