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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (51515)	1/26/2006 10:29:52 AM
From: GraceZ	Respond to of 110194

The split you cite has been a known economic problem for many years. Areas that cannot benefit from increases in productivity seen in the production of goods will rise in cost due to the rising wealth of the society at large. Mostly these things can't be done more efficiently due to the nature of the activity. Gpowel has a post that relates to this, I suggest you read his reference on Baumol: Message 21966901 It would be incorrect to attribute these rises in cost and price to monetary inflation which is another beast altogether although the mechanism that gets monetary inflation rolling is similar, compensation demands rising faster than increases in productivity. What happens to these low productivity services we demand is something like this: If I have a job which is highly productive and I am compensated accordingly, then there is a high cost for me to switch out and do something with lower productivity. My first option would be to find someone who might do that specific job faster or better than I do. Maybe they can do it more efficiently because they have some sort of capital equipment or they can aggregate that activity. When those options are exhausted then I simply pay a higher rate in spite of the fact that they haven't raised the value of their production at all because the differencial is still too great between what I can produce doing what I do best and the service I need. The job in the field with little productivity growth has to pay more to attract individuals that want to do it. If it was a less productive job in say, the manufacture of goods, it would be shipped to a location with lower labor cost or disappear altogether. But some jobs can't be shipped off or handed off to automation. Plus, it might be something which society, as a whole, is unwilling to dispense with altogether regardless of the fact that it can't be done much more efficiently, like teaching K thru 12 and caring for the elderly. This is why you see people paying their household maids $60 for a couple hours of work and teachers can demand a "living wage" in high cost of living cities. Cleaning your own house and schooling your own children would cost the high productivity worker even more. The point is that it is rising real wealth in the more productive sector of the economy that causes these services to inflate in price.

To: Mike Johnston who wrote (51515)	1/26/2006 10:43:33 AM
From: GraceZ	Read Replies (1) \| Respond to of 110194

As for your friend in IT, who you think is grossly over paid for the amount of work he does in a day, this may be true but not necessarily. There is a fable told over and over again by IT guys everywhere with numerous variations. The story goes like this: A famous computer tech from back in the day when computers were as big as several rooms was called in to fix a computer that had simply stopped running. He walks into the room, assesses the situation and then walks up to the behemoth and pounds his fist on the side. The computer starts right up again. Then he turns to the manager and hands him a bill for three hundred dollars. The manager is aghast, "All you did was walk into the room and hit the side of the computer with your fist! It took you less than a minute!" The tech replies, "Well I charge $2 to pound on it and $298 for knowing where to hit it."