Will Baumol died on May 4. He is the economist who conceived
of the concept of “cost disease.” An
interesting man and an important thinker. He is obituarized here and his ideas are discussed here,
here and here.
Briefly put, Baumol argued that costs rise to provide
government services because of
productivity gains in other sectors drive up wages, against which government
hirers must compete for workers. But unlike a factory worker, most government
workers – teachers, say, or child care aides – can’t improve their productivity
meaningfully.
I addressed the phenomenon in a 2015
column.
Imagine a more
perfect Illinois – call it Minnesota, maybe, or Massachusetts. Imagine that
every county health department and jobs bureau and school district delivered so
reliably, effectively and efficiently as to make a professor of public
administration think she’d died and gone to heaven. Government would cost a
little less than it does now, or its services would have a higher value. But
the cost of government services, and the taxes levied to pay for them, would
still tend to rise faster than the cost of everything else. Two reasons. We need government to provide all
the things for which there is no natural market. Taking care of abandoned
children and the severely handicapped, teaching children who do not come from
rich families, keeping streets and buildings safe, providing parks and fire
protection, running libraries – every single one of these services could be
provided privately. In fact, all of them once were. They ended up as public
responsibilities because the supposedly superior private sector and charities
could not or would not provide them to everyone, as government must. The second reason was first described in the
1960s by economists William J. Baumol and William G. Bowen. They noted that
government work is indeed inefficient. Not because it is wasteful, but because
the overwhelming component in costs is labor, and many government agencies do
work that is inherently and irremediably labor-intensive.
In fact. attempts to
made a welfare worker more efficient in terms of time and money – as Mr. Rauner
seeks to do — makes them less efficient at what they are being paid to do. Beware of tinkerers who try to fix things they don’t understand.
This article appears in May 11-17, 2017.
