One of the most important things in economies is the deeper relative prices of different goods and services. We usually don't pay much attention to them, though, as they usually change slowly. It is a matter of the longue duree, as historian Fernand Braudel put it, rather than something which is evident in Friday's GDP number or the next CPI print.
We are conscious of the price of energy, for sure, as it can be volatile and move a great deal in a short period of time. And in economic theory we sometimes think about the price of traded goods versus non-traded goods - ie those things which are traded on world makets, like iPods, versus those which are local, like hairdressers.
But mostly we look at the overall price level - inflation - or treat the changing costs of different goods like an exogenous shock, something which lies outside our theories and just happens.
But it is also obvious that the price of most manufactured goods has fallen substantially in the last few decades. Clothing, electronic goods, food are all relatively cheaper. In fact, there is massive deflation happening in some parts of the economy.
Take Spotify, the legal Internet music service which launched in the US last week after success in Europe. It claims to offer instant access to over 15 million songs - for free. It is more permissive than other similar services like iTunes, napster or pandora. Music used to be very expensive, as anyone who bought a CD in the 1980s knows. You would get 8 or 10 songs for $20. All of the world's music is now available legally for free (or at least at a marginal cost of zero after you have bought the computer and the broadband access). You don't have to download it from the torrents illegally.
The same applies to most information services, which are plunging in price. Netflix delivers most of the world's cinematic history for less than $10 a month, more than you could ever watch. The world's great libraries are increasingly accessible online.
And it is not just things in the cloud. The range and quality of food available at so where like Whole Foods or Eataly would amaze people even twenty years ago, and for a lower proportion of take home pay. Yes, food prices are going up and can cause riots in developing countries. But as a proportion of people's spending, people can now eat better for less than ever before.
But other things have got more expensive. Property has generally got more expensive in the last few decades, although the great crisis has produced some correction, of course. Admittedly, the quality and living space people enjoy has generally gone up as well, and prices rose more in 'luxury cities' like New York or San Francisco or London than less exciting Cleveland or Sheffield. And much of the increase was because of looser credit and wide availability of mortgages, as well as more two-salary households. But in general, property still takes up as much of people's spending as several decades ago, and usually more.
Medical costs have risen. New technology has not reduced overall costs, as in media, because it has raised possibilities in an area where demand is potentially infinite.
Education has also risen in price, certainly at third level. This is in large part because of what is sometimes called Baumol's disease. Services with little or no productivity growth become relatively more expensive over time. There have been no productivity revolutions in education for a long time. A professor still stands in front of a class, in much the same way they did in Bologna or Oxford in the fourteenth century. But salaries keep up with the rest of society. Add to that it college degrees have become essential for most jobs and you have guaranteed demand.
All of these changes are actually well known, of course. But step back and think about what this means for people's lives and livings. It means huge material abundance, but limited living space. It means vast cultural access, but significant barriers to fully taking advantage of it because of educational limits ( at least so far). It means more and more of the wealth of society being devoted to medical expense, especially for the very old. These all mean a different kind of society and a different kind of life.
What if most goods and services we need in daily life can be produced by just three or four per cent of the workforce, as happened to agriculture? What happens if education and Medicine are hit with their own productivity revolutions before long, as may indeed happen? (Markets ARE good at ultimately finding productivity improvements if there is enough potential gain.)
We can already glimpse a society where most daily needs bar shelter, healthcare and education can be provided with a minuscule proportion of the workforce, at minimal cost. There will be new needs and demands over time, for sure. But will they need to employ laboring millions to provide? If not, it is not just a shift in demand to new goods. It is a revolution in society just as large as the invention of agriculture, or the Industrial Revolution. Much depends on the nature of the new needs.
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