The Baumol effect is paying more for the same productivity, which can feel like a disease when you have to pay more and more for the same in some area for services relative to goods to the point where you end up pathologically preferring goods over services.
The JFK-popularized term defending a special interest project trickling down benefits to a wider community isn’t really what it feels like to someone in a coastal US city and who is trying to hire an electrician or baby sitter and finding they are priced out of the market.
The Baumol effect means that as society gets richer and GDP goes up, orchestral musicians or wait staff or any other profession whose productivity which which enjoy but whose productivity largely hasn't changed since the 19th century get paid more.
The "disease" is equivalent to a rising tide raising all boats or the lack of commodification of certain forms of human labor.
The "cure" for baumol's "cost disease" would be an explosion in income inequality.
But if we had robotic wait staff then that would be a net benefit for society, and the human former wait staff would go and do something else that's slightly more valuable for an amount of pay that's either slightly less or slightly more depending on the effect of automation on the whole economy, probably slightly more in the long run. This is the story of industrialisation!
Thought experiment: would it be good if we replaced mass transit by individual taxi drivers, because there would be so much demand for those taxi drivers that their boats would be lifted?
No, coz people like to be served in restaurants by humans.
Horn and Hardart pioneered the automated restaurant concept and while they were popular during the great depression when belt tightening was a sheer necessity, once growth and good jobs returned they died out.
Now that wealth inequality is back with a vengeance wait-staff automation is back with a vengeance.
Personally I'd prefer it if good quality healthcare were cheaply available to all without having to be bottleneck on expensive-and-time-consuming-to-train human labour, even if it did mean that the 0.5% of the population that are doctors might end up working differently (and not necessarily for less -- it's not as though the industrial revolution has impoverished society).
A waiter from the early 19th century will have much the same productivity as now. Doctors (we would hope) could be more productive by, say, not using bloodletting and leeches to heal people.
It is the same issue. The reason that medical care is so expensive is that it's bottlenecked on a small number of people who are qualified and licensed to provide it. If it weren't bottlenecked on them then it would be a massive boon to society overall, and it's not clear that it would be particularly detrimental to those people.
>It is the same issue. The reason that medical care is so expensive is that it's bottlenecked on a small number of people who are qualified and licensed to provide it. If it weren't bottlenecked on them
That bottleneck is unrelated to the baumol effect.
The bottleneck is the cause of the Baumol effect. If medicine didn't require qualified and licensed human labour to provide then we wouldn't have such high healthcare costs.
Now admittedly, there is a gap between the increase in labour productivity of wait-staff and the labour productivity of healthcare providers over the period since, say, the industrial revolution, but both are outstripped by orders of magnitude by the increase in productivity in the manufacturing and IT sectors. Manufacturing is no longer bottlenecked, because we offshore it, and IT is not bottlenecked because new technology is continuing to rapidly increase labour productivity.
I think, my layman’s understanding is the Baumol effect can be basically thought of as paying people to not be the next highest productivity gaining job.
So say bond market traders and computer programmers got more productive relative to doctors, then baumol effects would be paying doctors to not quit and get jobs at google or some bond desk. It’d be much less pronounced/related than say, trade school electricians who haven’t become much more productive with the advent of computers but are still needed. Doctors have a lot of other effects limiting their supply by things the licensing practices
Right, I think that's a valid way of seeing it, and you pay them not to do the next highest productivity gaining job because their current job is productive, particularly in price inelastic sectors like healthcare.
The reason I think it's valid to call it a disease is because you want it to be higher productivity yet, and more price elastic. Increasing healthcare provider productivity would not lower their boats, it would either shift them into the next highest productivity job, or better all round, shift them into new roles within the healthcare system opened up by the increased productivity (for example, personalised healthcare).
From the point of view of "the alternative is people earn less", "disease" does seem a misnomer. I was thinking from the point of view of "the alternative is sectors become more productive", so "disease" doesn't seem to fit as well.
