What is with this phenomenon of services getting more expensive in real terms (health care, tuition, child care, pet care) while also delivering a worse experience?
AFAIK, for all of these industries, this has nothing to do with pension obligations.
And at least for child care, demand should be going down relative to the population given that less people are having less kids. So it can't be a simple demand thing.
Personally I believe it's a consequence of the increasing financial-ization of society. I know lawyers who've securitized preschool curricula for private equity firms to purchase and trade, which to me just seems bass-akward. When literally every aspect of society is serving double duty as both the original thing, but also a financial asset for capital holders to trade and profit off, eventually value is going to be extracted from the quality of service provided. Everywhere you look people are basically paying (what I see as) a hidden tax across all goods and services, so that capital-holders can see (increasing) returns.
I’m trying to understand the implication. Is your point that the thing we should be angry about is actually just all of us? Since it is our personal wealth in these funds?
Yeah I saw your other comment and was curious. If it was purely pensioners seeking higher returns wouldn't those be getting circulated back into the economy, driving costs down? It seems counterintuitive to me that there's a big cohort of older US-ians who are profiting more from every sector, but simultaneously not creating massive competitive pressure and driving down prices/up quality. Not doubting that ex. PE acquisitions are driven by pensions, but just curious how the whole dynamic plays out on a macro scale.
They are, into your Blackrocks and KKRs and other funds who will invest it in the economy to help drive further returns. Some of that money goes into VC which has funded most of our employers on this forum, and some of that has gone into consolidation like mentioned in the article, and others into helping IPOs or currently listed companies.
> driving costs down
No, because more people are growing old and entering retirement age, so funds need to higher returns to remain solvent.
And it's not like you or I want our retirement's living standards to be at poverty level - we'll most likely target to median American living standards.
If you target 5-8% YoY returns, A LOT of financial engineering needs to be done.
> They are, into your Blackrocks and KKRs and other funds to help drive further returns
Gotcha, so point is that people just aren't really spending their retirement savings? And simultaneously the population of money-hoarders is growing as more people enter retirement age?
> If it was purely pensioners seeking higher returns wouldn't those be getting circulated back into the economy, driving costs down?
is incorrect in my opinion. Pensioners increase demand for labor, and without a commensure increase in supply of labor (or automation), the prices increase.
They are going to spend their money on expensive healthcare, and maybe vacations. And without sufficient automation or labor, society has to take productivity from other sectors and redirect it to healthcare or other things old people buy.
I guess my thinking was that this had always been the case somewhat, that there was a natural age split between producers and consumers to some extent. Most retired people have at least 1:1 replaced themselves in the workforce, so on a long-time scale I would expect their increased labor demand to be matched by the increased labor supply of subsequent generations
America has a very healthy consumption ratio as a percentage of GDP.
> the population of money-hoarders is growing as more people enter retirement age
This is the issue. No one wants to retire on $1500/mo in 2055. If you want to retire on $6000/mo in 2055 this means you will need very outsized returns.
And there will be more retired people demanding $6000/mo in 2055 than there are retired people today demanding $1500/mo.
Childcare essentially can't go down in price. The vast majority of the cost is labor and their average salaries are shockingly close to minimum wages. Adult:child ratios aren't changing either.
The only thing reducing the number of children needing daycare can really do is reduce the number of adults employed.
Sure it can - there's a ton of red tape and regulations around childcare. Whether that's good or not is up to the parent, I guess.
When we were children child care was getting dropped off at a neighborhood lady's house who either didn't work or worked part time at off hours. Often time trading days or just paying a nominal amount.
How does this work? If the primary cost is labor and labor salaries are so low how is it all not just a ton of profit and then causing a bunch of care facilities that compete?
You still need lots of labor, including redundancy staff. Plus lots of insurance, and land might be expensive too (or rent). A proper daycare would even pay extra to clean everyday, and then modern amenities like the software and bandwidth for livestream of the kids, hosting daily pictures and videos, etc.
The wild thing is that even at good preschools, the teachers make less money than a barista or McDonald's worker (especially now that the special fast food $20 MW is active now in California!)
These people literally handle dozens of kids at a time, a super difficult job, and they pay them so little that they could not themselves afford childcare. Do the math: When they have their own kids, they are probably never coming back, since their wages would never be enough to make it make sense to put those kids in care in order to work in a preschool.
So to summarize, the price of childcare is already way too high for people to afford, yet the pay for those who provide that care is an absolute joke, meaning most people have a hard time justifying entering that field, meaning it continues to be difficult to find good childcare, there just aren't enough places.
> AFAIK, for all of these industries, this has nothing to do with pension obligations.
They do, indirectly.
All those PE, IB, and VC funds people rail about are overwhelmingly funded by pension funds *, and all the industries mentioned are increasingly consolidating due to regulatory overhead, pushing solo practitioners out (eg. lots of older MD friends selling their practices to consolidated funds because they don't want to deal with paperwork and billing).
As more and more Americans retire and have inflated expectations of retirement, funds need to return much more.
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*
State+Local Pension funds in the US have $6 Trillion AUM [0] (it would be the 3rd largest economy in the world on its own).
Federal Pension funds is around $1 Trillion AUM [1] (it would be the 20rd largest economy in the world on its own).
And all the 401k funds combined would be $7.4 Trillion AUM [2] (it would be the 3rd largest economy in the world on its own).
This is just American funds. Other countries pension funds invest in the US as well.
There are multiple reasons. For one, dealing with people and their animals is high liability. It is also generally unpleasant to deal with the general public day in and day out, especially sick and stressed out ones, so the work is undesirable.
> demand should be going down relative to the population given that less people are having less kids
It is demand for labor relative supply of the labor. If the supply is going down quicker, then the demand going down is not going to make prices go down.
Bottom line is that in previous generations, people who took care of infants/toddlers (including older siblings, neighborhood kids, grandparents, etc) either did it under a situation with less liability, or they had less opportunity costs (lower wages than today’s workers), and/or did it at a “lower quality” than legal staffing
minimums for daycare businesses.
> There are multiple reasons. For one, dealing with people and their animals is high liability. It is also generally unpleasant to deal with the general public day in and day out, especially sick and stressed out ones, so the work is undesirable.
Is this new? Did it not used to be this way?
> If the supply is going down quicker, then the demand going down is not going to make prices go down.
So why are these types of services exploding in real terms, but haircuts and food and personal trainers and massages and mechanics and other types of services are not?
There is no or little liability when a grandparent or older sibling/cousin is taking care a toddler. And there didn’t used to be so many desk jobs available for everyone to compete with taking care of infants/kids. Also, once the kids exist, which used to be a foregone conclusion, it wasn’t an option to do other work.
Now people are making a conscious decision, tabulating the cost/benefit of having the kid versus working a desk job.
I also think there are more viruses floating around due to more travel, but that is my armchair opinion.
> So why are these types of services exploding in real terms, but haircuts and food and personal trainers and massages and mechanics and other types of services are not?
I don’t know what constitutes exploding, but the price of un-scalable labor services have increased a lot. Some might be more than others, but US wage data indicates that the lowest quintiles have experienced higher wage increases than the others in recent years.
Basically low-productivity industries like health care, education, childcare, etc. compete for labor with high-productivity industries like software engineering, particularly over long timescales. Over a couple years, software engineers and daycare providers aren't really fungible (although they may be moreso than you think: my son's first daycare provider was an ex-Google software engineer who got laid off in 2022). Over a decade they absolutely are. Nobody will go into teaching for $35K/year if they can make $200K/year as a software engineer, or drop a million in med-school debt to make $350K/year wages in your 30s when the software engineer is making $600K/year at that point and has a couple million in the bank from being able to work for a decade. So over the long run, wages in low-productivity fields like teaching or childcare need to rise to match the prevailing wages in high-productivity fields like finance, tech, or biotech, or else there will be a shortage (and poor service) in those fields.
Except by definition, these are low productivity fields. A daycare worker can still take care of max 4 infants by law, while a good software engineer can serve a million users. So you need many more of them, and if they make as much as those high-productivity professions, the total cost of providing that service will go through the roof.
Seems like a failure to properly attribute productivity back up the labor chain though? If 1 of the 4 infants cared for becomes a high-productivity software developer, shouldn't the labor productivity number of the teacher partially reflect that? Basically "number of cared for children" seems like a bad metric to score a childcare provider on, rather something like "net social contributions of all children cared for" seems like a more precise metric.
Productivity has a simple and unambiguous economics definition: "dollars in" / "hours worked". Software engineering is high-productivity simply because of the ability to resell the same piece of software over and over again, letting one engineer generate dollars in far in excess of the amount they actually work on it. Childcare is low productivity because people pay a certain (customarily low) amount for it, and the dollars in will simply be some small multiple of the price.
The sharp inflation in childcare costs today is the market's way of properly attributing productivity back up the labor chain. If people still need childcare, they will pay more for it, forgoing other goods to get it. That raises the dollars in, which makes the productivity numbers for childcare equilibrate to how much society actually values it.
Humans are not capable of measuring to that level of detail. It should be expected there will be externalities. So far, the only way I have thought of that society can align productivity of raising children well to the actual benefit of raising children well is by scrapping all old age benefits. But even that might not work in reality.
> Basically low-productivity industries like health care
How are you defining productivity? Lots of people in the medical industry make very good wages. Lots of people in the tech industry do not have great wages.
Heath care is ~18% of GDP and growing...
United Health has p/e ratio higher than Apple and Facebook...
The health care industry is tremendously efficient at sucking money out of your pocket for not great results.
At least with Apple, people are generally satisfied with the services rendered.
Productivity has a standard economics definition: dollars in / hours worked.
The medical industry employs a lot of people. Yes, lots of people have decent wages - that just means the service is expensive, because many hours worked * decent wages = many dollars.
Tech has a hit-driven structure. A tech company that finds product/market fit can generate huge profits per employee - Apple and Google were running at over $1M/employee for a while, and Whatsapp serviced a billion users on 13 employees. That lets them pay high wages on low employee counts. The huge profitability for successful tech companies inspires a lot of copycats which don't make much money at all - these are the parts of the tech industry that pay low wages. But the sustainable parts of the industry - the ones that actually generate profits from a useful product - all extremely high productivity, because an engineer can write a piece of software and the software can be duplicated infinitely.
No, it has never come close. The profit margins for UNH are at the highest they have ever been (6%). Profit margins for all the other managed care organizations (health insurance companies) are 2%.
There aren’t really any ways to make 1 adult caring for 4 babies more efficient. Maybe robots eventually?
Also, I really hope legislation doesn’t come about that further encourages outsourced childcare rather than a stay-at-home-parent. Ideally any benefits to parents are equitable regardless of the parents’ choice in their form of childcare.
I genuinely have no idea what working single parents with low income do for childcare given how outrageously expensive it seems to be nowadays. Is it subsidized for people with very low family income, or are those people just screwed? And if they are indeed screwed, what, concretely do they do?
They are screwed. But this isn’t why - even with high enough income it would not be great as a sole parent. Raising children is incredibly difficult - a lot more difficult than people think until they go through it themselves. That’s if you have two parents with high paying jobs. Even if you have the funds to hire help, outsourcing your children isn’t exactly great. Children need their parents, not just a rotating set of random caretakers who don’t have the same skin in the game. In reality, what’s happening is that most parents are letting one aspect or the other go, in order to make it all work. If you are a single parent with low income, you have to let go of a lot of things where it is guaranteed to result in severe neglect of the child. Having a child at all in that situation is honestly something like a crime against the child. Even in the best conditions, it’s not going to be great for them.
Which, if we're being honest, is not inherently a bad thing. I know people who worry about how much they lean on the grandparents for help, but then walking it back two generations, that's kinda, sorta how it always was.
It's hard for American's to understand sometimes, but no man is an island, and it's okay to not be fiercely independent and have fuck-you money for everything. Sometimes you're gonna just have to depend on other people to help you.
It’s very situational. Not everyone has this option, or this option isn’t reliable or available daily, and often times people end up not working because child care is so expensive.
Completely screwed, mostly. Unless they come from a culture with very strong extended family and thus have grandparents, uncles and aunties, etc. who help for free. and they specifically make sure to live all close together.
The subsidized day care program in Quebec is calculated to have paid for itself. The increased tax revenue from the increase in the number of working women more than paid for the outlays to the day care subsidies.
: P. Fortin, L. Godbout and S. St-Cerny, Papers in Political Economy, No. 47, 2013
The article is paywalled so I can’t read more than the intro. Personally, I think there are several factors in child care getting more expensive.
For one, parent’s expectations are higher. It’s really hard to take care of many kids at once, and if the ratio of workers to children at a childcare center is too high, some kids end up being ignored or neglected rather than being actively taken care of. Parents are more sensitive to that now.
Another factor is urbanization - there are more people living in places with high cost of living, and the childcare businesses simply have more expenses. It’s also difficult to have a lot of consumer choice in these areas. In a suburban or rural area, sure you can easily drive to a childcare business that’s further away. But in a city that travel can take away several hours a week (even if by car) and so you have to go with whatever is located near you. If you rely on transit, forget it - lugging a child and their essentials (think car seat, stroller, diaper bags, etc) is incredibly difficult.
Another issue is different social habits and increasing isolation. People don’t live in multi generation homes anymore, so there are no grandparents to rely on. And since the economy is increasingly concentrated in cities, people move away from family for jobs. And people are less willing to inconvenience friends by asking for help watching their kids, even though this was normal only a couple decades back. So the reliance on paid care is much higher now.
Finally, we’ve normalized dual income families. Increasing the supply of workers this way hasn’t helped us - since obviously supply of labor pushes down wages and in the end you don’t come out ahead. But it does mean there isn’t someone at home to take care of the kids.
I don’t think there is a great fix. On the one hand you could subsidize child care heavily in order to ensure a thriving population, but I also think there is truth to the financial cost being a good filter for those who are in a good position to be a parent and those who aren’t. This doesn’t stop people in a bad position from having kids though, so the question is if it is fair to take away from some parents (through taxes) to help other parents’ kids instead? I think that’s a difficult thing for people to accept.
> Another factor is urbanization - there are more people living in places with high cost of living, and the childcare businesses simply have more expenses.
Unless those people are living outside the city and sending their kids to daycare in the city (unlikely) that would be reflected in the rent price (the denominator).
I think that assumes the market can react quickly enough that everything works like some magically balancing algorithm. In practice that isn’t the case. For example if there is room for more supply of caretakers, potential caretakers need to know the demand exists, they need to be willing to relocate to those areas (which has a cost but also is a personal decision in many other ways), they need to find a good location, they need to go through permitting processes to open businesses, etc. I feel like the signals are less visible than supply and demand for housing, and the barriers are more complicated than me making a rental decision. But this is just my speculation, not a scientific take.
Another aspect to consider is that both rents and business costs are changing in other ways in the background. Like for example many cities on the west coast have minimum wage laws that have been enacted in recent times, which changes the patterns of childcare costs relative to rental costs.
I am approaching 50 and never had kids. A decade ago, I lost my entire life savings to a gold digging fraud, and I ended up deep into debt for the first time in my life just to save my farmstead.
I am still climbing out of that hole. I had to restart my retirement plans from scratch, but I still have almost nothing saved. That should start to change in another couple of years, but it will be too little and too late to make much of a dent. I may yet lose my farm.
A few years ago, I married a younger woman, and we have talked about having kids. While that's something that I have wanted for decades, the costs of having and raising children are now so significant that I would be unable to save anything for retirement. This article only seems to confirm that assessment.
Being in tech, I expect to be pushed out of the workforce well before retirement age, before my hypothetical kids even would be ready to go off to college. Of course, I would be unable to afford to save anything to help pay for their school either, putting them at a relative disadvantage.
I don't want to disappoint my wife, but I don't believe that we can afford to have even one kid. This has been one of the most painful realizations in my adult life, and it has made me incredibly bitter and resentful.
Sorry to hear about your situation. I don’t know that pain but I know it is painful for people I know that want kids but can’t have them for various reasons. In your case, since it is an economic decision, I do wonder if there are ways to get around it. Could one of you leave your job to take care of kids full time? For many people the net income from working (after taxes after child care etc) is not worth being away from their kids, and often it is even a strictly better financial decision to stay home when you do the math.
But if you both are earning enough in your jobs where that would not be the case, I wonder if you’re actually earning enough but overestimating the costs of taking care of a kid? Remember they have ways of getting aid for college and they can also work to put themselves through college - or take cheaper routes like community college before regular college (assuming you’re in the US). I don’t know your whole situation of course, so apologies if this is naive or offensive.
AFAIK, for all of these industries, this has nothing to do with pension obligations.
And at least for child care, demand should be going down relative to the population given that less people are having less kids. So it can't be a simple demand thing.