Results for “baumol”

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I have two pretty random questions about which I would love to see a discussion on MR:

The lesson, of course, is that "pretty random" questions rarely are.  Usually it is someone asking the same question twice.

I believe with p = 0.6 that the world is in for a "great disruption."  It has come to MSM first but it will not end there.  In the longer run I am optimistic about the results of this change — computers will free up lots of human labor — but in the meantime it will have drastic implications for income redistribution, across both individuals and across economic sectors.  For a core metaphor, the internet displacing paid journalism and classified ads is a good place to start.  The value of newspapers has been sucked into Google. 

Later, we'll be much better at measuring which research Ph.d's are contributing value and which ones are not, or at least we'll think we are.  Since academic achievements follow a Power Law, that will mean a huge ouch for many would-be academicians.  The new professor will need to be skilled in assembling collages of information, raising money, and communicating to broader public audiences.  Either that or his research should be very obviously of the top order.  The distribution of income across professors will become radically less equal as indeed the trend has been for well over a decade now.

If you have $10 million, the safest thing to do is to diversify across currencies, buy government securities of various kinds, hold $1.5 million in gold, and otherwise not invest at all.  Oh yes, invest in some cheap hobbies.  In a real crunch remote land is worthless — transport costs — and your cult followers are as likely to betray you as not.  Trying to become a professor is no longer such a safe path.

Once The Great Disruption becomes more evident, entertainment will be very very cheap.  Medical treatments will become either much more expensive or again very cheap.  If you get the wrong ailment, you're going to need the $10 million.

Robin Hanson believes we are headed back toward a Malthusian equilibrium; in contrast I believe that machines will never outcompete humans across the board and so the scenario will more closely resemble Baumol and Bowen's "cost disease."  The variance of real wages will continue to rise.

I predict the equity premium will go up.

Megan McArdle writes:

As the Boomers age, they will consume fewer of the things that we produce efficiently, and more of the things that we provide relatively inefficiently.

Here is more, and I hereby take Megan to be a robot pessimist. 

It is a revealing question to ask which sectors a person considers technologically stagnant.  Baumol claimed it is the performing arts, but TV and the internet have belied this; it is true that those media are not *live* performance but that is substituting objective aesthetic judgment for what consumers really care about.  People love Dexter, whether or not there is someone actually in the box.  For stagnant sectors, I will nominate:

1. Haircuts, you might as well get them in Mexico

2. Automobiles (given the overall extent of technological progress, are they really so much better than in 1957?), although the $2500 car may change this

3. Spicy food, it seems best in relatively poor countries

I’m not yet sure about teaching.  It seems to be a candidate but people are learning an awful lot from blogs these days; don’t fixate on delivering the old service the way we always have.

Your picks?  Keep in mind that something has to be stagnant in relative terms, to date it sure isn’t computer chips but they raise the bar for the average.  I expect pharmaceuticals and webcams to make it much easier to care for old people, but only on a per year of life basis; the number of years lived and thus total cost will rise too.

Comments: Miscounting Money of Colonial America: Ronald W. Michener and Robert E. Wright argue that Farley Grubb, writing in Explorations in Economic History, has mistaken the unit of account for the medium of exchange and grossly misestimated the money supply of colonial America. Farley Grubb responds vigorously to them, and not for the first time.

The Intellectual Tyranny of the Status Quo: Previously, Richard Timberlake criticized the “golden fetters” interpretation of the Great Contraction, and argued that the failing stemmed, rather, from the Fed’s adherence to the Real Bills Doctrine. While endorsing Timberlake’s vindication of the gold standard, Per Hortlund argues that Timberlake and others misfire with respect to the Real Bills Doctrine. Also in the previous issue, Kurt Schuler’s Argentina article indicted more than 90 economists for mistakes in understanding and description—among them, David Altig and Brad Setser, who here criticize Schuler’s charges. Schuler responds.

Do Economists Reach a Conclusion on pressing policy issues? Adrian T. Moore and Ted Balaker exam the case of taxi policy.

Economics in Practice: William J. Baumol explains why modern textbook theory is entrepreneurless.

Character Issues: In 1981, as the Thatcher government got its legs, 364 economists signed a letter protesting the direction of monetary and fiscal policy in Britain. Geoffrey Wood examines how well the letter has stood up.

Does the American Economic Association lean Democratic? William A. McEachern investigates the 2004-election cycle campaign contributions of AEA members, committee members, officers, editors, referees, authors, and acknowledgees.

Daniel Klein explores Gunnar Myrdal’s plea for disclosure of one’s ideological sensibilities, surveys the research into the ideological character of the AEA, and reports new findings on AEA membership rates by voter category.

Correspondence: E. Roy Weintraub remarks on History of Political Economy’s being dropped from the Social Science Citation Index. How can a journal show high SSCI citation productivity when the cluster of journals that cite it are excluded from SSCI?

From Jane Galt, read the whole thing.

For me the most intriguing passage (but not the central point) is:

Something that conservatives, and especially libertarians, have been slow to grapple with is that the more productive our society gets, the greater the possibility that some peoples’ labour simply isn’t productive enough to support them at a minimum level. Can we really tell former welfare mothers to go bunk ten to a room the way my Irish ancestors did? We’re a pretty rich country. Are we comfortable telling people to live as if they’re nineteenth century peasants, if their cognitive gifts, or education, won’t stretch to more?

I wonder whether increasing wealth will ever eliminate the case (sound or not) for, say, welfare payments or the public funding of education.  Won’t the U.S. at some point, however near or distant, become rich enough so that government won’t have to…fill in the rest of the sentence yourself…?  Or does growing wealth jack up land prices so much that subsistence becomes increasingly harder to achieve?  I’m not talking about a relative status effect here, or changing expectations as to what is a decent life (though those factors play a role too).  To some extent higher real wages also boost the cost of producing human beings (i.e., raising children), analogous to William Baumol’s "cost disease."  You can raise a family of seven in Mexico on one thousand dollars a year, just try that in Fairfax County.  And might further economic growth only exacerbate this contrast?

Some mid-level developing countries address this problem by allowing shantytowns to spring up in or near their major cities.  The wealthy live in the "normal" city, the poor in the shantys.  There are other ways of setting up parallel colonies on low-wage land.  Randall Parker writes of old people moving to low-cost cruise ships (no, not ice floes), and of course many of the elderly migrate to Mexico or Costa Rica.  The default of course is to keep everybody in the higher-rent, higher-value network, and not coincidentally raise general taxes over time.  We will all continue to pay lip service to the integrationist ideal, but let’s say you think the case for welfare will never go away, no matter how wealthy we become.  This view implies that the pressure for "separate colonies" will only increase over time.

Downsizing occurs when a firm lays off workers to economize on costs. So what do economists know about this phenomenon?

1. About half of all downsizing firms end up with at least as many laborers within a few years’ time. Downsizing is often a matter of restructuring a labor force, not just getting rid of dead wood. In other cases downsizing may be purely temporary, and is reversed once the firm has some extra cash.

2. Downsizing in manufacturing is nothing new and has been going on since 1967. That being said, the smaller manufacturing firms generally have been increasing employment. The notion of “regression toward a mean” describes the manufacturing sector better than the universal downsizing hypothesis.

3. Downsizing is positively correlated with the degree of foreign competition in a sector. So trade does encourage firms to cut their costs.

4. Manufacturing is fifteen percent of the U.S. labor force and thus only a small part of the downsizing story. Retailing and services have been upsizing considerably for many years.

5. Downsizing firms tend to increase their profits but not their productivity. Downsizing commonly leads to lower wages within the downsizing firm. There is evidence for the “wage squeeze” story.

From the recent Downsizing in America: Reality, Causes and Consequences, by William J. Baumol, Alan S. Blinder, and Edward N. Wolff.

The authors conclude the following:

…no special programs appear to be called for, aside from measures to ease the transition of downsized workers to other jobs…the evidence provides no support for the conjecture that the economy is undergoing widespread and protracted reductions in the size of the typical firm’s labor force.

Here are some paintings by economist William Baumol. Baumol has done much notable work, my personal favorite is his recent The Free-Market Innovation Machine on how oligopolistic competition drove the innovation behind the Industrial Revolution. Unlike many others, Baumol has never called it quits. He is still going strong at 81 years of age and producing some of his best work.

Thanks to Greg Delemeester for the pointer.

There is, of course, William Baumol’s “cost disease” thesis, which is that productivity tends to stagnate in the service sector in general and in the government sector in particular.

That is from Arnold Kling.

Consider this, from The New York Times.

Dr. Baumol, director of the C.V. Starr Center for Applied Economics at New York University, likes to explain the disease by using Mozart as an example. In the centuries since the composer’s death in 1791, playing one of his quartets for string still requires four instruments and four players and the same number of minutes. No way has ever been found to make this process more efficient, even though huge gains in industrial productivity have occurred during the same time.

Now here is from the 7 November Wall Street Journal, lead article:

For more than 200 years, “The Marriage of Figaro” has been performed with a full orchestra. But when the Opera Company of Brookly stages the Mozart opera in January, the pit will be occupied by only 12 musicians – and one technician overseeing a computer program that plays all the other parts….

…Once confined to the computer sector and a few technologically savvy companies, productivity gains have spread into the nation’s vast service sector, from airports to pet stores and package deliveries.

The title of the article is “Behind Surging Productivity: The Service Sector Delivers.” Need I say more?