Key points. The Baumol effect & Jevons paradox are 2 claims regarding the effect of increasing efficiency of a good or sector. Although not incompatible, they are at odds; one suggesting relative decline, the other suggesting absolute growth. I examine these & find that they are often defined & discussed in a confused way. I suggest that thinking in terms of sector specific ‘Kondratiev waves’ may be more helpful. This suggests a boom for AI but a bust for non AI software with the former overwhelming the latter as far as effect on the overall economy.
Baumol effect vs Jevons paradox
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Key points. The Baumol effect & Jevons paradox are 2 claims regarding the effect of increasing efficiency of a good or sector. Although not incompatible, they are at odds; one suggesting relative decline, the other suggesting absolute growth. I examine these & find that they are often defined & discussed in a confused way. I suggest that thinking in terms of sector specific ‘Kondratiev waves’ may be more helpful. This suggests a boom for AI but a bust for non AI software with the former overwhelming the latter as far as effect on the overall economy.