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A nitpick as it's not his central point but, neoclassical economics is fantastical pseudoscience. There is no evidence for so-called «Baumol effects.» They exist as the result of a facile equation made out of thin air by an arrogant academic in the 1960s, not as the result of a real science. Childcare is not that expensive, people who have children just consume more of it because of dual income, housing is more expensive because of mass immigration, medicine is more expensive because of the selfishness of the doctor's guild and boomers overconsuming it. To really understand the situation, you have to understand why old people go to the doctor so much, why Western democracies politically choose demographic replacement, why feminism has progressed to the point of practically forcing dual income. None of these questions can be answer neoclassically. There are no pretty little neutral human-nature free Name Effects that give you an out from reasoning about human nature.
This particular example feels like it's a function of rising income expectations:
you have to pay the helpYour daycare costs more than a few bucks a day for very foreseeable reasons. Childcare workers expect to be paid minimum wages (citation needed), and mandated child-to-caretaker ratios make the cost of infant childcare about a quarter of a minimum wage salary before even considering benefits, rent, or other business costs, which are probably nontrivial additions.People's time is expensive, especially as living standards grow: it's perhaps not obvious, but why wouldn't worker-efficiency-capped services rise in cost at pace with (or more than!) average incomes?
Strictly speaking, this is a pseudoscientific attitude. The burden of proof is on economists to show that this is a law, and that burden is not met by some facile equations lacking data, which don't model human behavior properly anyway.
Speaking less strictly, obviously Baumol effects became popular as a concept despite the terrible technique behind them, because they sound plausible. I'm not denying that. Most of neoclassical economics is like that. It has to be, since it's not a science. If it's not plausible-sounding, who will buy it?
I am making a mostly technical critique here, which is why I said it's a nitpick. But more substantively, I think there are subtle but important effects of this reframing. First, we reduce «Baumol effects» to «Baumol's hypothesis.». Because it is merely a hypothesis. With this we recognize the plausibility of something like it happening, without dogmatically assuming that it is the entire story, or that the details of Baumol's original writing were particularly correct.
Now that we can think freely, I will say it seems to me that if a hypothetical Baumol mechanism were to happen somewhere, I don't see why the price of worker efficiency capped services should rise systematically faster than average income. Causal inference and probability are the future of economics, alongside integration with human behavioral biology. So let's think under that framework. What should be the causal effect of productivity improvement in some sectors of employment on the average cost of the services across all the other sectors? It seems to me the causal effect should not be greater than the total increase in average productivity, although I don't know for sure. In fact I think only part of the productivity increase should trickle down, so I hypothesize it should be strictly less than than the average productivity improvement. In other words, I expect the services to get somewhat cheaper at least, although not as cheap as they would be if wages were capped and workers were forced to remain in the field.
But as scientists, this is just a hypothesis, and we should have a causal inference study to know for sure. Still, if the services get more expensive than the productivity gain, I start to look for exogenous shocks. In this case there are some obvious candidates for that, but it's controversial to talk about. What isn't controversial is blank-slate neoclassicism. The exogenous shocks I'm thinking of are controversial because they aren't blank-slate.
Do you have a suggestion for how an above-board business that requires one employee per four paying customers (well, per infant the customers are paying for) can cost less than a quarter of a minimum employee salary for that duration? I was suggesting it as a pretty obvious bound from a business perspective, absent subsidies (which have their own bounds).
Nobody seems to be seriously considering AI and robotics to let a single human watch more than four infants at once, and frankly I'm not really sure I would either. But without that, the bounds apply.
I don't like how you sidestepped the entire substance of what I wrote. So I will just say I answered your question somewhere in the text above. Was I unclear at any point?
I wasn't expressing an opinion on Baumol more broadly than the one specific example, which I think has plenty of logic to show exists.
I don't accept the premises of neoclassical economics, insofar as neoclassical is even logically consistent.
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