In my view, Baumol’s cost disease is poorly named: the name suggests that certain things are getting more expensive, but if “more expensive” means “society (on the whole) cannot afford as much as it used to” then this implication is false. To be clear, it is definitely possible that things like healthcare and education have gotten less affordable for a median consumer because of income inequality, but even if that’s true, it has little to do with Baumol’s cost disease per se. As Scott Alexander framed it,
The Baumol effect cannot make things genuinely less affordable for society, because society is more productive and can afford more stuff. However, it can make things genuinely less affordable for individuals, if those individuals aren’t sharing in the increased productivity of society.
I don’t think that the number of employees per patient in a hospital or the number of employees per student in a university is lower today than it was in the 1980s, even if hospitals and universities have improved in other ways.
I think this is likely wrong, at least for healthcare, but I’d guess for education too. For healthcare, Random Critical Analysis has written about the data, and I encourage you to look at their analysis.
In my view, Baumol’s cost disease is poorly named: the name suggests that certain things are getting more expensive, but if “more expensive” means “society (on the whole) cannot afford as much as it used to” then this implication is false. To be clear, it is definitely possible that things like healthcare and education have gotten less affordable for a median consumer because of income inequality, but even if that’s true, it has little to do with Baumol’s cost disease per se. As Scott Alexander framed it,
I think this is likely wrong, at least for healthcare, but I’d guess for education too. For healthcare, Random Critical Analysis has written about the data, and I encourage you to look at their analysis.