The econ­o­mist Wil­liam J. Bau­mol ex­plained why the cost of cer­tain ser­vices out­paces in­fla­tion.

The Washington Post Sunday - - METRO - BY EMILY LANGER emily.langer@wash­post.com

Wil­liam J. 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 G. 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!” Dr. 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,” Dr. 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 S. 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.

Im­proved tech­nol­ogy may al­low bagels and cars to be pro­duced more ef­fi­ciently and there­fore more cost ef­fec­tively, but, as Dr. Bau­mol fa­mously ob­served, a Mozart string quar­tet re­quires to­day the ser­vices of four mu­si­cians, the same man­power it took in the 18th cen­tury. “Pro­duc­tiv­ity im­prove­ment of zero,” Blin­der said.

Over the years doc­tors have man­aged to see more pa­tients in less time by elim­i­nat­ing house calls, but even of­fice vis­its re­quire a cer­tain min­i­mum amount of time. Schools might in­crease ef­fi­ciency by in­creas­ing class sizes, but few if any par­ents would re­gard such a change as an im­prove­ment in qual­ity.

Well-ap­pointed garbage trucks might speed col­lec­tion time, but still they must stop at ev­ery house. Po­lice and fire depart­ments sim­i­larly re­quire cer­tain base lev­els of staffing if they are to pro­vide their promised ser­vices.

Dr. Bau­mol’s ideas had im­me­di­ate rel­e­vance in pub­lic pol­icy, par­tic­u­larly in the ar­eas of health care and ed­u­ca­tion, where “all kinds of vil­lains have been trot­ted out,” Blin­der said — “lo­cal govern­ment, teacher unions, ra­pa­cious health care providers.”

“You have now ex­plained to me why the Demo­cratic Party is called the party of tax and spend,” Sen. Daniel Pa­trick Moyni­han (D-N.Y.) once told Dr. Bau­mol, “be­cause we are fi­nanc­ing all the things that are af­fected by the cost dis­ease.”

Dr. Bau­mol ad­vised then-first lady Hil­lary Clin­ton on the Clin­ton ad­min­is­tra­tion’s failed health-care plan in the early 1990s. He de­clared his sup­port for the Af­ford­able Care Act signed by President Barack Obama in 2010, and which House Repub­li­cans voted on May 4 to sig­nif­i­cantly cur­tail.

Dr. Bau­mol cau­tioned sup­port­ers of Obama’s pro­gram not to prom­ise more than they could de­liver, given the in­cur­able na­ture of the cost dis­ease. At the same time, he ar­gued that sav­ings in sec­tors out­side health care and ed­u­ca­tion would al­low fu­ture gen­er­a­tions to spend a greater per­cent­age of their in­come on those ser­vices.

“The crit­i­cal point here is that be­cause politi­cians do not un­der­stand the mech­a­nism and na­ture of the cost dis­ease, and be­cause they face po­lit­i­cal pres­sures from a sim­i­larly un­in­formed elec­torate, they do not real­ize that we can in­deed af­ford th­ese ser­vices with­out forc­ing so­ci­ety to un­dergo un­nec­es­sary cuts, re­stric­tions and other forms of de­pri­va­tion,” he wrote in his 2012 book “The Cost Dis­ease.”

Wil­liam Jack Bau­mol, a son of Eastern Euro­pean im­mi­grants, was born in the Bronx on Feb. 26, 1922. His fa­ther, a for­mer book­binder, ran a laun­dro­mat in New York. Dr. Bau­mol de­scribed the house­hold as “left-wing” and said he be­came in­ter­ested in eco­nomics dur­ing high school by read­ing the works of Karl Marx.

He stud­ied eco­nomics and art at the Col­lege of the City of New York, where he re­ceived a bach­e­lor’s de­gree in 1942. After Army ser­vice dur­ing World War II, he re­ceived a PhD from the Lon­don School of Eco­nomics and Po­lit­i­cal Sci­ence in 1949.

As an aca­demic, he seemed to chal­lenge his epony­mous cost dis­ease with his pro­duc­tiv­ity. He pub­lished hun­dreds of ar­ti­cles and sev­eral dozen books, among them the now-clas­sic text­book “Eco­nomics: Prin­ci­ples and Pol­icy,” which he co-wrote with Blin­der, a for­mer stu­dent.

Bur­ton Malkiel, a pro­fes­sor emer­i­tus of eco­nomics at Prince­ton and a for­mer the­sis ad­visee of Dr. Bau­mol’s, de­scribed him as an “ex­tra­or­di­nary men­tor to I would say not just one gen­er­a­tion but gen­er­a­tions of stu­dents.”

Sur­vivors in­clude his wife of 75 years, the for­mer Hilda Mis­sel, of New York City; two chil­dren, Daniel Bau­mol of New York City and Jas­mine Wolf of Coven­try, Conn.; and two grand­chil­dren.

Dr. Bau­mol said that he rel­ished draw­ing ab­strac­tions from eco­nomic cu­riosi­ties that he ob­served at work in the world.

“Some­times, I’m lucky; the ab­strac­tion turns out to be use­ful,” he re­marked. “And some­times, I’m very lucky, and I turn out to be to­tally wrong. Be­cause when I turn out to be to­tally wrong, that’s when the best ideas come out. Be­cause if my in­tu­ition was right, it’s al­most al­ways go­ing to be fairly sim­ple and straight­for­ward. When my in­tu­ition turns out to be wrong, then there is some­thing less ob­vi­ous to ex­plain. Of course, I’m al­ways de­pressed when I turn out to be wrong, but for a short while only.”

NYU STERN SCHOOL OF BUSI­NESS

Wil­liam Bau­mol was best known for an eco­nomic prin­ci­ple that came to him in a 4 a.m. epiphany in the 1960s.

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