Why does it cost more to fix a car panel than to buy a new car? Baumol cost disease explains it: manufacturing got more efficient and cheaper, but repair work stayed labor-intensive and expensive. Younger people aren't wasteful, they're just responding to prices.
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Here's why I really like the Baumol effect. It's because it's a very general theory that explains a lot of different sectors. We've talked about healthcare and education, okay? But here's another sector, just completely different. I bashed my car recently, okay? Nothing, nothing, just a little minor fender bender really. To fix the side panel, it just had a big scratch in it, okay? That was like $3,500. Okay, so it's like a tenth the value of the entire car. This happened to Natasha too, except someone hit her car. Yeah. So just to fix the aesthetic problem. Okay. The car was running fine. The engine was fine. The wheels were fine. Transmission's fine. We're just fixing an aesthetic problem is one tenth. Now, what's the general point? The general point is that the price of the car has gone way down relative to the price of fixing the car. So the repair services, okay, have gone way, way up. And it's not just in relative terms, and it's not just for automobiles. You know, when was the last time you took your shoes to the cobbler? Okay. I don't even know. Not that long ago. In fact, it's pretty rare. It's pretty rare. Or when you had, you know, you take your clothes to the tailor to be fixed. You know, my mother, you know, thinks that, you know, the new generation just wastes products and, you know, they don't know the value of fixing things, you know. But actually, it's not that the new generation is more wasteful or less concerned about saving money. It's that the new generation faces different relative prices. It's much cheaper to buy new clothes than it is to fix the old clothes because the new clothes are basically made in a manufactured process. The new— the repairing the clothes takes a lot of labor. So we don't repair clothes. We don't repair shoes. Much more expensive to repair cars. So there's an entire sector very different from healthcare and education, and I think Baumol explains it very well.
