In an interview on Vox, Marc Andreessen describes how certain high-cost sectors will “eat the entire economy,” and don’t have enough new technology to disrupt them. It’s the best description I’ve seen for why some stuff is getting so much cheaper, while certain industries continue to get more expensive:
Timothy B. Lee
So it sounds like we have a lot of innovations coming out. At the same time, interest rates are very low and growth is slow in the economy overall. The way it’s supposed to work is that when interest rates are low, it’s easy to borrow money and easy to raise money, and we should have this surge of investment. But the statistics seem to show that there’s a lot more money being saved than invested. What do you think is going on?
Right now there are two different kinds of industries. There are the industries that have rapid technological adoption and productivity improvement. Television sets, computer equipment, media, food. Bloomberg had a story that food prices are plummeting because food production is getting much more sophisticated.
So you’ve got these sectors of the economy where there’s rapid productivity growth. Prices are falling fast. Those are the industries where everyone is worried that the jobs are going away — or to China or Japan or Mexico. People say there’s too much disruption — too much technological change. The Silicon Valley kids are wreaking havoc on the economy.
Then you have the sectors in which prices are rapidly rising: health care, education, construction, prescription drugs, elder care and child care. Here there’s very little technological innovation. Those are sectors with insufficient productivity growth, innovation, and disruption. You’ve got monopolies, oligopolies, cartels, government-run markets, price-fixing — all the dysfunctional behaviors that lead to rapid increase in prices.
The government injects more subsidies into those markets, but because those are inelastic markets, the subsidies just cause prices to go up further, which is what is happening with higher education.
And so in these sectors, people are irate that there’s not enough productivity growth. There’s not enough technological growth and we’re paying too much.
You sum those together, you get this muddle in the middle where it looks like we’re puttering along. But this masks what’s actually happening.
You have some sectors falling in prices very fast, some are rising very fast. What happens over time is that the rising-cost sectors eat the entire economy. Consumers see their incomes being eaten by health care and education.
To me the problem is clear: The problem is insufficient technological adoption, innovation, and disruption in these high-escalating price sectors of the economy. My thesis is that we’re not in a tech bubble — we’re in a tech bust. Our problem isn’t too much technology or people being too excited about technology. The problem is we don’t have nearly enough technology. These cartel-like legacy industries are way too hard to disrupt.
The entire interview is very interesting reading, and is mostly about the rise of AI.