William J. Baumol

“Briefly, the book’s central arguments are these:

1. Rapid productivity growth in the modern economy has led to cost trends that divide its output into two sectors, which I call “the stagnant sector” and “the progressive sector.” In this book, productivity growth is defined as a labor-saving change in a production process so that the output supplied by an hour of labor increases, presumably significantly (Chapter 2).

2. Over time, the goods and services supplied by the stagnant sector will grow increasingly unaffordable relative to those supplied by the progressive sector. The rapidly increasing cost of a hospital stay and rising college tuition fees are prime examples of persistently rising costs in two key stagnant-sector services, health care and education (Chapters 2 and 3).

3. Despite their ever increasing costs, stagnant-sector services will never become unaffordable to society. This is because the economy’s constantly growing productivity simultaneously increases the community’s overall purchasing power and makes for ever improving overall living standards (Chapter 4).

4. The other side of the coin is the increasing affordability and the declining relative costs of the products of the progressive sector, including some products we may wish were less affordable and therefore less prevalent, such as weapons of all kinds, automobiles, and other mass-manufactured products that contribute to environmental pollution (Chapter 5).

5. The declining affordability of stagnant-sector products makes them politically contentious and a source of disquiet for average citizens. But paradoxically, it is the developments in the progressive sector that pose the greater threat to the general welfare by stimulating such threatening problems as terrorism and climate change. This book will argue that some of the gravest threats to humanity’s future stem from the falling costs of these products, rather than from the rising costs of services like health care and education (Chapter 5).

The central purpose of this book is to explain why the costs of some labor-intensive services—notably health care and education—increase at persistently above-average rates. As long as productivity continues to increase, these cost increases will persist. But even more important, as the economist Joan Robinson rightly pointed out so many years ago, as productivity grows, so too will our ability to pay for all of these ever more expensive services.”
― William J. Baumol, The Cost Disease: Why Computers Get Cheaper and Health Care Doesn't