A cause of flagging productivity

President Trump issued a statement calling for paid family leave, which is a little surprising until you remember he’s already paid two families to leave.” Seth Meyers “Late Night with Seth Meyers”

A lthough William J. Baumol, who recently died at 95, was not widely known beyond the ranks of economists, all Americans are living with, and policymakers are struggling with, “Baumol’s disease.” It is one reason brisk economic growth is becoming more elusive as it becomes more urgent. And it is a disease particularly pertinent to the increasingly fraught health care debate.

Born in the Bronx, Baumol spent his teaching career at Princeton and NYU but remained an aficionado of New York opera, and when in 1962 the Metropolitan Opera’s orchestra went on strike, Baumol sought an explanation for the Met’s regularly recurring labor troubles. He postulated “cost disease” afflicting labor-intensive service industries: Productivity will often increase not at all, or much slower, in some sectors —e.g., nursing, teaching, the performing arts —than in the overall economy. Decades later, Sen. Daniel Patrick Moynihan explained Baumol’s disease this way:

“The number of players, the number of instruments, the amount of time it took to ‘produce’ a Mozart quartet in the 18th century will not have changed one whit two centuries later. To play the ‘Minute Waltz’ in 50 seconds leaves something to be desired. True of first violinists, kindergarten teachers, beat cops, sculptors, and so through a great repertoire of occupations.”

Goldberg’s encounter with Baumol’s disease in the Met’s orchestra initiated thinking that led in 1965 to the National Endowment for the Arts. This elicited Moynihan’s corollary to Baumol’s theory decades later: “Activities with Baumol’s disease migrate to the public sector.”

Moynihan, thinking that it will be “the undoing of modern government” if there is too much migration, worried especially about health care. Perhaps technological advances will somewhat increase the productivity of teachers (e.g., online learning) and doctors (e.g., diagnostic advances using the human genome) as they have of policing (e.g., more efficient deployments of personnel). But there are limits. And a Mozart quartet must raise prices and donations or become dependent on government.

As a Democrat, Moynihan worried that the “stagnant services” would become identified with government, as would his party, while the Republican Party would be increasingly identified with a private sector becoming ever more dynamic relative to the public sector. Actually, however, the current health care policy morass suggests this: The two parties are about equally identified with government, and equally expected to use it to nurture public contentment with labor-intensive service industries.

Such industries might become increasingly important and problematic. In an appreciation of Baumol’s work, The Economist noted this possible implication of Baumol’s disease in a world of increasing automation:

“As machines become better at doing things, the human role in generating faster productivity growth will converge towards zero. At that point, so long as society expects everyone to work, all spending in the economy will go towards services for which it is crucial that productivity notgrow, in order to provide jobs for everyone. Society could seemingly be both characterized by technological abundance and paralyzed by cost disease.”

John Maynard Keynes lamented that the “encroachment of ideas” in public policy usually is gradual because politicians and government officials are rarely influenced by new ideas after age 30, so they apply to current events ideas that “are not likely to be the newest.” Today, however, increased productivity is increasingly imperative as an aging workforce retires into the expensive embrace of the entitlement state. So, Baumol’s disease is a now-old idea that should be on policymakers’ minds.