in 2010 it was
23 times (70.33/3.02) more expensive to produce a performance
of Beethoven’s String Quartet No. 14 than in 1826. In other words,
one had to give up more other goods and services to produce a
music performance in 2010 than one did in 1826. Why? Simply
because in 2010, society was better at producing other goods and
services than in 1826. The 23 times increase in the relative price of the string quartet
is the driving force of Baumol’s cost disease.
r, it is important to see that the increase in the relative price of the string quartet makes string quartets costlier but
not less affordable... Society can afford just as many string quartets
as in the past....it can afford more because the increase
in productivity in other sectors has made society richer....
One lesson is that all prices cannot fall. Behind the
veil of money, prices are ultimately relative prices... The contrary intuition that all prices must fall with economic
growth comes from thinking about prices as a measure of affordability...
... another
deep lesson of the Baumol effect is that to understand why costs
in the stagnant sector are rising, we must look away from the
stagnating sector and toward the progressive sector....
