Is Baumol’s cost disease wrong?

Rather, I question whether the concept is too narrowly used.

Baumol’s cost disease is the theory (Baumol and Bowen) that the performing arts faces rising costs and thus a productivity lag. Most simply put, since technology advances are inapplicable to something like playing a cello, performing as a symphony orchestra, or dancing a ballet, this “industry” has not seen any decrease in real costs - i.e. there is no way to increase productivity - and thus it has seen a relative rise in cost.

This is, on its face, exquisitely intuitive. Milk may cost more per gallon than it did when our grandparents were our age, but its a pretty safe bet that the real cost of a gallon of milk has decreased. With the scale and automation of the dairy business it doesn’t take an army of milk maids to supply a town with its milk needs. So a gallon of milk requires far fewer man hours (or person hours for the gender squeamish) to produce nowadays than it did 60 years ago. This should be true even if you factor in all of the hours inherent in the production of the milk equipment (the proportional time for the fixed costs, which should really be included to make such comparisons fair).

This depends entirely on what unit is being measured. Either I suffer from a creative deficit or there isn’t any other decent way of counting milk production. A gallon of milk is a gallon of milk. But what if we don’t count an orchestra performance as simply an orchestra performance? We are assuming that each performance is equal to another, and moreover, that the performance is not “resalable”. The good being sold is not “one orchestra performance”. The good being sold is an individual listening and enjoyment (awkward) of the performance. So let’s say that technology allows us to double the seating capacity of an orchestra hall without reducing the audio quality. Now the orchestra members are providing double output!

This is silly and contrived, says our imaginary critic. The expansion of the orchestra hall has not affected how the musicians actually play, and it does nothing to change how many musicians are required to perform (produce) the symphony itself. By this logic, we could halve each individuals milk consumption and thus “double” production by redefining milk consumption from gallons to “the number of individual servings enjoyed”, servings which are now halved, I should add.

The difference is that milk is a rival good (if you drink a glass of milk no one else can drink it) but an artistic performance is non-rival (your enjoyment of the Nutcracker does not affect my enjoyment of it). So while it is technically true that it will require the same number of performers as it did a century ago to perform the same symphony, more people can enjoy that performance and more instances of enjoyment can take place. Is a CD just a technological innovation in digital data storage, or is it also an innovation in further sharing the good which is the performance?

I have no argument that the cost of an individual performing the one stated action has risen relatively, and will continue to do so, but I don’t think this fact is in and of itself terribly important unless you narrowly define the good.

*Taking into account inflation