Tag Archives: Baumol’s cost disease

I love hearing something entirely new

A week ago, my brother in law recommended a blog post from the NY Times Perscriptives blog, which covers the health care issue with some depth. I finally got around to reading it this afternoon and was introduced to an an idea, a theory, that is entirely new to me and so wonderfully commonsensical.

It is something called Baumol’s cost disease, named for an 88-year old economist, William Baumol.

“Dr. Baumol and a colleague, William G. Bowen, described the cost disease in a 1966 book on the economics of the performing arts. Their point was that some sectors of the economy are burdened by an inexorable rise in labor costs because they tend not to benefit from increased efficiency. As an example, they used a Mozart string quintet composed in 1787: 223 years later, it still requires five musicians and the same amount of time to play.

Despite all sorts of technological advances, health care, like the performing arts, suffers from the cost disease. So do other public services like education, police work and garbage collection. While some industries enjoy sharp increases in productivity (cars can be built faster than ever, retail inventory can be managed better), endeavors like health care are as labor-intensive as ever. “

Back when Baumol was advising the late Senator Daniel Moynihan on Clinton’s health care proposals, he explained his theory to the Senator who then said “You have now explained to me why the Democratic Party is called the party of tax and spend, because we are financing all the things that are affected by the cost disease and Republicans want to short-change them”

Very very interesting column. The whole blog in fact is a great place to track what’s going on with health care legislation.