The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time

See Chart of the Day . . . or Century by Mark Perry. Excerpts:

"Based on last week’s BLS report on CPI price data through June 2022 I’ve updated the chart above with price changes through the middle of this year. During the most recent 22.5-year period from January 2000 to June 2022, the CPI for All Items increased by 74.4% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly wages. Seven of those goods and services have increased more than the average inflation rate of 74.4%, led by huge increases in hospital services (+220%), college tuition (+178%), and college textbooks (+162%), followed by increases in medical care services (+130%), child care (+115%), food and beverages (82%) and housing (80%). Average hourly earnings have also increased more than average inflation since January 2000 — by nearly 100% — indicating that hourly wages have increased 25% more over the last two decades that the average increase in consumer prices.

The other seven price series have been flat or have declined since January 2000, led by TVs (-97%), toys (-72%), computer software (-70.5%), and cell phone service (-41%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.), and clothing have remained relatively flat for the last 22 years while average consumer prices increased by 74.4% and wages by 99.6%, although all three series (TVs, toys, and software) have

Various observations that have been made about the huge divergence in price patterns over the last several decades displayed in the chart include:

a. The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices. As somebody on Twitter commented:

Blue lines = prices subject to free-market forces. Red lines = prices subject to regulatory capture by government. Food and beverages are debatable either way. Conclusion: remind me why socialism is so great again.

b. Prices for manufactured goods (cars, clothing, appliances, furniture, electronic goods, toys) have experienced large price declines over time relative to overall inflation, wages, and prices for services (education, medical care, and childcare).

c. The greater the degree of international competition for tradeable goods, the greater the decline in prices over time, e.g., toys, clothing, TVs, appliances, furniture, footwear, etc.

d. From Twitter comments this week (2022).

*Thank goodness the government doesn’t subsidize TVs or toys, or toy TVs.

*Almost every line that went up, has had some type of government involvement, while the lines going down have more to do with capitalism.

*And as always, the more regulated, the more expensive things become.

What’s New?

d. The price series that has shown the greatest change recently is the CPI for Educational Books (mostly college textbooks). Textbook prices rose an average of nearly 6% annually between January 2000 and December 2016, nearly three times the average annual inflation during that period of just over 2%. But starting in early 2017, the CPI for Educational Books flattened for the first time ever and started trending downward. On an average annual basis, the CPI for Educational Books increased by 1.4% in 2021, following declines in both 2019 (-1.5%) and 2020 (-1.1%). The two consecutive annual decreases in 2019 and 2020 and the small increase in 2021 have been an unprecedented departure from a half-century of increases in educational book prices that averaged more than 6% between 1968 and 2018.

We can expect future declines in the prices of college textbooks, as the traditional textbook market faces increasingly tough and disruptive competition from alternative options including hundreds of “open textbooks” that have been funded, published, and licensed to be freely used, adapted, and distributed. The University of Minnesota’s Center for Open Education maintains an “Open Textbook Library” website that lists hundreds of textbooks in more than 40 academic subjects that are available for free online or as a PDF file, or as a print copy at a low-cost ($33.50 for print copies from OpenStax). Just in the field of economics, there are 27 free open textbooks for Economics courses including Principles of Microeconomics, Principles of Macroeconomics, International Economics, Money and Banking, Economic Analysis, and Principles of Political Economy.

Based on the evidence in the chart above showing stagnating and now falling college textbook prices following half a century of rising prices, Hurricane Joseph (Schumpeter) appears to be hitting the college textbook market with a very large, tsunami of creative destruction called “The Open Textbook Effect.”

e. The annual increase in college tuition and fees of only 0.90% last year was the smallest annual increase in the history of the CPI for college tuition and fees going back to 1978, and the only annual increase ever below 1%. That increase is far below the average annual increase in college tuition of nearly 7% over the last 42 years. So perhaps the “higher education bubble” is finally starting to show signs of deflating? And we can expect that bubble to continue to deflate as a result of the new pressure from the coronavirus pandemic on higher education that has accelerated the downward trend in college enrollment that has been ongoing for the last decade."