tal , 5 months ago (edited 5 months ago)

You talk about making things more cheaply and that resulting in a cheaper product. If companies agree to all charge the maximum they can get away with, it kills industry price competition

Sure, if all companies in a market formed a cartel and engaged in price-fixing, and it wouldn’t be a competitive market.

and renders price elasticity a falsehood.

In a situation like that, you’d still have price elasticity of demand working the same way – that’s on the consumer – but supply could be artificially-constrained by the cartel to be lower than would normally be the case.

If Coke and Pepsi both charge 1.50 for a can of cola, it doesn’t matter if increased productivity means Coke can make a can for 20 cents instead of 30 cents - the savings are just converted into extra profit.

Sure, if they form a cartel, you don’t have a competitive market. Note that I would guess that the soft drink world is probably not an easy one to create a cartel in, because it’s probably not that hard for a competitor to enter – there are a number of store brand colas – but there will be products where it’d probably be easier – say, airliners or something like that.

You can see this in record profits for many sectors as productivity has increased - the savings of needing fewer people to do the same work isn’t passed on to customers. As proof, here’s an article about how much more things cost today than in the 1970’s (adjusted for inflation).

I don’t think that the article is saying that all things do – they’re giving examples of some things that do. They give four examples:

The first is homes. Homes do cost more, but I would be surprised if that is due to formation of a cartel of homebuilders – there are a lot of homebuilding companies, and cartel formation is harder the more companies are in a market.

googles

Here’s a list of hundreds.

So, okay. Why do houses cost more?

That one I have looked at before.

They actually don’t, or at least not much.

House prices are higher. But they aren’t for the same houses – new homes have gotten substantially bigger. If you want an apples-to-apples, you want to look at how the same home changes. The Case-Shiller index tracks repeat sales to eliminate this as a factor. Someone’s graphed this (the red line) since 1974 and put CPI up, to account for inflation (the black line).

The long run trend since the 1970s is to follow inflation fairly-closely. What you see there are instead two large “surges” – and we are in the middle of the latter. The first was during the runup to the financial crisis, when a lot of money was lent out and drove a bubble. After that popped, about 80% of the increase in house prices since 1974 was due to inflation.

There’s been a new surge since then, which started with the COVID pandemic. The Federal Reserve held interest rates down during the pandemic to avoid a recession. That made it cheaper to borrow money, so a lot of people borrowed more and more and bid up house prices. But that’s a short-term thing, not a since-the-1970s trend.

Here’s an article from the Fed back when the surge started talking about it.

The second is college tuition.

Similarly, I think that it’s pretty safe to say that all the universities and colleges out there have not formed a cartel, as they’re a lot of them out there, and it’d be pretty difficult to do.

I haven’t looked at this one before, a quick google makes it look like this is may be something of the fact that they’re measuring “sticker price”, not what people actually pay.

The way universities work, there’s an advertised price, which is the highest price that anyone pays. Then there are various forms of financial aid, which reduce the actual amount that an individual pays; typically, this is need-based aid, where poorer students pay less.

Looking at this, it looks like what’s happened is that government subsidy directly to universities has fallen off…but aid to students has risen. The former doesn’t contribute to the advertised tuition price (the university gets money directly, doesn’t need tuition money) but the latter does (the student pays tuition but then gets financial aid).

googles

Yeah. Apparently that was part of a shift from state-level subsidy to federal-level subsidy:

pewtrusts.org/…/two-decades-of-change-in-federal-…

States and the federal government have long provided substantial financial support for higher education, but in recent years, their respective levels of contribution have shifted significantly.[1] Historically, states provided a far greater share of assistance to postsecondary institutions and students than the federal government did: In 1990 state per student funding was almost 140 percent more than that of the federal government. However, over the past two decades and particularly since the Great Recession, spending across levels of government converged as state investments declined, particularly in general purpose support for institutions, and federal ones grew, largely driven by increases in the need-based Pell Grant financial aid program. As a result, the gap has narrowed considerably, and state funding per student in 2015 was only 12 percent above federal levels.[2]

This swing in federal and state funding has altered the level of public support directed to students and institutions and how higher education dollars flow. Although federal and state governments have overlapping policy goals, such as increasing access to postsecondary education and supporting research, they channel their resources into the higher education system in different ways. The federal government mainly provides financial assistance to individual students and specific research projects, while states primarily pay for the general operations of public institutions. Federal and state funding, together, continue to make up a substantial share of public college and university budgets, at 34 percent of public schools’ total revenue in 2017.

Hmm. That’s probably advantageous; one of the few things that I think that the US has probably done wrong from a policy standpoint is having a good deal of educational subsidy still be local rather than federal, as it creates problems if people are educated in one place and then move to work in another. That’s a very serious problem in the European Union, and while the US has more-centralized subsidy, still a lot was non-federal.

But I’ll say that I haven’t looked to dig into college costs changes over time before, the way I have housing, so this is an off-the-cuff take. But if it is an artifact of a shift to federal subsidy, I’d probably say that it’s a good thing, fixing a problem that was present in the past.

Let me continue going through your comment in a child comment, so this doesn’t get too long.