Offshoring, inflation, and medical expenses

One of the major changes that's occurred in the last 40 years is that many, many American businesses have outsourced a huge part of their operations to places where labor is very much cheaper than it is in the US.  Initially, this was relatively specialized manufacturing, but improvements in shipping and electronic communications have made it possible to take a large fraction of all production, including food production, away from American labor.  When it was just a few products, this didn't have much effect on the overall economy, but now it's all sorts of stuff, and the effect is quite profound.

Since these costs are part of the overall "market basket" that makes up the cost of living, the share of outsourced goods in the cost of living is going down.  Meanwhile, the costs of things that aren't being outsourced are not following this same curve.  We could thus view inflation as a composite of two numbers: an "outsourced" inflation and a "local" inflation. Overall inflation is the weighed average of the two.  (there are other inflation composition measures too, such as core vs headline inflation, which I won't get into here).  Conspicuous in local inflation are housing and medical care.

As everybody knows by now, housing prices recently took a big skyrocket and then collapsed when it turned out that the derivatives market was running a giant scam.  There's a necessary coupling between house prices and wages: you can't afford a mortgage on a house that costs more than about 3 times your annual income.  House prices have come down a lot, but prices remain stubbornly above the necessary balancing point.  Some of this is a vestige of the scam, but with demand so terribly low, they should be coming down farther.

The other big chunk is medical care.  Medical care is provided by a group of monopolies and near monopolies which control various aspects of medicine: the AMA controls the number of doctors to keep wages high (and also standards of practice).  The hospitals provide services but have to pay out of pocket for those who are unable to pay.  The insurance companies (explicitly exempt from anti-trust law) provide payments.  There are too few companies providing too many, too complicated services.  Unregulated, they've degraded into a race to the bottom of gouging, and a race to the top of luxurious and effective treatments.   Government insurance (such as Medicare, VA, the British National Health) has about 5% overhead, while pseudo-competitive American insurance has 20-30%.  Insurance companies can negotiate with hospitals over price, so they give a 25% or more discount to insurers.  This means individual payers are being gouged, and this applies even to some insurance companies and big "self-insured" companies.  (Generally, self-paying customers can get some fraction of this discount if you pay promptly and know to ask for it.  But they won't tell you).  And the need to subsidize emergencies creates opportunities for gouging throughout the system.

Combined with these inflationary pressures, medicine and housing can't be outsourced, so the rising costs need to be paid for with a dollar that is weakening (inflating) through outsourcing.  It's a double whammy.