The Paradox of Progress: Why Efficiency Doesn’t Mean Cheaper Goods

Not my usual topic. Comment after reading if you have any thoughts.

In an era of smartphones that fit in your pocket, drones delivering packages, and AI optimizing supply chains, you’d think everyday essentials would cost less. After all, technology has slashed production times, reduced waste, and connected global markets like never before. A smartphone today packs more computing power than NASA’s Apollo missions, yet the price of a basic meal, a doctor’s visit, or a month’s rent keeps climbing. This isn’t just a feeling—it’s a reality backed by data. U.S. consumer prices rose 20.7% from 2019 to 2024, outpacing wage growth in many sectors, while corporate profits hit record highs. So, what’s going on? Why does progress feel like a paywall?

The answer lies in a mix of economic forces, market structures, and human incentives that turn efficiency gains into shareholder windfalls rather than consumer savings. We’ll unpack the theory, the facts, and the less savory undercurrents—like corporate profiteering and extreme market concentration—that keep prices sticky on the high side. Spoiler: In a truly competitive world, things should be getting cheaper. But we’re not there.

The Promise of Efficiency: How Tech Should Drive Down Prices

At its core, technological advancement boosts productivity—the amount of output per hour worked or unit of input. Since 1947, U.S. labor productivity has tripled, thanks to automation, better logistics, and digital tools. In manufacturing, robots and AI have cut assembly times by up to 50% in sectors like electronics. Shipping? Containerization and GPS have made global trade roughly 90% cheaper per ton-mile since the 1950s.

Economic theory is clear: When costs fall, prices should follow in competitive markets. Supply curves shift rightward, flooding the market with more goods at lower prices. History shows this works when competition is real. Televisions? Adjusted for inflation, a 2024 55-inch LED TV costs about one-tenth what a comparable 1990s model did. Clothing has followed a similar path—global fast fashion has cut real apparel prices in half since 2000.

But here’s the problem: Most of those gains never reach consumers. From 1979 to 2022, U.S. productivity rose 81%, yet median hourly wages grew just 15% after inflation. The surplus flowed to profits, executives, and investors. If efficiency gains were fully passed on, a Big Mac might cost around $1 today instead of $7.49. (Its 2019 price was $3.99—an 88% jump that far exceeds overall inflation.)

In short: Yes, things should be cheaper. In truly competitive sectors, productivity gains historically lower prices 1–2% per year. But powerful barriers prevent that from happening across most of the economy.

The Usual Suspects: Inflation, Demand, and Supply Shocks

People often blame “inflation,” and there’s some truth there. Central banks target about 2% annual inflation to avoid deflationary spirals. The pandemic and the Ukraine war delivered genuine shocks: factory shutdowns, port backlogs, and energy prices that doubled from 2020 to 2022. Stimulus money and remote-work trends also supercharged demand in certain categories.

Those shocks explain the initial surge. What they don’t explain is why prices stayed high long after input costs came down. Shipping rates have fallen 80% from their pandemic peak. Oil and commodity prices have moderated. Labor-cost inflation has cooled. Yet grocery prices, fast-food menus, and rent remain elevated.

Under the Hood: Corporate Profiteering and “Greedflation”

Look at corporate earnings calls, and the story becomes clear. From 2021 to 2023, U.S. corporate profits accounted for 53% of inflation—far above the pre-pandemic average of 11%. PepsiCo’s CEO openly celebrated being able to “pass on price increases more than offsetting higher costs.” Procter & Gamble added billions in revenue from price hikes while their input costs rose far less.

This pattern repeated across industries. A 2024 study of 1,300 global firms found that corporate profiteering pushed prices significantly higher than supply shocks alone justified. Profits hit a 70-year high while workers’ share of national income remained suppressed., exactly the opposite of what happened in earlier decades when productivity and wages rose together.

Factual “Conspiracies”: Oligopolies and Tacit Collusion

The deeper issue is market concentration. The U.S. economy is dominated by oligopolies: four airlines control 80% of domestic seats, three companies control 90% of insulin, two processors handle 70% of beef. When a handful of firms dominate a market, they don’t have to formally collude—just watch each other’s prices and follow the leader upward.

Markups (price minus cost) have risen steadily since 1980. Algorithms now make this easier than ever: dynamic-pricing software lets companies charge exactly what the market will bear, and competitors’ systems can detect and match hikes in real time. The result is tacit coordination that would be illegal if done in a smoke-filled room but is perfectly legal when done by software.

These aren’t wild theories—they’re documented in Federal Reserve research and antitrust filings. Market power, not raw material costs, drove over half of inflation in key sectors in 2021–2023.

The Baumol Trap: Why Services Keep Getting More Expensive

Manufactured goods have indeed gotten cheaper—electronics are down 90% in real terms since 1990. The problem is that services (healthcare, education, housing, childcare) now make up 70% of U.S. spending, up from 50% in 1980. These sectors suffer from “Baumol’s cost disease”: wages must rise to keep teachers and nurses from leaving for higher-productivity jobs, but you can’t speed up a surgery or a classroom lesson the way you can speed up a factory line.

Housing is the clearest example: restrictive zoning, NIMBY opposition, and land scarcity prevent supply from keeping up with demand, so rents and home prices rise faster than inflation even as construction tech improves.

Should Things Be Cheaper? The Bottom Line

Yes—dramatically so. If productivity gains were shared the way they were from 1945 to 1980, real prices for most goods and many services would be falling, not rising. Historical examples abound: after the Industrial Revolution, textile prices collapsed. After containerization, shipping costs plummeted and consumer goods followed.

Today, AI and robotics could deliver another wave of abundance. Instead, concentrated corporate power captures almost all of the benefit.

Fixing it would require real competition policy—breaking up oligopolies, banning predatory pricing algorithms, taxing windfall profits, and reforming zoning and patent laws that block new entrants. Until then, technological progress will keep making the world richer on paper while everyday life feels more expensive.

The tools for abundance exist. The question is whether we’ll restructure markets so regular people actually get to enjoy it.

Thought and concerns?

Stay gold - J