The impact of Baumol's disease on the North.

• Author: Robinson, David
• Position: Economically Speaking

William Jack Baumol is among the most influential economists in the world. He discovered a disease. At this very moment you are suffering from Baumol's disease. And if you understand Baumol's disease you can predict the future.

The story begins sometime in the early 1960s, when Baumol was talking about the rising price of theatre tickets with fellow economist William Bowen. The two realized something really obvious--so obvious, in fact, that they nearly got a Nobel Prize for it. One flute player can only play one flute at a time, and one flute can normally only play one note at a time.

Big deal, you say? Who cares that the productivity of flautists is stuck in the middle ages? The economy has stagnant sectors like flute playing, but it also has sectors with rapidly rising productivity. The speed of auto assemblers doubled over the last 30 years, for example. Output per farmer has increased by a factor of 12. The average milk cow increased her output of milk by 242 per cent. The electronic industry has made unbelievable gains. In 1960, the richest person in the world could not get a computer capable of managing the Apollo mission, a music player and a radiotelephone into a tractor trailer. You may have a child who carries all that functionality plus a camera, an encyclopedia and a game cabinet all in a package the size of a Cadbury's milk chocolate bar.

What Baumol and Bowen noticed that others have missed is that when many things get cheaper, it seems like the other things get more expensive. For instance, say Jack was a musician who plays one concert a day. Jill works in a factory and makes two chairs a day. With mechanization Jill makes 10 chairs a day. Her wage could rise from one to five chairs a day. The trouble is that Jack will change jobs unless he also gets a comparable wage. Either the price of performances goes up or the supply of performances dries up. But will Jill pay the higher price?

This is bad news for the arts, so Baumol and Bowen wrote a book the called "Performing Arts, The Economic Dilemma: a study of problems common to theatre, opera, music, and dance." The performing arts, they said, are suffering from a 'cost disease.' They seem to cost more and more every year.

You are suffering from Baumol's cost disease, too. You rely...