The Curse of Material Progress
Confronting cost disease
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A disease, one that threatens to spread throughout our socioeconomic and political systems, is growing. This disease is a cancer that has the potential to stifle future prosperity by misallocating limited resources and stunting productivity. Here, we look at “cost disease,” how it manifests, and why most prescriptions offered by policymakers only further feed the disease to the detriment of our future.
What is Cost Disease?
William Baumol observed that differences in productivity growth in various sectors of an economy can cause the cost of goods/services in those sectors to inflate rapidly over time. He used the example of a string quartet to explain this phenomenon. Violinists today are no more productive than those of a century past; a string quartet still requires four musicians. Yet, despite no improvement in productivity, musicians today are paid significantly more than those in the 19th Century.
