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New Book Summary: Why are the Prices So D*mn High? by Eric Helland and Alex Tabarrok

Published 5 months ago • 1 min read

My latest summary is for Why Are the Prices So D*mn High? Health, Education and the Baumol Effect, which seeks to explain why it seems like prices in education and healthcare keep rising.

Note that the book was published at the start of 2019 and is about the long-run trend of increasing prices in healthcare and education since 1950. It is not about the surge in inflation post-Covid.

As usual, the key takeaways are below, and you can find the full summary by clicking the link above (estimated time 19 mins).

KEY TAKEAWAYS

  • Since 1950, manufactured goods have gotten much cheaper while costs in education, healthcare, and other service industries have kept going up.
  • Usual explanations for the rising prices include:
    • Increasing quality;
    • Waste and efficiency;
    • Government intervention; and
    • Increasing market concentration.
  • However, none of these can explain the long-run trend of rising prices under a variety of regulatory, legal, and economic environments.
  • Instead, the best explanation for the long-run trend is the Baumol effect:
    • All prices are relative. Prices are ultimately opportunity costs, and it is simply impossible for all opportunity costs to fall.
    • So if you have uneven productivity growth across sectors, relative prices will rise in the slower-growing sectors.
    • Price increases have been particularly large in service sectors that rely heavily on skilled labour. Education and healthcare are two examples, but we also see this in law, accounting and car repair.
  • Even as prices have gone up in education and healthcare, real resource use has also gone up. This is consistent with the Baumol effect, but not with the waste and inefficiency explanations.
  • The Baumol effect suggests rising prices are not necessarily bad. Paradoxical as it may seem, a product can rise in price and become more affordable at the same time.

You can find the full detailed summary on the website. If you found this summary useful, consider forwarding to a friend you think might enjoy it.

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​To Summarise​

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