Why Are the Prices So Damn High?

Abstract

We explore why prices in some sectors are increasing dramatically even as economy-wide technology and productivity improves. Education and healthcare are notable examples of sectors seemingly stricken by constantly rising prices. At the same time, home appliances and telecommunications have become much cheaper. This piece examines and rejects explanations such as bloat and administrative costs and focuses attention on rising labor costs driven by productivity improvements in progressive sectors of the economy, an explanation known as Baumol's Cost Disease.

Keywords: cost disease, health care cost, education cost

JEL Classification: I04