"Baumol started out by asking himself why the costs of the performing arts always seemed to be rising" Moynihan wrote. "I remarked that if you want a Dixieland band for a campaign rally today, you will need the same [number of] players you would have needed at the beginning of the century. Productivity just hasn't changed much."
But per-player costs -- salaries and benefits -- had risen dramatically, and the price of that Dixieland band along with them.
So, too, the price of health care, the senator argued. An already labor-intensive industry was becoming even more so with each technological advance -- driving per-patient productivity ever lower and overall costs inexorably higher.
The same, he said, is true of what he termed the "stagnant [public-sector] services" -- including "education high and low, welfare, the arts, legal services, the police. This means that the [costs] of the public sector will continue to grow."
But will they continue to grow until government can no longer squeeze sufficient money from the wealth-producing sector to sustain the demands of the wealth consumers? And did that happen in the summer of 2008?
Not everything but the demand and cost in this equation is constant. Take the Dixieland band example. If you want to hear a Dixieland band play, the costs will be higher as a service (assuming that the demand for Dixieland bands hasn't fallen so much that part-timers who play for fun will do it for little or no money--I think our newspapers might be able to comment on that change). But what if, in a world of demand for Dixieland music, you decide you simply want to listen to Dixieland music. Ah, then your cost horizons change. Get a record, tape, CD, or MP3--or even a video--and technology has lowered the cost of listening to Dixieland music, if not that of a Dixieland band.
Or take higher education. I trudged to many a huge lecture with a couple hundred other students to hear a professor lecture (well, when I went. I wasn't the most diligent of class attenders). What would I have lost if I heard a professor lecture via video along with a couple hundred thousand other students? If you assume the service of listening to a history lecture must include sitting in a lecture and hearing a one-way dialog in person, sure, the costs will always go up. But change the definition of what receiving the education service is, and cost vectors can change. Heck, isn't this really what diploma mills have been about? Go right to the diploma and cut costs by having no or bogus classes, right? We could find something in between, couldn't we? Surely there would be ways to redefine the service, right?
And maybe universities could split off their research functions to an affiliated for-profit enterprise to keep the administrative costs of contracts and grants (which, if I understand the issue, is a major reason why the ratio of administrators to faculty has skyrocketed) of that enterprise hang on the teaching side. And as a pure rant, why the trend to luxury dorms? By God, when I was in college we had converted broom closets for dorm rooms and we liked it.
But I digress.
Even in government, there is room for changing service. Lots of transactions with government that once required a trip to a government office staffed with an employee (regardless of whether they did the job well or not) whether anyone who needs the service is at the counter or not can now be done on the Internet. In Michigan, the state workforce has actually dropped by 23% between 1990 and 2009 (see p. 9 of the document; p. 12 of the PDF). I'm sure that there were further decreases in 2010. And that overall decrease includes a pretty hefty increase in the Department of Corrections staff given the rising prisoner population over the last couple decades, which means the non-Corrections state employee numbers really dropped. Clearly, state services are being provided differently--and with fewer people.
I won't pretend to be able to say how labor-intensive services can be provided that lessen the reliance on the more expensive labor costs. And I'm not interested in delving into the subject. But I will say that the costs doom us only if we have a static view of how to provide the service. Not that I even like Dixieland bands, but if I wanted to hear one, I'd pay a few bucks to listen to one whenever I want rather than save up to hire one every 6 months or so to play for me personally.