Baumol’s disease

Professor William Baumol of Princeton University recently died aged 95

‘Baumol’s disease’ is thought by some to explain the current productivity puzzle afflicting most developed nation’s economies, especially their labour-intensive service industries e.g. healthcare, education, performing arts

Quoting from an article by George Will in The Washington Post, Senator Daniel Moynihan explained this disease:

“The number of players, the number of instruments, the amount of time it takes 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 children, beat cops, sculptors and so through a great repertoire of occupations”

His corollary from this was: “activities with Baumol’s disease migrate to the public sector”

At a Senate Finance Committee hearing, Chairman Moynihan asked a medical dean: “At a (famous) hospital founded in the 1880s, how long did it take a professor of medicine to make his morning rounds, and how many interns would he take along with him?”

Dean: “Oh, about an hour, and say 12 interns”

Moynihan: “And today?”

Dean: “Got it”

The article’s author, George Will, reinforced this view by enlisting John Maynard Keynes and his lament 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, he claims improved productivity is increasingly imperative as an ageing workforce retires into the expensive embrace of the entitlement state

Such intriguing thoughts have been bounced around ever since Baumol formulated them way back in the 60s, but to no avail – they only apply to certain tasks, not whole processes, and those tasks are usually but a small part of the whole processes

So Baumol’s claims that there’s not much that can be done to improve productivity in many service industries, especially public sector industries, ends up being nonsense




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