For example, from 1990 to 2019, headline inflation was 74% and median family income increased 143%. But the prices of child care have gone up 210%. For those in need of child care, this gain has swallowed up a huge chunk of the apparent income gains.
An important underlying factor is known as “Baumol’s cost disease”, in reference to William Baumol, the economist who identified the phenomenon in the 1960s. Indeed, as productivity increases in the world. economy and wages increase, not all sectors benefit from higher productivity.
An auto factory, for example, might be able to produce the same number of cars as it did years ago with half the workers. But a daycare does not have such productivity gains; robots can help assemble cars more efficiently but cannot take care of children. The result: the price of child care has risen much faster than the price of cars.
The document argues that many aspects of the Biden administration’s plans will help alleviate those pressures, including an extension of the child tax credit that puts $ 300 a month in the checking accounts of most parents of young children; free nursery school; and the expansion of Medicaid to cover more care for the elderly.
It is a delicate moment for this legislation. Republicans are united against this, which means that in order to pass the bill, President Biden will need every Democratic senator and nearly every member of the Democratic House to vote “yes.” But some moderates are wary of a further increase in spending, especially after the $ 1.9 trillion pandemic bailout and a $ 1 trillion bipartisan infrastructure plan that was passed by the Senate. this week.
In addition, there is no guarantee that the American Families Plan, as the administration’s initiative focused on helping households is called, will have the desired effects on the cost of living. Additional support for families with children, for example, could make more people willing to pay for childcare, which would further increase prices.
The underlying challenges of Baumol’s cost disease don’t go away, at least until the robots are up to the task of caring for humans.