Why Are the Prices So Damn High?

“The price of services relative to goods has been rising because productivity in services has increased more slowly than productivity in goods. At the same time, the services sector has been growing as a share of the economy. […] Because society is moving more resources into lower-productivity sectors, the inevitable result is slowing net productivity growth.


A slowing rate of productivity growth also means a decline in the Baumol effect. The Baumol effect is driven by increasing productivity in the progressive sector. As the progressive sector becomes a smaller share of the economy, it can no longer drive price increases elsewhere in the economy.”