> This seems painfully naive to the point of farce. Do they really believe the value of playing music is derived solely from the effort to produce it and not from how many people consume it and under what circumstances it is consumed?
The Baumol Effect is about relative, not absolute prices. Musicians may have become more productive over time but producers of goods have become much, much more productive. So services increase in relative price over time while goods decline.
It’s analogous to the Balassa-Samuelson Effect. Services are cheaper in poor countries than in rich ones because the entire economy is less productive. As it becomes more productive the leading sectors bid up the average wage to get higher quality workers ,or just more of the same quality, and the low productivity sectors either disappear or raise their wages to keep their labour, passing on the costs to consumers.
That it’s a change in relative rather than absolute prices is the entire point of the Baumol Effect.
If you need a refresher with applications to the American Economy Alex Tabarrok wrote a short book on it recently, Why Are The Prices So Damn High?
If you look at nothing else check out the first graph, on page ten. Services have gotten more expensive and goods cheaper, housing excepted, for over 50 years.
The interpretation I like, which is basically a restatement of the Baumol effect, is that the value of something like music isn't remotely in the work done but in how the listeners feel about it.
The market is effectively determining that modern musicians are more productive than the musicians of old because they are entertaining more economically productive people and the market is valuing the entertainment with reference to who the audience is. Similarly with the rich countries; the people supporting highly productive advanced economies get more, because markets value outcomes more than inputs.
It is hardly fair, but at that level fairness is cripplingly expensive.
The Baumol Effect is about relative, not absolute prices. Musicians may have become more productive over time but producers of goods have become much, much more productive. So services increase in relative price over time while goods decline.
It’s analogous to the Balassa-Samuelson Effect. Services are cheaper in poor countries than in rich ones because the entire economy is less productive. As it becomes more productive the leading sectors bid up the average wage to get higher quality workers ,or just more of the same quality, and the low productivity sectors either disappear or raise their wages to keep their labour, passing on the costs to consumers.
That it’s a change in relative rather than absolute prices is the entire point of the Baumol Effect.
If you need a refresher with applications to the American Economy Alex Tabarrok wrote a short book on it recently, Why Are The Prices So Damn High?
https://www.mercatus.org/system/files/helland-tabarrok_why-a...
If you look at nothing else check out the first graph, on page ten. Services have gotten more expensive and goods cheaper, housing excepted, for over 50 years.