The Baumol Effect

The goods and services that have skyrocketed—healthcare, education, childcare—share a hidden trait

Here’s what’s happened since 2020. If we look beyond the ivory tower hubris of the global plandemic, economic shutdown, and unprecedented money printing that followed in a scramble to retain power in a world they nearly broke, some interesting details emerge:

The goods and services that have skyrocketed—healthcare, education, childcare—share a hidden trait: they’re labor-intensive, regulation-heavy, and resistant to productivity gains. This isn’t just dollar devaluation—it’s a structural mismatch between sectors where tech and AI drive deflation, and sectors where human labor remains irreplaceable.

🧠 What These Sectors Have in Common

These sectors are immune to Moore’s Law. You can’t double the productivity of a nurse, teacher, or daycare worker every 18 months. They’re also heavily regulated, which limits competition and innovation.

💵 Is This a Dollar Devaluation Story?

Partially. The dollar has lost purchasing power, but that alone doesn’t explain the divergence:

• Overall inflation: +92.6%

• TVs, software, cell service: down 40–98%

• Labor-intensive services: up 150–280%

This is relative inflation, not just currency debasement. The dollar buys more tech and less human time.

🤖 AI vs Human Labor: The Real Divide

• Tech sectors (deflationary):

  • Software, electronics, cloud services → scalable, automatable, global competition.

  • AI drives marginal cost toward zero.

• Human-centric sectors (inflationary):

  • Healthcare, education, childcare → require empathy, supervision, physical presence.

  • AI can assist, but not replace core labor.

This is the Baumol Effect: wages rise in low-productivity sectors because they must compete for labor with high-productivity ones. If coders get paid more, nurses must too—even if their productivity hasn’t changed.

🧭 Strategic Implications

• Investors:

  • Tech deflation favors hardware, energy, and compute infrastructure (your Elon theme).

  • Inflationary sectors may benefit from AI augmentation (telehealth, edtech, childcare platforms).

• Households:

  • Budget pressure will keep rising in human-care domains.

  • AI tools can help mitigate, but won’t eliminate the cost curve.

• Policy & Society:

  • These sectors are ripe for reform—but politically sensitive.

  • Expect continued divergence unless tech meaningfully disrupts service delivery.

Here’s a scenario overlay mapping how AI could bend the cost curve in healthcare, education, and childcare — the three sectors that have most resisted deflation despite tech advances. These are the inflationary outliers in your chart, and they share deep structural traits: labor intensity, regulatory friction, and low productivity leverage.

🧠 Scenario Overlay: AI vs Human-Centric Inflation

🔍 Key Insights

• AI can bend—but not break—the cost curve.

  • It excels at information tasks (diagnostics, grading, scheduling).

  • It struggles with presence tasks (comforting a child, managing a classroom, bedside care).

• Regulation is the moat.

  • These sectors are protected by licensing, liability, and compliance.

  • That slows adoption even when tech is ready.

• Trust is the bottleneck.

  • Parents won’t trust AI with toddlers.

  • Patients won’t trust bots with surgery—until proven over time.

🧭 Strategic Implications for Builders and Investors

• Healthcare:

  • Invest in AI overlays that reduce admin friction (billing, triage, imaging).

  • Avoid direct patient replacement — focus on augmentation.

• Education:

  • Build adaptive platforms that scale teacher impact.

  • Target credentialing reform and micro-certification.

• Childcare:

  • Focus on parent-facing tools: scheduling, updates, developmental tracking.

  • Don’t try to replace physical care — support it.

🧠 Behavioral Finance Angle

• These sectors are sticky because they involve trust, identity, and care.

• AI can reduce friction, but emotional labor is still priced at a premium.

• The inflation gap is a signal: tech deflation is real, but human care is still scarce.

Implications for College Kids:

This is the heart of the divergence we spotted in that inflation chart: college costs have skyrocketed, but wages haven’t kept pace. That creates a structural challenge for today’s students — they’re paying more for credentials while entering a labor market reshaped by AI and automation. Let’s break it down:

🎓 Implications for What They Study

• Fields with AI leverage: Computer science, data science, engineering, finance, and healthcare tech are positioned for wage growth because AI augments rather than replaces them.

• Fields vulnerable to automation: Routine business roles, basic accounting, paralegal work, and some media/communications jobs risk wage stagnation as AI substitutes.

• Human‑centric fields: Nursing, teaching, social work, childcare — wages rise slower than tuition, but demand remains strong because they’re resistant to full automation.

👉 The mismatch: Students in high‑cost majors (education, healthcare) often face slower wage growth, while lower‑cost majors in tech can capture outsized returns.

🛠️ Supplementary Skills That Matter

• AI literacy: Not just coding (which is rapidly being taken over by AI) — understanding how to use AI tools in any field.

• Financial discipline: Budgeting, investing, and side‑income skills to offset debt burdens.

• Portfolio building: Demonstrating projects, certifications, and applied work beyond the degree.

• Soft skills: Communication, collaboration, adaptability — these remain scarce and valuable even in AI‑heavy industries.

• Cross‑disciplinary overlays: Pairing a traditional major with a tech or business skill (e.g., biology + data analytics, art + digital design).

💵 Wage‑Earning Outlook

• Polarization:

  • Top quartile (AI‑augmented, specialized skills) → strong wage growth.

  • Middle quartile (routine knowledge work) → stagnant or declining wages.

  • Bottom quartile (manual/service work) → modest wage growth, but inflation eats gains.

• Credential inflation: Degrees alone don’t guarantee wage premium anymore. Supplementary skills and demonstrable projects matter more.

• Debt vs ROI: Rising tuition means students must think like investors — what’s the expected return on their chosen field?

🧭 Strategic Takeaways for College Kids

1. Pick majors with leverage: Tech, engineering, finance, healthcare tech.

2. Add supplementary skills: AI literacy, financial acumen, project portfolios.

3. Think modular: Stack certificates, internships, and side projects alongside the degree.

4. Plan for resilience: Wages may lag inflation in human‑care fields, so build side‑income streams or specialized niches.

If you’re concerned about preparing your kids for the AI‑era job market. The roadmap is clear: don’t rely on the degree alone. Pair it with certifiable, income‑producing skills and a portfolio that proves adaptability. Saving more than you spend and investing the difference isn’t just a nice idea anymore. It’s now a bedrock-behavior, fundamental and increasingly a pre-requisite for growing the purchasing power of your money faster than the ravages of inflation can erode it.