here's a thing that's true and almost nobody knows the name for. a tv that cost $2,000 in 1985 now costs $300 and is much better. a college degree that cost $4,000 in 1985 now costs $40,000 and is, at best, the same. a car is better and cheaper in real terms. a doctor's appointment is worse and much more expensive. this is not because colleges and hospitals are uniquely corrupt. it's because of an idea economist william baumol wrote down in the 1960s that explains almost every confusing price trend you see in your life.
the setup is simple. imagine two industries. one is making cars, where productivity goes up every year — robots, better engineering, cheaper parts. the other is a string quartet, where productivity is flat — it still takes four people forty-five minutes to play a beethoven quartet, same as in 1800. now imagine you live in a country where both industries exist and both have to compete for workers.
the car factory keeps getting more productive, which means it can pay its workers more and more while still selling cars for less. the string quartet cannot get more productive. but it still has to compete for the same pool of workers. so it has to raise musicians' wages too, even though their productivity hasn't budged. which means the price of a string-quartet performance has to go up, because that's the only way to cover the wages, because the musicians have outside options. nobody in the quartet did anything wrong. they just got caught in the undertow of the rest of the economy getting richer.
this is the baumol effect, and once you see it you see it everywhere. any industry where productivity is hard to improve — education, healthcare, live entertainment, plumbing, childcare, eldercare — gets more expensive relative to the stuff we can manufacture, because the workers in those industries keep having the option to go work somewhere productivity is rising and get paid accordingly. it's not a failure of the industry. it's a feature of the whole economy. when your plumber charges $150 an hour, that's partly because, at those wages, your plumber could plausibly go work in tech instead.
the framing also explains a pile of things that otherwise look like market failure. why is your dentist's bill rising faster than inflation? because dental work is as productivity-flat as it's ever been, but the rest of the economy keeps pulling dentists' outside options up. why is a haircut in manhattan four times a haircut in rural ohio? because manhattan's labor market has many high-wage alternatives and rural ohio's does not. why does a bach performance cost three times what it did thirty years ago when the performance itself is identical? same reason.
the practical consequence i keep returning to is that fixing rising education and healthcare costs with "more efficiency" misunderstands the problem. the teacher's salary is not the inefficiency. the teacher's salary is the symptom of the rest of the economy succeeding. you can't make teaching fifty percent more productive the way you can make manufacturing fifty percent more productive, because teaching requires a human paying attention to a human, and there is no way to automate half the attention. the only way to stop these sectors from eating a larger share of the economy is either to accept a world where most of gdp is spent on people serving people (which, empirically, is where every rich country ends up), or to make real productivity breakthroughs in these sectors (which is genuinely hard, and which is most of what ed-tech and digital health are fumbling at). you cannot wish the baumol effect away.
the good news is that the baumol effect is a story about prosperity, not decline. services get expensive because the economy is getting richer. in a world where tvs cost three years' wages, teachers were cheap because everyone was cheap. teachers got expensive because the alternative to being a teacher got more valuable. that is, broadly, a good thing. you just have to accept that the share of your paycheck going to people-intensive work is going to go up forever, and plan around it.
if you remember one thing from this post: when a service gets more expensive and nothing about the service has changed, the most likely explanation is not greed, regulation, or corruption. it's that other industries got more productive and pulled wages up. don't fight the undertow.