Why Childcare Will Always Be Expensive

Andrew Heaton (0:06)

Hello, and welcome to The Political Orphanage, a home for plucky misfits and problem solvers. I'm your host, Andrew Heaton.

And today, we are going to go over a bunch of things.

Andrew Heaton (0:19)

Raisin cartels, how the Delaware Chancery Court conquered the world, and I will briefly summon the ghost of Adam Smith, our greatest president, to bring up the finest argument I've ever heard against his position that corporations ought to maximize profit exclusively. This would also be the position of Milton Friedman. Corporations should just make money, let people on the back end and spend it on pro-social goods like charity or we'll do it through government.

I'm going to bring up the best argument I have heard against that, the idea that we ought to balance it out with pro-social efforts. In fact, there are unintended consequences beyond mere making money and distributing money that happen independent of that. Best argument I've heard so far that's coming up.

Andrew Heaton (1:10)

But my favorite thing that we are going to discuss today is, why childcare is so expensive and why paradoxically, it's only going to get more expensive.

Andrew Heaton (1:23)

In fact, the more affluent our society becomes, the wealthier and richer you and I and our neighbors get, the price of childcare is going to go up.

Andrew Heaton (1:37)

Also, haircuts and therapists, dog trainers, mariachi bands.

Andrew Heaton (1:44)

I don't think we bring it up in the episode, but one would assume, prostitutes. For there is an observable paradox, a cost disease, which makes certain sections of the economy more expensive precisely as the economy does better.

Andrew Heaton (2:03)

Well, how the hell does that work? And what can we do about it?

Andrew Heaton (2:08)

All that today and more right here on The Political Orphanage.

My guest today is Alex Mayyasi. He is a long time contributor to Planet Money on NPR, focused on economics and business. And he is also the host of a new food and economics podcast called Gastronomics. But for our purposes today, he is the author of the new book Planet Money, a guide to the economic forces that shape your life.

Andrew Heaton (2:35)

Hello, Alex, welcome.

Alex Mayyasi (2:37)

Thanks so much for having me. It's great to be with you.

Andrew Heaton (2:39)

I enjoyed your book. Not only did I think there were a lot of fun concepts in there, and I learned some stuff. I also liked that you had very, very random media history sprinkled throughout. You make a compelling case that Lucille Ball basically created Star Trek among other things.

Apparently Michael Bay directed the first milk commercial.

Alex Mayyasi (2:58)

That is one of my favorite fun facts in the book. Yeah.

Andrew Heaton (3:02)

You get into agriculture and raisins among other things, and you bring up commodity traps. What is a commodity trap? Yeah.

Alex Mayyasi (3:11)

I think our economy is really defined by this tension. Businesses want to make lots of money, but the grand we, collectively, a society, we want companies to be competing with each other so viciously that they barely make any money because they just spend all that money creating great products, new products, or good products at the lowest possible price for all of us.

Andrew Heaton (3:33)

That's what I want. I want them competing against each other and innovating and coming up with cheap stuff for me to buy.

Alex Mayyasi (3:39)

Yeah, and that's how we want our system to work. But then from a company's perspective, they want to make a profit. The commodity trap is this idea that often if you have a product, maybe you're a farmer growing oranges. Agriculture often has a lot of example of these. It's a product where people don't really recognize the difference between your oranges or someone else's oranges. I love food. I think there are farmers absolutely growing the best produce imaginable and their exceptions to this. But for a lot of cases, you grow grapes for raisins, you grow oranges. The consumer doesn't really see any difference between them. It's a commodity. It's interchangeable. For that reason, you just have to accept whatever the going rate is for an orange out there. You're a price taker, not a price maker.

For something like oranges, that often means that price is going to be very, very low from the farmer's perspective. You might be barely making a profit because you just don't really have any power to increase the price.

Everyone competing, trying to get people to buy their oranges, the price goes down to basically the cost of growing an orange. Companies often want to get out of the commodity trap. They want to have, maybe you want to build a really strong brand so people recognize your product and think it's better than others and go for it. There's obvious examples like Apple, where all of us, we're not like every smartphone is the same. People pay a lot more for an iPhone than other phones.