Uploaded August 2016 | Updated September 2026, 3 weeks ago
Professor L. Randall Wray giving a very short explanation of something called Baumol's Disease. As technology and innovation improve the production process in some industries, productivity tends to go up, meaning the firm can produce more output given the same amount of labor. If the labor market is competitive, then this will lead to rising real wages for workers, who are fighting to maintain the same share in a growing pie.
However, not all industries can experience sustained productivity growth. Music (particularly classical music), art, theatre, healthcare, and education are all fields where a given amount of labor produces roughly the same amount of output as 50 or 100 years ago: although the automotive industry can churn out thousands of times more cars than it could 100 years ago, a teacher can still only teach around 30 kids per hour. And it still takes the same 50 musicians to play Beethoven's Fifth.
But, rising real wages in the rest of the economy puts upward pressure on wages in those other industries; nobody would become a nurse if they were still being paid (adjusted for inflation) what they were in 1870. So rising real wages in the overall economy will force skilled labor out of the Baumol industries unless they raise wages as well. But because productivity hasn't risen, this reduces the profits of those industries. As this process continues, those industries eventually become unprofitable altogether.
This means that if we still want education, healthcare, and the arts to exist under capitalism, eventually the government must take them over, and operate them at a loss. In this way, capitalism leads to an expanding size of government.
See the whole video here: youtube.com/watch?v=KoBnwfokW5Q&list=PLYvSXI9SKGf2lIno6TI0r_PbLX_cpAwuu&index=8
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Professor L. Randall Wray giving a very short explanation of something called Baumol's Disease. As technology and innovation improve the production process in some industries, productivity tends to go up, meaning the firm can produce more output given the same amount of labor. If the labor market is competitive, then this will lead to rising real wages for workers, who are fighting to maintain the same share in a growing pie.
However, not all industries can experience sustained productivity growth. Music (particularly classical music), art, theatre, healthcare, and education are all fields where a given amount of labor produces roughly the same amount of output as 50 or 100 years ago: although the automotive industry can churn out thousands of times more cars than it could 100 years ago, a teacher can still only teach around 30 kids per hour. And it still takes the same 50 musicians to play Beethoven's Fifth.
But, rising real wages in the rest of the economy puts upward pressure on wages in those other industries; nobody would become a nurse if they were still being paid (adjusted for inflation) what they were in 1870. So rising real wages in the overall economy will force skilled labor out of the Baumol industries unless they raise wages as well. But because productivity hasn't risen, this reduces the profits of those industries. As this process continues, those industries eventually become unprofitable altogether.
This means that if we still want education, healthcare, and the arts to exist under capitalism, eventually the government must take them over, and operate them at a loss. In this way, capitalism leads to an expanding size of government.
See the whole video here: youtube.com/watch?v=KoBnwfokW5Q&list=PLYvSXI9SKGf2lIno6TI0r_PbLX_cpAwuu&index=8
Like Deficit Owls on Facebook: facebook.com/DeficitOwls
