William Jack Baumol – USA

William Jack Baumol (born February 26, 1922) is a New York University economics professor (although he is also affiliated with Princeton University) who has written extensively about labor market and other economic factors that affect the economy. He also made valuable contributions to the history of economic thought. He is among the 500 best economists in the world according to IDEAS/RePEc. Among his better-known contributions are the theory of contestable markets, the Baumol-Tobin model of transactions demand for money, Baumol’s cost disease, which discusses the rising costs associated with service industries, and Pigou taxes [Baumol, W.J. (1972), ‘On Taxation and the Control of Externalities’, American Economic Review, 62 (3), 307-322]. The 2006 Annual Meetings of the American Economic Association held a special session in his name, and honoring his many years of work, where 12 papers on entrepreneurship were presented (AEA Annual Meeting Papers). The British magazine, The Economist published an article about William Baumol and his lifelong work to develop a place in economic theory for the entrepreneur (March 11, 2006, pp 68), much of which owes its genesis to Joseph Schumpeter. They note that traditional microeconomic theory holds a place for ‘prices’ and ‘firms’ but not for that (seemingly) important engine of innovation, the entrepreneur. Baumol is given credit for helping to remedy this shortcoming: Thanks to Mr. Baumol’s own painstaking efforts, economists now have a bit more room for entrepreneurs in their theories. Baumol is a trustee of the Economists for Peace and Security … (full long text).


William Jack Baumol – USA

His Video: William Baumol, conversation with Harold Channer, originally aired 06-12-99, 59 min, added on web March 19, 2008.

He says: … “It is true that in money terms our productivity will be slowed down by the shift in labor from agriculture, manufacturing and services like telecommunications into services like health care and education, but if you count the number of students who have graduated or the number of people who have been taken care of after a heart malfunction, that is not going down” … (full text, August 13, 2007).

Absurd remedies to cost disease.

… When Mozart composed his String Quintet in G Minor (K. 516), in 1787, you needed five people to perform it—two violinists, two violists, and a cellist. Today, you still need five people, and, unless they play really fast, they take about as long to perform it as musicians did two centuries ago. So much for progress. An economist would say that the productivity of classical musicians has not improved over time, and in this regard the musicians aren’t alone. In a number of industries, workers produce about as much per hour as they did a decade or two ago. The average college professor can’t grade papers or give lectures any faster today than he did in the early nineties. It takes a waiter just as long to serve a meal, and a car-repair guy just as long to fix a radiator hose. The rest of the American economy functions differently … The result is that in industries where productivity is flat costs and prices keep going up. Economists call this phenomenon “Baumol’s cost disease” … (full text, July 7, 2003).

Find his CV/Bio: on his own homepage at econ.nyu.edu; on Pioneers of Industrial Organization; on all biographies.com; encyclopedia.farles.com … etc etc …

William Baumol and his co-authors have analyzed the impact of differential productivity growth on the health of different sectors and on the overall economy. They argued that technologically stagnant sectors experience above average cost and price increases, take a rising share of national output, and slow aggregate productivity growth. Using industry data for the period 1948-2001, the present study investigates Baumol’s diseases for the overall economy … (full text).

Citations of William Baumol.

… Another theory, propounded by William J. Baumol, is that productivity in the private sector increases, but public-sector productivity stagnates. Therefore, says Baumol, for the government to maintain a suitable level of services per person, government spending must grow as a percent of GNP. Even granting his view of relative efficiency, Baumol’s theory certainly does not explain the nongrowth of government spending before 1929. Indeed, all theories of growth to date fail to explain either the many early decades of stable government spending or the growth of government spending after 1953—or both … (full text, not dated).

Google book to be downloaded:

Find him and his publications on wikipedia; on RePEc; on amazon.com; on Google Book-search; on Google Scholar-search; on Google Blog-search.

… Perhaps it is not too surprising that manufacturing productivity growth has lagged behind that of services. American manufacturers faced some pretty intense foreign competition in the 70’s and 80’s, and they were forced to become efficient. Services weren’t subjected to the same competitive forces, and they lagged behind during this period. Furthermore, companies that provide services tend to be smaller than big manufacturing concerns. They just couldn’t afford the investments in information technology systems that improved manufacturing efficiency. But as the price of information technology fell, it became more affordable, allowing productivity enhancements to spread through the economy – even to those small and medium-size service enterprises that provide so much of our employment. Baumol’s disease appears to be in remission, at least for a significant number of service industries. (full text).

The Wolf Report and Baumol’s Curse: The Economic Health of American Symphony Orchestras in the 1990s and Beyond, 2002, 25 pages.

In today’s Outlook column, Brian Blackstone looks at the possible resurgence of Baumol’s disease. In the 1960s, economist William Baumol, now at New York University, and William G. Bowen, an economist who later became president of Princeton University, argued that because productivity growth in labor-intensive service industries lags behind that in manufacturing, productivity growth in service-oriented economies tends to sag. Baumol However, in the past decade the information-technology boom led to rapid efficiency gains not just in the production of high-tech equipment, as expected, but also in services such as retailing — which had long been assumed to have little prospect for much improvement. In fact, it is in services — particularly in retail and wholesale trade, in something called the “Wal-Mart effect” — where economists credit a good part of productivity gains in the late 1990s and early 2000s. That led Brookings Institution economists Barry Bosworth and Jack Triplett to conclude in an influential 2003 paper that Baumol’s disease “has been cured.” But, sectors where productivity is high and average labor cost low “are those things that can be automated and mass-produced,” Mr. Baumol, now in his mid-80s and still teaching, said in an interview. “And things where labor-saving is below average are things that need personal care — these are health care, education, police protection, live stage performance … and restaurants” … (full text, August 13, 2007).

Productivity measurement issues in services industries: “Baumol’s disease” has been cured.


A Farewell to Alms: A Brief Economic History of the World (Princeton Economic History of the Western World), by Author Gregory Clark;

Economics Profits.com;

The Three Most Important Indicators for Predicting the Future Direction of the Stock Market;

The Economist, a weekly.

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