Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth
The Baumol Effect Explains Rising Service Costs
Why does a college education cost twice as much today, adjusted for inflation, as it did in 1980? Why is a doctor's visit more expensive than a new TV? The answer lies in a 1960s insight from economists William Baumol and William Bowen: the 'cost disease' of services. In this episode, Lucas and Luna break down how Baumol used a Mozart string quartet to show why labor-intensive industries like healthcare, education, and the arts can't boost productivity the way factories or farms can—yet wages in those sectors must keep up. The result? Costs that rise relentlessly, even as…
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