Creating Surplus

Consumer surplus is the delta between what consumers expect to pay or are willing to pay for an item and what they actually have to pay given market dynamics. A good example of where we are generating a lot of consumer surplus is technology. I would be happy to pay for my email (and do) but I can get it for free from Gmail. A 49″ smart TV sells for about $300 on Amazon. A Samsung Chromebook is $200 on Amazon.

I like to think of all of this “found money” that consumers are getting from technology as the dividend we are getting from the technology revolution. It is also true that technology takes jobs out of the market, and adds them too, and that it may be a zero sum game or worse.

But the truth is many things have gotten a LOT less expensive over the last twenty years and that has made managing the household budget a fair bit easier.

My colleague Nick sent me this chart yesterday. I don’t know where he got it so I can’t identify the source.

What you see from the chart is that wages have increased about 70% over the last twenty years and many things, including housing, food, clothing, and most dramatically technology, have increased less, or have actually gone down in price, creating room/surplus in the household budget.

But not everything has gone down. Health care and education, most notably have increased dramatically.

So it is time to take aim at those sectors. We can do the same with education that we have done with other services. And we will. I feel that healthcare will be a harder lift, but I do think it can be tackled too.

In fact, our current thesis at USV compels us to go after these sectors. So we will.

I am excited about the potential to bring consumer surplus to these sectors and make more room in the household budget in doing so.

#hacking education#hacking healthcare

Comments (Archived):

  1. LIAD

    juxtaposition between the chart seriously pissing me off, ‘blood sucking/rent-seeking bastards” and dogmatic learnings that capitalism engenders the optimum allocation of resources.

    1. fredwilson

      Got you fired up today, eh?

      1. LIAD

        Ha. Not an infrequent occurance.

    2. JamesHRH

      Hey, whenever you need world class anything in education or health, what’s the country you think of?I bet it’s the one with the blood sucking / rent seeking bastards.In the ‘80’s & 90’s in Canada, 80% of our top medical people left for the USA. They did it partly for $, but quite often to work somewhere that excellence was rewarded: not just surgeons, either. TX & CA hospitals had regular recruiting junkets to the UofS Nursing school too.

      1. Matt A. Myers

        Isn’t this just a symptom of the process of more value extracted from society to fewer, therefore larger amounts pooled, and then there being pools of capital available for investments/bets into different technology? Government – even on the local basis – could have equally allocated taxes for this purpose. The only difference between government and perhaps private venture is private venture perhaps attracts the better marketers, etc. The point is, could have extract and allocate resources based on effectiveness — imagine politicians being voted into power based on their investment decisions (etc) that helped society through measurable means, etc – vs. merely getting lobbied into power by the companies with the most profits, who can afford to lobby the most..

  2. Seth Godin

    Here’s the source, via TinEye:…Not accounted for in the chart is the scale of each purchase: The decrease in the cost of an etch-a-sketch or a TV (one-time purchase) compared with the devastating debt of significant purchases/expenses like health care and college.

    1. kskobac

      Exactly my thoughts– the lack of scale represented masks the scariness of the imbalances represented. The massive decrease in cost of TV’s (at the south extreme) does not at all balance out the massive increase in hospital services and college tuition (on the north extreme). It needs to be put in perspective.

    2. JamesHRH

      Also an excellent point.

    3. Matt A. Myers

      Likewise, the top part of the graph are arguably all related to survival, whereas the bottom half is arguably more towards pleasure or entertainment.

    4. LE

      See my comment elsewhere about your publisher page at Simon and Shuster. It is 19 years out of date.http://www.simonandschuster

  3. Martin De Saulles

    There is also the issue of replacement frequency. Televisions and telephones used to last for years but are replaced in shortening cycles.

  4. Frank Jaskulke

    I don’t know the article but the logo on the chart is the American Enterprise Institute.

  5. Eric Satz

    Everything in blue manufactured/produced elsewhere and doesn’t require one to one delivery when it matters most. You can scale delivery of information (education/healthcare) but not when it matters most. And healthcare can’t be fixed until the buyer and payor are the same person, alleviating the need for endless layers of administrative employees, which outnumber actual caregivers.

    1. fredwilson

      Yes yes yes. But I think we can address those issues

      1. Eric Satz


      2. PhilipSugar

        Could not have said it better.

        1. JamesHRH

          No chance.So many resistance points.So many different products.You can end to end my healthcare like the Mayo clinic, but the moment I need a world class whatever from somewhere else, I’m Gone.There is no demand for low cost solutions when Granny needs to not die.And that is part of the product mix.

          1. Matt A. Myers

            Only a fundamental shift in cost structures and culture, including education processes, will healthcare become efficient and good. The increase in improvement will be exponential as well now with AI doing closer to perfect diagnostics the more it is trained – and eliminating human error, and need for humans in many cases.

  6. Pointsandfigures

    Increase the supply of something and if demand is held constant, price goes down. One of the toughest things to do is accreditation in education. It’s hard to move the supply line. Add a lot of subsidies, and increased demand and it should be no surprise the cost is off the charts.Regulation also can increase costs dramatically, along with eliminating competition.

  7. Pointsandfigures

    By the way, is a pretty good blog and will illustrate how there are markets in everything.

  8. Jorge M. Torres

    Nice. The chart is useful if you’re trying to skate where the puck is headed as an early-stage investor.

  9. Joe Lazarus

    College textbook prices are particularly surprising.

  10. jason wright

    ‘Made in China’.Western education and health care do not apply.

    1. fredwilson

      Great point. But I think we can still do it

      1. Adam Sher

        I have great belief that MOOC will decrease the cost of education. Programs like UPenn’s MCIT (online through Coursera) is 1/3rd the cost of the on-campus version. There are other degrees that you can complete online (Master’s, Bachelor’s, micro-x) for even less. We might only be 1 generation away from a reversal in higher education costs.I hope that USV invests in game-changing MOOC companies at lower and higher education, particularly lower. We’ll all benefit.

        1. LE

          Part Much of what high end colleges sell is brand and exclusivity more than actual education. As such if the product is commoditized it becomes less special as a differentiator.

          1. Adam Sher

            The brand is important for that small group of schools. For the rest of the colleges, a degree is short-hand for literacy and competence. Even if Penn offered a degree that watered itself down (e.g. calling itself an online degree or micro degree, etc…) but it was 10% of the cost of a full degree from a school with no reputational advantage, wouldn’t that be a net positive?

          2. LE

            Well hopefully they will not be stupid enough to do that. You don’t damage your brand with low end goods unless there is no way to avoid doing so. Because for one thing nobody is going to do anything but claim they graduated from your school. And then it will be less special. This is not some kind of ‘brand theory’ really it’s just human nature and common sense. You have something which is more valuable in the minds of the person looking at it because of some large disparity between actual value and what it really is. A value that is hard to quantify.Plus now with online presence it is way more possible to damage a brand than it was prior to the Internet (because in that case it would only appear on a resume and someone might actually ask a few questions in an interview).I see even on online linkedin people talking about some management course they took at Harvard etc like big fucking deal great thanks for the logo.

          3. Adam Sher

            Harvard already has its Extension School and if you can make it through two courses, you can enroll to earn a real Harvard degree. It’s an old program and it hasn’t resulted in a decline in Harvard’s reputation.The certificate programs are incredible cash grabs and DO NOT confer alumni status. I see those as alternatives to companies hiring consultants to conduct training seminars in some topic. For example, I recently played tennis with someone who works for Google in marketing. Google sent the marketing team from SF to Wharton for this mini-mba bootcamp something… again for a marketing team. Is this conferring the value of Wharton to Google employees or is it Google investing employee retention and its own reputation? Do Google’s marketing employees increase the value of Wharton because Wharton brings in top industry talent to share real world ideas?Overall, I like the idea of companies and schools interacting regularly. Maybe Wharton should embed professors or researchers in with companies.

          4. JamesHRH

            My wife did a Wharton program too.They are selling the brand reputation in 10 day chunks. I think it is actually a win/win/win: company retention; executive development; brand protection for school.Remember, if the top 50 of the Fortune 500 pay top dollar for your institution to improve their executives, you get paid and your brand gets supported. All good.

          5. LE

            If they are doing that three possible reasons:a) Eggheads have made the decision and are making a mistakeby doing so.b) They need the money and have decided it doesn’t impact the halo.c) They see others doing it so it’s the assumption of legitimacy. See Adam’s comment about what Harvard is doing. So they think ‘well Harvard is ok doing it so we should be’. But Harvard is more special than Penn and Wharton.

          6. Adam Sher

            But aren’t not-Harvard elite schools special enough? I filtered the US News rankings for schools who admit under 10% of applicants, there are 14 such schools. I am going to assume that this means there are so many world class candidates for these 14 schools that they could increase their class sizes by a substantial amount (25%-50% please ignore on-campus human logistics for now) and not dilute the quality of student. After doing so, these schools will still have the lowest acceptance rates, small student bodies, etc… Now say these 14 schools look at their lesser ranked peers who built huge amounts of buildings to accommodate greater demand and concluded that was foolish (see Mizzou – yes, this is moving quite a bit down the rankings chain). MOOC, certificates, and other programs allow them to capture more high quality students, not take the risk of mucking up their campuses by cramming more students, and benefit by having more people in the workforce who are allied to that school (and more likely to donate).Does that strategy allow them to preserve their magic?

          7. LE

            for schools who admit under 10% of applicantsYou do realize that that is not relevant in the sense that schools actively try to get more applicants just so they look like the have only small acceptance rates, right?I think also the bottom line is online learning is not the same as learning on campus as there is not the same serendipity that allows relationships that can benefit in other ways. I am just not a fan of that type of learning other than sure you can learn to do something that way but then again why do you even need a course you can self teach (as I have done in a few areas).

          8. Adam Sher

            Sure, I realize that and part of that reason reason those schools want more applicants to reject is because consumers lower admission rates as a good thing.Would it be accurate to phrase your view on online learning as: Online learning is inferior to on campus learning because online learning does not allow for high quality student and faculty interaction, and probably lower quality in-class learning. It is bad for elite schools to offer credentialed (e.g. degree, mini-degree, certification) online learning .because the nature of online learning means delivering a worse product. Even if done well, online learning is essentially being a tall short-person.In addition to the problem of the quality of the education, the value of elite institutions drops significantly if they substantially increase access to its alumnus status because the brand equity is permanently diminished.LE, how would you rank the importance of, brand equity, student network, faculty network, and quality of in-class instruction?

          9. LE

            I was going to make a comment about Seth Godin being a ‘real’ published author (to support my statement about online degrees) and the first link that came up was his Simon and Shuster page which lists Seth with a Yahoo job that he left 19 years ago.http://www.simonandschuster…My point is that while self publishing was always around with the ease of doing it today saying you are an author takes on a different meaning. And so being an ‘author’ isn’t as impressive as it was before.

          10. JamesHRH

            How many people a year get in?

          11. Adam Sher

            to HES? It’s up to you. If you complete 2 or 3 courses and earn a B, you may participate in a degree program through HES. https://www.extension.harva…About 1,000 people graduate HES per year. Best as I can find, the number of people enrolled v graduated is at least 10:1.

          12. JamesHRH

            See my comment about marketing expertise @ Harvard…….

          13. LE

            That’s Harvard though. It you are the center of gravity and the Universe different rules apply (then for Penn or, say even Columbia).Is this conferring the value of Wharton to Google employees or is it Google investing employee retention and its own reputation?No that’s a different thing entirely. As always the devil is in the exact details.Remember my original reply was in exchange for this which you said:Even if Penn offered a degree that watered itself down (e.g. calling itself an online degree or micro degreeYou said ‘offered a degree’ that is quite different than a specific even “mba mini boot camp’ where the raw material is someone who has already been vetted as to work at Google and most likely has a decent UG degree or other marking of desirability.Look if Harvard accept you into the ‘real’ school for the real degree than you are a legit student and then can claim it (or same with Penn).

          14. Adam Sher

            Those mini boot camps are typically available to anyone who is capable of paying, not only from companies like Google. I could sponsor myself if I wanted to. I see an online degree, micro degree, or mba bootcamp as synonymous ways, for purposes of discussion, of conferring a school’s brand in a way that lowers the bar of its traditional undergraduate and graduate admissions.

          15. JamesHRH

            +1000.If asked, I would tell a high value high price brand that they are better off to shrink their business and hold their position versus try to competen on price.

          16. Adam Sher

            I don’t know the story of Coors. LVHM is a company that struggles with its down-market luxury brands. The top luxury watch brands do this well (particularly Patek). BMW and Porsche are examples, Porsche even more so, of luxury brands that went down-market, and turned that into a core profit center (X5, Cayenne, Boxter).If you want a Porsche, you can buy a Boxter and you now own a Porsche. It’s not a 918, and you probably couldn’t buy a 918 even if you had the money. And, almost everyone will know that both are good but the 918 is in a league of its own and it has little in common with the Boxter. But the Boxter is better than other 2 seat rag tops (Nissan Z, BMW Z 4). @le_on_avc:disqus is a 911 guy, and he, like many 911 owners, may think the Boxter is a bastardized Porsche. But there’s a place for a high-quality, lower cost Porsche.With all of that said is there not a place for the Boxter degree from elite schools? And wouldn’t that be better for those schools (they make a better product and create more brand loyalty) and the consumers?

          17. JamesHRH

            Cars are a one off.Harvard is a club. Volume is the wrong answer. If they want more net profit, they should raise tuitions.

          18. Adam Sher

            But why can’t some volume benefit Harvard et. al?

          19. JamesHRH

            Because you can’t be short, average height & tall at the same time.You confuse consumers.Imagine if you told people you met that you were short one day, tall the next and average height the third. You would never be known as any of the three.Google Jack Trout & Al Ries and check back with me in a month.

          20. Adam Sher

            Thanks for the book rec. I can’t believe you’re telling me to wait to read something. Some sort of delayed gratification test. boo

          21. JamesHRH

            Read Positioning. Think about it. Read it again. Think about it until a month is up. Then read The 22 Laws.

          22. JamesHRH

            Good God no, not in the long term.

          23. Salt Shaker

            I think offering online or micro degrees from elite institutions could potentially hurt endowment. Let’s face it, alum contribute financially and via word of mouth to the prestige factor. They, as much as the institution, are harmed if the university’s brand equity starts to erode or become commoditized. That said, there’s a place for these institutions to dabble in non-degree Professional Studies or Certificate Programs online, which many currently do offer. The edu model is broken, but perhaps less so for elite institutions, where there’s high demand and to a large extent price inelasticity. They’re selling prestige as much as an education.

          24. Adam Sher

            I do not know the breakdown of reasons that donors donate but some of them do it because they feel personally connected to their school because of the experiences they had there. Are all ivy donors only donating to enhance their prestige or improve the odds of their progeny being accepted? I also do not know but I would like to think that is not the case.Online and micro degrees have admissions processes whereas non-degree certificates and studies are accessible with funds. I would think the later would hurt the prestige factor.

          25. JamesHRH

            Absolutely.Fred himself has said that the 3 main value points to his MIT degree were social: relationships w students; relationships w faculty; brand power.MIT would be earth shatteringly stupid to either lower price or expand enrolment ( same goes for Harvard & Stanford st al ).The latest USV thesis seems to be what Chris Dixon calls a strategy trap – applying same startegy to a market where that strategy has no chance.

          26. Adam Sher

            MIT and Harvard created edx and other non-degree things so at some level, those institutions disagree with you. I would view potential employees favorably if they completed coursework on edx, particularly compared to udemy or kahn academy. Obviously, what you don’t in MOOCs are the relationships with students and faculty. Elite schools can smartly expand its coursework offering (and reap financial gain) and maintain its elite networks.

          27. JamesHRH

            That’s called brand extension and it’s a boiling frog death.Ask Coors which beer Coors Light cannibalized the most ( Coors Banquet ). It took them 20 years to figure it out.BTW, who would expect Harvard or MIT to be consumer branding wizards? I wouldn’t.

          28. Adam Sher

            Is it bad for the brand, MIT, or bad for the consumer, a student? Or is it bad for a third party, an employer? Maybe MIT needs a sub school, (Global Institute of Tech, GIT) through which it offers MOOC.

          29. sigmaalgebra

            Harvard and MIT are world class research universities. A huge fraction, maybe 60+%, of their budget comes from grants for research. From grad students to assistant profs to chaired profs to the president, the main interest is more research for more research grants.Bluntly, undergraduate teaching is a sideline.So, Harvard and MIT, along with the other US world class universities, and wannabees, in most respects don’t much mind MOOCs.Those universities haven’t much cared about ugrad teaching anyway. Moreover, their view of ugrad teaching is (A) traditional stuff, e.g., Shakespeare and (B) stuff that leads to grad school, research, the Ph.D. degree, and a research career. In particular they are not interested in vocational education and not much interested even, with some exceptions, in professional education. The main professional education exceptions are medicine, pharmacy, agriculture, and law, and I don’t see those parts of education as vulnerable to MOOCs, disruption, or hacking.For ugrad, Harvard, MIT, and other world class research universities are not nearly the only good choices. Instead the US is awash in colleges and community colleges that concentrate on teaching.Some ugrad courses really do need time on campus, e.g., for courses with lab time, say, some arts courses.But a lot can in principle be done via MOOCs: I’d say nearly all math, mathematical physics, and computing.For the issue of textbooks, that should be going away: Bluntly, if a prof really knows the material well, and they should, then they SHOULD at least type in some class notes and lecture notes and make them available as PDF files on-line. Then, with some expansion, the notes can become a textbook. At that point, charging $100+ a copy for the PDF file is a bit much. Also for each common ugrad course, there should be 100+ profs able to write a good text book; so there’s a lot of competition.A big, huge point about textbook publishing is that due to computer based word processing, the Adobe PDF standards and software, and in technical fields D. Knuth’s mathematical word processing software TeX, is that getting the PDF and/or paper copies ready is MUCH easier than before PDF, TeX, etc. So, heavily the college textbook market and the associated editors, typesetters, and printers, have been, have already been, heavily disrupted, dis-intermediated, hacked.A big question is, what the heck does the economy want that is not readily available now AND can be supplied at lower cost? First cut, my guess would be “Not much.”.But a department chair, school dean, or university president might, if remarking with some depth, explain that, sure, academics would like to move faster, but heavily that means that the profs’ research should be faster and better. If believe that is easy, then maybe try to publish enough corresponding peer-reviewed papers. Just type in and publish the papers, no Ph.D., title, or professional affiliation required. If the papers are sufficiently good, then will be, presto, bingo, in line for a chaired prof slot — Ph.D. actually not required. The published work is enough. But, uh, since nearly all of US high end academics is trying to publish such papers, don’t bet the family farm on getting the papers and a chaired slot quickly!Yes, really good research is slow, but, still, history shows that such research is essentially the most important force in moving civilization forward; nearly all the progress in civilization is from such research.In particular, lots of people would like a computer science prof to teach a course with some over the top, world changing, grand slam, revolutionize technology, the economy, and civilization course in computer science — yup. Anyone want to write out the syllabus, the list of references, etc. for such a course? Of course, no one knows how to do that. Uh, maybe the desire for such material is so strong is why people are willing to swallow high hype substitutes such as artificial intelligence, machine learning, data science, etc.For a theme of hacking education, I don’t see much utility. IMHO, when someone has a good, specific idea for such hacking will be soon enough to consider the “theme” of education. I can see a theme of using computers and the internet to gather, store, and process data and report valuable, new information. Such a theme for hacking education, I don’t see any promise in that.

      2. jason wright

        If anyone can you can.

    2. Josh Grossman

      The price and access to education are problems that many organizations are trying to solve – and successfully doing (edX, Coursera, Udacity, Udemy, FutureLearn, CodeAcademy, etc). Already we are seeing billion dollar valuations in the education space. Many smaller colleges will go out of business in the coming years because of the value proposition of online courses. Even larger schools are going to face increased pressure to lower their costs to stay competitive. At edX (where I work –, we’re helping to solve the education cost crisis for millions of learners. We’re a nonprofit started by Harvard and MIT that offers over 2000 courses from 130 institutions including Berkeley, Microsoft, IBM, Columbia, etc covering everything from computer programming to data science, finance, engineering, healthcare, supply chain, science, and more. Most courses are free to take and very affordable (roughly $100) for testing/certificates of completion. We also just introduced 10 online Master’s degree programs ranging in price from $10k-$25k – a fraction of what the on-campus programs cost (and people can keep their current jobs instead of having to commit full-time).

      1. Adam Sher

        edx is a great platform. thanks!

    3. JamesHRH

      More importantly, the number of players in the solution puzzle is too high in these spaces.TV solution supply chain is 2 players: (design, manufacture, wholesale, brand) + retail. There is no service anymore.Healthcare? Good Lord. 6, maybe 8? AND, every jurisdiction has a different approach AND government is involved in EVERY jurisdiction.I mean, it’s hubris.Individuals may be able to control their data at some point, but that is about it. The government, even in light touch USA healthcare, will impede progress at every turn.

  11. Tom Labus

    This is from the founded in 1943. chart needs a line to show the quality of merchandise purchased. Not sure how that would be done but would be interesting to see if any economic work has been done in area.

  12. Peter Lehrman

    Hey @Fred – FYI looks like the source is the BLS and AEI, an American think tank. Those are both in the footer of the image.

    1. fredwilson

      Great. Thanks!!

  13. William Mougayar

    I’m surprised that the price of cars is shown as flat. That doesn’t make sense.

    1. PhilipSugar

      It depends what kind of car. People just expect more luxury.I can tell you that an employee who drives 150 miles a day just got a new Toyota Corolla for $15k. Her old one with 280k miles killed/was killed by two deer. (She was unscathed)She was very proud of it and wanted to drive my business partner and I to a new employee lunch. I can tell you the fit and finish and room of that car was great. A/C, power windows, backup cam. I know that Volvo got out of the small car market because they couldn’t compete.

      1. William Mougayar

        I was thinking of entry level cars exactly. That same Corolla was prob around 5K in 1995.

        1. PhilipSugar

          1997 Toyota CorollaSedanOriginal MSRP / PriceEngineCorolla 4dr Sdn Base Manual$12,998 / N/A4 CylinderCorolla 4dr Sdn CE Auto$13,498 / N/A4 CylinderCorolla 4dr Sdn CE Manual$12,998 / N/A4 CylinderCorolla 4dr Sdn DX Auto$14,988 / N/A4 CylinderI’d say hers is much nicer than the top model.

          1. William Mougayar

            What was the price in 1985?

          2. PhilipSugar

            C’mon William you can google too. The MSRP in 1982 was $9k.Now since we are roughly the same ages, and actually had drivers licenses in 1982, I can assure you the 1982 Corolla was not anywhere near the 2018 one that I rode in.Hell the vehicles I learned in I doubt 5% of those here could drive. Three on a tree. No google, who can give me the shift pattern.

          3. LE

            I had a 1980 Toyota Celica with a 4 speed (iirc). Bought it new at the time. Can’t remember the pattern though. For that matter can’t remember if it actually was a 4 speed. Drove it down with my cousin to Florida must have been spring break. Developed a theory back then of people on the way down. Up to that point I really liked my cousin he was funny and kind of hyper and talked alot. In small doses that was great (family function for a few hours). But spending a long time in a car driving to Florida was torture. He talked the entire way down and really annoyed me. And when we got to palm beach he could shut up and the houses being so nice. Anyway when we get to Florida he calls his ‘mommy’ (my Aunt) and complains about me not being nice to him (I was annoyed basically in short). Now my mom was not one of these ‘my son is right’ type mothers. So she calls me and starts to berate me. I guess it was a landline? Anyway I decide to pay him back with the ‘nuclear’ option. And yes I really did this. I said to my mom (who was born in the 1920’s) ‘oh well you know mom he is smoking pot. Boy did I flatten him with that one. I actually did that.What I drive now is 7 gears on one car (stick) and 7 gears on another (PDK). The stick has ‘rev matching’. If you want (I don’t always ‘want’) it will rev the engine to match the gear on downshifts…. https://uploads.disquscdn.c

          4. Andrew Cashion

            How many here know that honda invented overdrive?

          5. Andrew Cashion

            I guess im wrong there, had thought they were the ones thad did something with it. Was just talking to a friend about the swiss cheese cars race on sunday sell on monday.

    2. LE

      In a sense it has gone down you could say. In 1985 I bought a Mercedes Benz 190e and it was $30,000 roughly.. That was the low end car that Mercedes sold at the time ‘the Baby Benz’. According to the inflation converter that amount today would be around $70,000. That is more than enough to get you a better model from Mercedes than the low end car. At the time a BMW dealers said to me ‘oh Mercedes really cut corners to make that car’.Price has gone down because of manufacturing efficiencies in particular. I would say computers and robotics. Plus selling (at least with Mercedes) has gone in the direction of mega dealers. In many cases cars are also inventoried at one dealer but available at any dealer. So the distribution system has also changed (among a host of other factors).

      1. William Mougayar

        Funny you say that . In 1982 I bought my first car a Honda Accord for 10K CDN. I was between that and paying 15K CDN for a BMW 320. Today the entry accord is 32K and the entry bmw is even higher.In absolute terms, computer prices have come down, but not cars.

        1. LE

          I think a better comparison would be the pricing between a 2018 Civic and a 2018 BMW X1 though. I won’t even run the numbers on that because I know I could easily make those numbers say what I want to agree or disagree with what you just said!That front wheel drive with the Accord was great in snow back at that time.

          1. Andrew Cashion

            I sold my 05 accord that I bought for new 19100 bucks and bought an 07 bmw 328 for 10k 50k miles. Monthly is 178 bucks. It almost has the same range as the accord difference of about 30ish miles. 328 is worth it just for the seat comfort.I havent compared this to a new model 3 though that starts at 30ishK but no gas cost analysis.I think that the current X3 that has a larger interior volume will be a great deal once a grandma in Marin county gives one up in ten years.getting new valves machined isnt as much as people think, it can be done inside a cheap warranty for 660 bucks when bought used.

    3. kidmercury

      they’re doing some kind of hedonic adjustment to the price there, it has definitely gone up a lot, becuase cars are another thing purchased with debt.

  14. kidmercury

    Monetary policy reform is vital for inpacting the red lines. This is because the red lines have a deeper relationship with the price of debt. Reforming monetary policy via reforming the price of debt will resolve the issue. Cryptocurrencies are vital and increasingly obvious here, though currencies with a clear monetary policy are needed (not anarchic monetary policy, and not quite stablecoins either — though the latter is much closer, and the hype around them signals progress in the right direction IMHO)

    1. Girish Mehta

      Re: “…This is because the red lines have a deeper relationship with the price of debt. Reforming monetary policy via reforming the price of debt will resolve the issue..”Can you elaborate on this ?

      1. kidmercury

        probably the most simplistic way to think about it is in terms of real estate costs. healthcare, education, childcare, and housing are all disproportionately more real estate intensive than selling TVs and clothes. real estate is primarily a debt-driven asset, in that debt is the primary vehicle used to finance real estate and thus the cheaper the price of debt the higher the price of real estate. this is reinforced in america even more with various real estate laws that make mortgage interest tax deductible and make it easier for foreign money to hide in the US in the form of real the price of real estate gets bid up, costs/services that are dependent upon real estate go up as well. this means you have to pay people more to live, and you have to pay more for the land needed to operate on-premise is probably the easiest of the red lines to address, and you already see a lot of innovation designed to essentially eliminate real estate and make teh whole thing more scalable in conventional software economics. childcare will be harder, but japan already is working on robots for senior citizen care for its aging population. i wouldn’t trust a robot to take care of my kids, not now and not in the foreseeable future, but desperate times call for desperate measures so such issues are not always a matter of choice.with revised monetary policy though, the whole cycle of bidding up the price of everything through debt gets destroyed, and prices can start falling dramatically.

        1. JamesHRH

          People are always the big cost and who the hell wants a 19 yo stumbling into the house @ 2AM on a Friday morning?RE in education is here to stay, for theMainstream.

          1. kidmercury

            the open secret of education is that K-12 is really a form of childcare to accomodate two working parents. for that part of education the real estate challenge will be tougher for the same reason it is tougher for child/senior care.

          2. Michael Elling

            Agreed. We are the food in so many ways!

        2. Girish Mehta

          Agree on the impact of price of money on asset inflation.Not clear if its about real estate costs driving all the other costs though.

        3. Michael Elling

          Labor, ethics/morality and externalities (unintended consequences) all play equal or greater roles in market failures when it comes to healthcare and education. LE pointed out how our industrial food complex has contributed to the cost of healthcare, while education is a form of slavery/indentured servitude that feeds the greater industrial complex.

          1. kidmercury

            I think the more quantitative the approach one takes in exploring this issue, the more apparent and inescapable it will be that debt is the primary driver/enabler of the economic dysfunctions in the world today, some of which are visualized on the chart Fred shared

          2. Michael Elling

            Assume you’ve read Graeber? But it is not debt; it is imbalance arising from network effects evident in all of mankinds’ socio-economic and political institutions, frameworks and regulations. Stuff we don’t see in nature.

          3. kidmercury

            graeber is great, big fan. if hte network effects argument is true, why has the cost of information transmission gone down while the cost of real estate has gone up…….or even better, why have financial assets (let’s stay stocks) gone up far more than clothing……

  15. Richard Reisman

    Yes, it’s all in the surplus — and one place the surplus is being squandered is in consumer digital content, where we are facing “subscription hell” — as every provider demands a share of wallet that is larger than most consumers can afford — thus turning away subscribers who could be profitable at a more affordable price. With only “artificial scarcity” to sustain the invisible hand, we need a new way to divide the digital value surplus that reflects the varying willingness to pay of users. See “The Ghost of Pricing Future — A Thought Experiment” (

    1. Michael Elling

      Richard, very interesting. I read through a number of your posts. Has your approach been implemented in a real world model that is scaling and sustainable?

      1. Richard Reisman

        Many key components of what I propose are more or less well established in practice (in mainstream marketing and in Patreon-style crowdfunding) — but advanced combinations have yet to be fully implemented, tested and refined. Some detail is in posts in the “Behavioral Economics Underpinnings” section of the list at…. (Contact me at info at teleshuttle dot com if you want to discuss.)

  16. Adam Sher

    I see an interesting correlation. The areas where prices deflated have a close relationship between buyer and seller. Education and healthcare have many substantial intermediaries between buyers and sellers. This is most pronounced in healthcare.

    1. bsoist

      obfuscating the real costs

    2. Andrew Cashion

      PDF files that had text books on them were shared on google docs or shared on a flash drive.I didn’t buy google docs nor did I sell docs came out in 2012 PDF’s 1993Both formats are free.

      1. Adam Sher

        Is your point that you could pirate textbooks for free?

        1. Andrew Cashion

          no, the top part of the textbook curve is scrunching and appears parallel with the 0% curve and looks deflationary because of/ perhalps free storage and not buyer seller mechanics.

          1. Adam Sher

            Potentially. I suspect that the textbook price curve is misleading and more likely reflects retail prices for new editions rather than the prices students paid. When I was a student most of us learned after Freshman year to buy used current editions, older editions, or just borrow from an older friend who missed the sell-back period. I could spend $1000-$1500 per semester if I purchased the new current editions, or 20% of that with a small amount of effort.Popular ebooks are still $10-$15 so there’s some base level price for textbooks but we’re way above it.

          2. Andrew Cashion

            new editions and the buy back period is one of the greatest scams ive ever seen. I cant see how that would make the curve go sideways though.

          3. Adam Sher

            Yes, huge scam but it was convenient to participate in. The alternative was use campus intranet and Craiglist to sell the book or somehow find your way to the campus mailroom to send stuff via Amazon – serious… hassle… bro.My point is that the price curve did not reflect how much money students spent. As you said, storage/publishing is cheap now. In addition, it’s too easy to get near-free resources. Those factors should put deflationary pressure on textbook prices.

    3. LE

      The high cost of health care is largely as a result of the following:a) Discoveries which keep people alive (and cost money) that allow them to abuse themselves more (and therefore require more health care). Just walk around Walmart and have a look.b) The food industrial machine which promotes and profits off of people eating things they shouldn’t be eating. (This was helped by the way by enhanced graphics which were a result of advances in printing and packaging).c) Food, eating and dining which has become an addiction. “PETF” people eating tasty food. It is entertainment and sport now. Just think of all the people living in shitty looking Brooklyn neighborhoods that are in love with them because they can socialize and go out to eat. Crime was not the only reason people fled the cities. People (en masse at least) generally prefer to not be around old buildings. However if you include entertainment as part of the appeal everything changes.d) Heroic end of life care for people than back in the day would have died and there wouldn’t be all sorts of money spent on keeping them alive.e) Legacy of tort law which developed into a fear of lawsuits and ‘not on my watch’ thinking.f) Society not wanting to accept any failure at all and wanting to believe that no mistakes or no stone should be left unturned.I am probably leaving some things out but that is the bulk of it.

      1. Adam Sher

        A and D create an interesting moral dilemma.

  17. creative group

    CONTRIBUTORS:This inciteful blog post is in demand. MBA Monday’s are surely missed and it’s pausing has actually lowered the high standard Fred has set for topics. We do realize the “us too” crowd will check the winds to see if oracle Fred will agree or disagree to accept the observation or reject it.We as a whole don’t rely upon the petting of Fred’s approval or disapproval of our thoughts. We all are human and soon shall past to memories then not. When is the last time you thought of a love one who has past? Right now.We support Fred when he is ethically and morally right. When we disagree we state it regardless of the “us to” crowd.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

  18. Matt Kruza

    Baumol’s cost disease…service intensive industries increase much quicker in cost (or don’t decrease in cost as much) vs technology based ones. I am sure you have heard of it Fred, but many of the users here haven’t, and just wanted to throw that out there. The overall implications of how you solve baumol’s cost disease in each of these industries is diverse and complex, but its such a basic economic basic for this situation I expected to already see it mentioned, so wanted to throw it out there for those who haven’t heard of it yet for their further study / analysis of the issue

    1. Adam Sher

      You point out a downside of an inflationary economy. In some circumstances is it really a problem, say in the arts?

      1. Matt Kruza

        Not sure I totally follow Adam. In general its a bad thing that service heavy industries (health care, education, construction) have gotten so much more relatively expensive. Its bad for everyone except those who benefit from higher wages and / or equity ownership in those industries. However, most other people lose out.In regards to the arts I would say again it probably is a bad thing from the standpoint that less people can afford going to musicals, concerts, buying art etc compared to if the arts were cheaper. In fact you see that in the shift of most people consuming the “arts” which have benefited from technology (and thus low marginal cost). Movies, tv, netflix etc are available to the masses, while broadway shows aren’t. Whether that is a problem or not I guess is a matter of opinion. I think the biggest difference is the arts are in the range of $10 billion – 30 billion industry, where healthcare is $4 trillion, Construction is .5-1 trillion and education is $1 trillion, so they are literally 100-300x larger, thus greatly impacting many people’s quality of life and opportunities.Not sure if this was what you were getting at with your comment, but defitnitely curious of your thoughts!

        1. Adam Sher

          I haven’t thought about Baumol’s Cost Disease before and don’t have an opinion. That’s why I asked you! Now, I do follow your argument and am happy to think (write) out loud.Let’s stick with the example of the arts. Access to any particular a random artist is inexpensive because you are likely to find that person’s art on a streaming service (e.g. Spotify, Netflix, movies). In music, Bela Fleck, Anat Cohen, Lady Gaga, and Kanye West are available for a very low cost, which is the result of them employing technology to make their labor more efficient. The same examples apply to Broadway shows (most successful ones are remade as movies and all have soundtracks), authors, poets, and almost any artists. Even canvas art is viewable for free in a store or exhibit, although the cost to display and attend is certainly higher because of the need for transportation and physical storage. I still think it’s low enough that such art is democratized.If you want to experience the same artists in a different manor such as a live performance or original cast Broadway show, then you could still live stream it, and offer the live experience (perhaps aided with VR/AR) at a low marginal cost. If I want a more personal art experience, then I can pay more, but I am not precluded from arts because technology has enabled artists to be efficient with their labor.I debated earlier with James and LE about the efficacy of MOOC in education. For purposes of our discussion, technology is and will make the labor of some teachers more efficient (and likely eliminate the need for other teachers). My bet is that over the course of a generation, MOOCs will decrease the cost of education.In construction, there pre-fabricated buildings are becoming more popular but are still not mainstream. When this occurs, you should see a shift in the construction industry as costs will rapidly decline. I think it’ll even reflect the arts. If you want to pay for a different building experience, you can pay laborers to build something that is too complicated for a pre-fabricated process. Advances in 3D printing may nullify this option; however, I will always believe in people’s ability to find ways to spend more on exclusivity.I have no guesses for health care or legal services. It’s possible there’s some manual labor that is inherent in those industries and we should accept and embrace that. Tax and accounting may fall in this bucket as well as they intersect with the legal system.Some professional service industries should experience a reduction in labor demand as better sorting technologies (basically statistics, not AI) increase the efficiency of fewer laborers. This should occur in real estate brokerage, property appraisals, actuarial sciences, and insurance.You’re left with a subset of jobs (e.g. lawyers, doctors, accountants, professors in doctorate programs, researchers) which are resistant to technological efficiency. It makes sense to me that these groups should earn more because the complexity of their work increases over time. Where we can mitigate at least some of the costs for these experts would be to apply technology to the ends of their fields. Examples of this would be electronic medical records, e-discovery services, and standard templates for simple financial transactions.Even within these resistant professions, I speculate that research and medicine become exponentially more complicated over time and the other professions become linearly more complicated over time.

  19. LE

    A 49″ smart TV sells for about $300 on Amazon. A Samsung Chromebook is $200 on Amazon.You gain but you also lose.The surplus also goes to:a) People buying more things than they need simply because the price is so low. So while you may own only one toaster you probably own more than one computer (or device that has computing capabilities). And you own multiple coats, bags and all sorts of things because they are so cheap now. [1]b) You are also buying these devices more often because they both get obsolete and break typically (and aren’t worth it to be repaired because it’s cheaper to replace them). I just had to replace an HVAC unit that was installed about 10 years ago because the heat exchanger cracked. One of the ones at my house has to be close to 30 years old and still is running strong. While this is anecdotal (to prove a point) no doubt things today are made less reliable. [2] [3] Also much of what manufacturers used to take care of are now consumers (or businesses) problems to figure out. Multi user computer system even in the 80’s came with a not only a large set of manuals but also an organization that actually took care of any and all service questions and actually answered the phone (AT&T believe it or not sold Unix systems at one point). And they were built to last. Not cheap shit from Asia.c) Buying and paying for things you don’t even need simply because they are so cheap. This is in part how places like Walmart and even the local supermarket operate. Impulse buying. The plasma TV’s that the lower class people (love the way I stuck that in there?) covet and riot for are good examples.[1] There is an entire industry ‘self storage’ that has sprung up to store things that people have bought that they don’t need and don’t want to throw out.[2] Even just last week my wife’s X5 got a nail in the tire. It’s a run flat tire. And the dealer will not repair they will only sell you a brand new tire.[3] An exception to this is automobiles which are vastly more reliable than the crap Detroit sold prior to Japan getting into that act in a big way. And you know why they are better? Because the manufacturers ended up giving warranties and including the service for years and miles. So they were compelled to make the product better or the cost would fall on them. Similar happened with a segment of the copier market.

    1. Michael Elling

      The environmental cost of all this consumption has not been factored in; maybe 10% at best.

  20. Richard

    Universities and Hospitals have several things in common, their prices are indirectly set by the federal and state governments, their faculty work 40% of what they would work in a free economy, the are super hypercritical in that they are salaries are insane (most are availble on line) responsible for their high prices but complain about their costs to their customers. Solutions are obvious.Housing inflation is way off. Measure it as rent per square foot and see what happens.

    1. Michael Elling

      Likewise, the cost of access (wireless and wired) cannot be viewed based on speed or amount consumed, but rather as a flat budget. Relative to the underlying technology costs and capabilities, these prices have been rising. A growing digital divide.

  21. k77ws

    Once we get Gov out of the way, these sectors can be well on their way to creating consumer surplus. Gov has no incentive to create consumer surplus in fact they are very good at inducing the opposite which is waste and bureaucracy, hence the relative price increase aberrations. Until this changes, expect this trend to continue.Federal share of overall health spending is now close to 50%.…Student Loan Market was Nationalized in 2010 (… — and Tuition and Textbook prices are directly corollaries of this — Student Loans a Government Monopoly (7.75% of the market is private).

  22. creative group

    CONTRIBUTORS: Would the following proposed dead on arrival legislation by freshman Senator & possible 2020 Presidential Candidate Kamala Harris’s “LIFT The Middle Class” be a driving force of purchasing power for Fred’s explanation of Creating Surplus?The Tax Foundation’s acessment…An article in the Medium…Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

    1. Michael Elling

      What’s missing is the line(s) showing fully-loaded cost of govt. All our federal/state/local govt opex/capex is out of whack. At a minimum they should define two ledgers: operating and social.

  23. Jessie Arora

    As a working mom who cares about other families and my community, what concerns me most from this list are childcare and housing costs.

  24. Matt S

    Interesting that the two areas in which price increases are the most dramatic are also the ones most highly regulated by governments.

  25. LE

    I think there is a big opportunity in various parts of homeland security. Both policing and prevention of mass shooting or other mass tragedies.Ifif you just look at how policing has changed and the fact that the suppliers to that industry are primary old school. Look at who supplies the police departments around the country.If you watch, say, “Live PD” you will see cops driving with one hand because they need to hold the microphone with the other hand. Makes no sense and obviously there are ways around this but they have not been widely adapted. You have more high tech things going on with sports broadcasting or making indie films.

    1. Michael Elling

      I thought eating donuts.

  26. Arrun Kapoor

    The cost curve on education likely reflects the STICKER price of college but not the discount-adjusted ACTUAL price. My understanding of this actual price is that it has been relatively flat over last few decades compared with inflation. Colleges continue to raise sticker price tuition considerably (as reflected in this chart) but most benefit from needs- and merit-based grants that make the actual price a good bit lower. Those paying the sticker price are the wealthy and those without merit aide. This doesn’t mean we can’t do more to lower costs but this graph overstates to magnitude of the problem.Also, it would be interesting to see the above curves compared to median vs average income since we know income disparity has gotten worse overtime. In other words, the chart above is relevant for each dollar earned by an individual (notwithstanding above comments on cost of higher) but we know that most people are in jobs that have them making less relative to their counterparts in those same jobs a generation ago. So on an adjusted basis (to median) all the cost curves would be more severely upwardly sloping.

  27. Jeremy Shatan

    I like the sound of this – and even in the attempt I believe some good will be accomplished.

  28. Jack Abraham

    Thanks Fred! I’m pretty sure this graphic and the thesis came from our announcement of Atomic II’s $150M fund. Here is the medium post about it:…. We are founding and have founded lots of companies with this thesis!

  29. Michael Monaghan

    The sectors with the highest cost inflation have a tight correlation to government spening decoupling from market pricing?

  30. ccdemuth

    From Mark Perry…. Third party payers and government subsidies drive up costs; markets drive costs down.

    1. Michael Elling

      As with any data, easy to misinterpret, or draw biased conclusions. Blue sectors have seen greatest impact from digitization, red are mostly labor intensive and remain “analog”. As well, it is harder to define and control competitive markets in “social” sectors like healthcare and education. All that said, I believe free markets with light touch regulation and oversight are better than significant government intervention. The only problem is that most free markets suffer from extreme network effects in this digital and neoliberal age and the result is growing and unsustainable imbalance(s); see my comments elsewhere on Disqus as to import of latter. If a particular market does not provide an equilibration mechanism, the government is best able to achieve that working with all actors.

  31. Matt A. Myers

    Drink more water? :PAnd fair, though this is heavily the problem of the Canadian government not taking into account indirect costs (Genuine Progress Index vs. GDP idea), however let me contrast that with what is likely to happen moving forward in regards to Canada vs. US-based systems – and based on my experiences/observations with healthcare:Yes, there are problems with wait times – even at the point of needing diagnostic imaging. This is a fairly of government not investing enough and creating a surplus – and then even competing with the US and the rest of the world (health tourism). The status quo is likely going to be far harder to shift in the U.S. however than in Canada.The status quo I’m specifically referencing right now can related to your story of a torn rotator cuff. With stem cells/regenerative medicine, you wouldn’t need surgery – and you’d have 100% recover if not, and within 2-3 months. Stem cell injections have been available for 18+ years now for humans, if only you and/or your doctor knew about them – and only if your doctor/health plan etc didn’t have vested interest in “selling” you the old still. There are insurance plans that own hospitals, that only cover you if you’ll use their hospitals – and where those hospitals are for whatever reasons fixed with keeping surgeries flowing to surgeons, who will make $8k per surgery (not the cost charged/accounted for) – instead of investing in or even referring someone to a much less invasive, much higher outcome regenerative medicine procedure.The status quo maintaining itself is flush with itself. To this end, the value is having the contrasting systems to be able to compare – however, it will be private enterprise, private organization – where you can have an “authoritative” put in place of command – and dictate what’s to be done, hopefully with rational/reasoning with a board of advisors/directors et al.Aside from wait times, human error and lack of reliability is the next, followed by indoctrination of knowledge – which is tied into lack of critical thinking development, and selection for memorization skills, memorization which has nothing to do with critical thinking.Likewise, the Canadian government wants to be smart with their money – however no one is required to self-regulate adequately, and so there’s no good or easy comparison. They have said (and do respond) that if you can prove you can do something more efficiently and reduce long-term costs, they will start funnelling money there. This means that once a system is in place that is better than the status quo, then they will open the floodgates. The problem has been no private practices/organizations have taken on the holistic ecosystem, yet – that’s what I’m going to do.Where in the US are you now? I am heading to the Bay area (maybe a stop in LA) for a month soon to start networking for my projects – my plan’s to network until I can sit down with Elon Musk for a conversation. 🙂

  32. Pascal Aschwanden

    If you really want to know where people are spending their money, take a look at this:… (or a chart like this), that shows where most of the money is going. Spoiler alert, it’s all going to one place: Housing. And that’s not even counting the principle. And that trend will only continue, as more and more of our population desperately squeezes into cities to accommodate the geographical demands of a job market with out-sized bargaining power.

  33. Will Luttrell

    I’ve heard some compelling arguments that massive buyer subsidies are a primary driver of high costs, distorting the market.The irony, of course, is that the goal of the subsidies is to make health care and education more affordable. But the intractable laws of supply and demand mean that pouring money (demand) into an inflexible system of fixed supply leads to hyperinflation in that commodity.

  34. Miriam Schwab

    There is lower-cost education in the US. I wonder if one of the angles could be working to change the culture around education, whereby Harvard = good, community college = meh, especially since in many fields of technology and business, what matters most is experience, not where you got your degree.