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