Friday, May 5, 2017
William Baumol (econ.; NYU, Berkeley, Princeton) died yesterday. He informed the way many of us think about higher-ed financing and professional labor. I am re-posting here an excerpt from Dean Dad's tribute this morning:
Longtime readers know that I consider [Baumol's] signature contribution to economic thought -- Baumol’s Cost Disease -- one of the foundational truths of higher education. (The same could be said for health care and live entertainment.) He waited until late in life to commit the idea to book form; his book The Cost Disease should be required reading for anybody who presumes to comment or work on the economics of higher education....
His idea is generally downplayed or ignored in discussions of higher ed financing. That’s everyone’s loss. He never really solved the issue, but he gave us a map to understand it. That’s a genuine contribution. Well done, sir.
Baumol’s insight helps us understand, too, the broad-based assault on the professions. Why are “disruptors” so intent on undermining the educated professional middle class? Because until now, people in those jobs were able to demand significant salaries due to scarcity. If you’re the first to break that scarcity, whether through automation, disaggregation, or some other variation, you can hoover up those gains for yourself. Which is exactly what’s happening.
When you break the link between labor and production, it becomes much easier to hoard value in a few hands. We’re only beginning to grasp the implications of that.