Why America's Essentials Are Getting More Expensive While Its Toys Are Getting Cheap

The past decade in prices—and the story it tells about poverty and America.
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In the last ten years, what's gotten more expensive? And what's gotten less expensive?

Here's a fascinating snapshot of the last decade in American prices...

It comes from Annie Lowrey's look at U.S. poverty, which is appropriate, because you occasionally hear conservatives say that poor people aren't really poor because, you know, they have refrigerators and TVs, don't they? Yes, they do. More than 80 percent of low-income households have a fridge, TV, microwave, and stove. They can heat food and cool food and watch American Idol, no problem.

But the power to alter the temperature of your food and watch FOX is not quite the same as being rich. Tens of millions of families remain uninsured, millions more can't afford to go to (or finish a degree at a high-quality) college, and millions more struggle to pay for daycare for their children. Meanwhile, used HD televisions are dirt cheap and it's never been more affordable to buy simple electronics. Why does it seem like the least important things in life—TVs, toys, and DVD players—are getting cheap while the most important parts of the economy are getting more expensive? 

Two observations here.

1) On poverty: Jordan Weissmann nails it: "Prices are rising on the very things that are essential for climbing out of poverty." The road to upward mobility is uncertain, but we know the checkpoints. Graduating from college—whose sticker price is actually rising faster than its actual cost—correlates with higher employment and richer earnings. Chronically sick children affect parents' mental health, and chronically sick parents hurt a family's well-being. Single moms and dads who can't afford daycare and wind up spending lots of hours watching after their kids have trouble finishing school or establishing themselves in the workforce. Just as the benefits of wealth create a virtuous cycle of behavior, the challenges of poverty start a vicious circle that continues to spin down through multiple generations.

2) On productivity: When you look at the items in red with falling prices, they largely reflect industries whose jobs are easily off-shored and automated. The secret to cutting prices (over-generalizing only slightly here) is basically to replace American workers. If you can replace U.S. labor with foreign workers and robots, you're paying less to make the same thing. Look back at the items toward the bottom of the graph. Our clothes come from Cambodia. Our toys come from China. Meanwhile, Korea, a world-leader in electronics and auto manufacturing, has the highest industrial robot density in the world. Cheap things aren't made by American humans.

Now consider education, health, and childcare, the blue sectors above where prices are rising considerably faster than average. These are service industries that employ local workers. They are not, to use the economic term, "tradable." They are not globally supplied. You don't ship your child to Mexico when you get in your car to go to work (unless you live in Mexico), and most U.S. students aren't importing their college classes from Bangalore. In fact, as Michael Spence's research has shown, about 90 percent of job growth went to such "untradable" sectors between 1990 and 2007. These industries are mostly gaining jobs, not shedding them.

Every time somebody raises the point that health care, education, and child care are getting more expensive, somebody makes the observation that these are all government-dominated industries. Are regulations responsible for raising prices? Sometimes. Childcare has rules requiring a certain number of employees per child, which is partly responsible for rising prices. But in the case of public college tuition, the cost of attending school is rising mostly because state governments are cutting higher ed spending, shifting the costs to families. In the case of health care, countries with more government intervention in pricing have lower overall costs. So it's not as simple as: More government = higher prices.

Fundamentally, health care, education, and childcare have entirely different products than a television or iPod. Their product is people: healthy people, educated people, and safe baby-people. And it's quite natural that a rich country use its productivity gains in tradable, globalized, automated industries to make ourselves healthier and happier. Everybody's doing it.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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