The Imminent Capitalist Reckoning

Have you ever heard of the economist William Baumol? Probably not, because economists are almost always boring and often little more than hacks that rich people invest in to help them save money on taxes. But Baumol appears to be one of the rare economists to stumble upon a genuine insight. One of his ideas is known as Baumol’s cost disease (always name your smart discoveries after yourself), which essentially states that if large capital investments are used to automate the mass production of goods, the price of those goods will fall and the costs of services – i.e., tasks that humans must in large part perform – will rise as a result. Because wages for workers benefiting from increasingly automated, increasingly efficient, mass-production will rise, these workers will be more able and willing to pay higher prices for services. When this happens, prices and wages for service workers will rise. Thus, even though Beethoven’s Fifth remains Beethoven’s Fifth whether it be played in the 18th century or the 23rd, God willing, the players and conductors in the 23rd will be payed much more than the player and conductors were payed in the 18th. And, since the playing of Beethoven’s Fifth can’t be automated the way manufacturing a diaper can be, the cost of the Fifth, relative to the cost of the diaper, will increase.

Put another way, as the ability of capital to mass produce dead objects/goods increases, the relative price of these dead objects will decrease against that which cannot be mass-produced – again, i.e., tasks that humans must in large part perform.

One more try:¬†as people experience income growth and can purchase many goods with less money, they will pay more for things that are less easily automated, aka people-performed work aka services. If you still don’t understand at this point you should probably stop reading and make loud fun of me for being a bad writer and explainer.

Continue reading