Cost disease

Greg Pandatshang provided a link to a blog post by Scott Alexander about cost disease. This is the best link I’ve received in a long time, I urge everyone to read the blog post.

This is a topic I’ve touched on many times before, but I didn’t realize it was called “cost disease,” nor did I link so many related examples together.

For example, I’ve previously written about how Governor Chris Christie had to cancel the project to build a new train tunnel under the Hudson River because New Jersey couldn’t afford it. Yet somehow, we were able to afford to build a tunnel in 1908, which was 104 years ago.

I previously pointed out that in 1934, the Empire State Building was completed in only 410 days for a cost of $372.8 million in 2012 dollars (and $24.7 million in 1930s dollars). It cost $3.8 billion to build the Freedom Tower and it took 8 years to complete. The only other building in Manhattan taller than the Empire State Building is 432 Park Avenue, which cost $1.2 billion to build, but only has 15% of the floor space. So when you look at price per square foot, 432 Park Avenue is something like 21 times as expensive.

I believe that declining IQ is one factor that Scott Alexander missed.

I believe that another key factor is value transference, combined with inflation being a lot higher than the reported. What that means is that wages have not actually held steady, as reported by conventional inflation reporting, but perhaps real wages declined by 50%. The value created by workers, which used to go to the workers, is now being transferred to the top 1%.

And then there’s the hypothesis that the United States has moved into a post-scarcity economy, and no one really knows what happens to prices in a post-scarcity economy. Because people spend most of the money they earn, falling prices for things like manufactured goods and food cause the prices of other things to go up, creating the illusion of scarcity where none actually exists.