Evan Soltas
Mar 18, 2013

Curing Baumol's Disease

My latest in Bloomberg discusses Baumol's disease and the "search for the cure" in government policy and private-sector innovation:

Staging a performance of Shakespeare's "Henry IV, Part II" takes a lot of people and a lot of time. There are dozens of roles to fill. You need theater support staff. You need rehearsals. And performing the play takes, well, as long as it takes.

What struck two Princeton economists, William J. Baumol and William G. Bowen, was not that performing "Henry IV, Part II" requires all that time and effort, but that it has always been that way. Nearly a half-century ago, Baumol and Bowen observed that Shakespearean theater hasn't grown much more productive since the Bard of Avon directed operations himself.

That's not true of other industries, of course. Productivity in farming or steelmaking is vastly higher than it used to be. Baumol's and Bowen's famous insight was that these disparities in rates of productivity growth have a striking result.