William Baumol, 95; economist studied inflation

William Baumol, an economist who explained why the cost of college, an annual physical and a night at the symphony will outpace inflation — and why we need not throw up our arms in despair, died May 4 at his home in New York City. He was 95.

His son, Daniel Baumol, confirmed his death and said he did not know the cause.

A preeminent economist of his generation, Dr. Baumol taught for more than 40 years at Princeton University and at New York University, where he retired in 2014. His work touched on monetary policy, corporate finance, welfare economics, resource allocation and entrepreneurship, but he was best known for the principle that came to bear his name: Baumol's cost disease. The insight came to him in a 4 a.m. epiphany in the 1960s, when he and a colleague, future Princeton president William Bowen, were preparing an analysis of the cost of presenting and attending the performing arts.

"I suddenly woke up and said I know why those costs are going up!" Baumol recalled in a 2001 oral history with economist Alan B. Krueger. "I got up, wrote down a few notes, and went to sleep again. That's literally how it happened."

Distilled to its essence, Baumol's cost disease is the idea that personally delivered services — musical performances, medical care, education and garbage collection, for example — naturally and inevitably increase in price year after year. "The idea is really trivial," Baumol said. "But the implication, which I think has not been yet learned, I think is mind-boggling."

The result of the cost disease, Princeton professor Alan Blinder said in an interview, is that services will be "more and more expensive relative to either goods — things you buy in the store, like bagels or cars," or automated services such as the Internet.