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Baumol Effect

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Re: Baumol Effect

#31

Post by kodz4 »

wazoox wrote: post #22
LudwigNagasena wrote: post #6

Earlier quoted context omitted.

Did you dismiss physics for the same reason? A perfectly elastic ball rolling down a frictionless plane, how absurd!

In physics courses, it's pretty clear that perfect balls and frictionless planes aren't actually real. OTOH, I recently had a debate with an economist that nearly insulted me because I doubted that infinite GDP growth was possible in a finite world; you "simply" need to infinitely enhance value of goods and services, which is perfectly possible because it hasn't been proved impossible. Plus it's taught in Econ 101, s…

> infinite GDP growth was possible in a finite world

A circle is finite but what about Pi? Does it ever end?

Re: Baumol Effect

#32

Post by fnord123 »

devit wrote: post #28

Isn't the premise that "real wage growth is closely tied to labor productivity changes [of that particular job, in all cases]" just completely wrong in itself? If increased productivity (of everyone in a profession due to some new technology) means less people are needed in a given profession, demand for employees decreases and thus wages go DOWN along with product prices. Also the "natural equilibrium state" for wag…

I'm not an economist but I expect Jevon's paradox to make the cheaper productivity result in increased consumption of the productivity. And that seems to be what we see.

Re: Baumol Effect

#33

Post by barrkel »

anm89 wrote: post #3

"they pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century; the productivity of classical music performance has not increased. On the other hand, the real wages of musicians (as in all other professions) have increased greatly since the 19th century" This seems painfully naive to the point of farce. Do they really believe the value of playi…

> Do they really believe the value of playing music is derived solely from the effort to produce it

If you remember anything from your economics courses, you should remember that in an efficient market, the price of something should decline to its marginal cost of production, due to competition undercutting the overpriced competitors. Your point might be relevant if there are wild swings in the demand for music.

Re: Baumol Effect

#34

Post by anm89 »

barrkel wrote: post #33
anm89 wrote: post #3

"they pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century; the productivity of classical music performance has not increased. On the other hand, the real wages of musicians (as in all other professions) have increased greatly since the 19th century" This seems painfully naive to the point of farce. Do they really believe the value of playi…

> Do they really believe the value of playing music is derived solely from the effort to produce it If you remember anything from your economics courses, you should remember that in an efficient market, the price of something should decline to its marginal cost of production, due to competition undercutting the overpriced competitors. Your point might be relevant if there are wild swings in the demand for music.

And has that happened? Instead top trained musicians command huge salaries and people pay out the ass to see them.

"In an efficient market"

Well we aren't living in a perfectly efficient vacuum so who cares? You are point in case what Im talking about. You believe that the sanctity of your theoretical view of the world is more important than what happens in the real world. I could argue about what happens to musician salaries if they all were covered in butter and learned how to fly. It would be about as useful of a conversation as debating perfectly efficient markets.

Economics truly earns its reputation as the dismal science.

Re: Baumol Effect

#35

Post by raverbashing »

anm89 wrote: post #3

"they pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century; the productivity of classical music performance has not increased. On the other hand, the real wages of musicians (as in all other professions) have increased greatly since the 19th century" This seems painfully naive to the point of farce. Do they really believe the value of playi…

> When I was an econ undergrad and I would hear absurdly naive logic like this I always thought it was a sign that I didn't understand some complicated underlying concept. But it's just nonsense. I still don't understand why people don't call this obvious absurdity out.

This explains a lot about how MBAs mismanage things (and people are afraid to call their BS)

Latest incarnation of this seems to be "how to make money with dropshipping" (they're just forgetting that the actual value they provide is close to 0 and the bubble is probably going to burst)

Re: Baumol Effect

#36

Post by Lerc »

The article makes for odd reading. The example of the productivity of musicians seems both arguable and unnecessary. The principle could be better described with a theoretical task.

As a hypothetical, There is a magic button in Australia that has to be pressed by a human being once a minute or London explodes. They used to pay someone a loaf of bread a day to press the button. Now they have to pay someone a real income to do the same task.

I'm not entirely sure why the emotive term "cost disease" is used. The principle essentially says when there is a competitive labour market You have to pay more to get a person to do a job. You cannot exploit so easily.

Of course They could just let London explode, or not have music. That people choose not to would suggest that people value what they are getting, suggesting that they were perhaps truly worth a lot more than they were being paid for. Not a matter of cost increasing for a lack of productivity gain but the cost approaching the real value when there is no exploitation artificially keeping the price down.

Re: Baumol Effect

#37

Post by anm89 »

LudwigNagasena wrote: post #6
anm89 wrote: post #3

"they pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century; the productivity of classical music performance has not increased. On the other hand, the real wages of musicians (as in all other professions) have increased greatly since the 19th century" This seems painfully naive to the point of farce. Do they really believe the value of playi…

Did you dismiss physics for the same reason? A perfectly elastic ball rolling down a frictionless plane, how absurd!

I think this is a valid response but ultimately an invalid comparison.

The laws of physics are specific and testable. When we abstract them from reality we can be very clear about what the abstractions are and the rules of the hypothetical world we are testing the abstractions in.

In economics the situation is very different. We don't even waste time trying to define how things work in reality. All that exists are the abstractions and its never clear in which hypothetical universe those abstractions are being tested because even the poeple writing the theories frequently don't bother with defining them and then change the rules as people challenge their theories.

Re: Baumol Effect

#38

Post by anm89 »

asdasdafsg wrote: post #7
anm89 wrote: post #3

"they pointed out that the same number of musicians is needed to play a Beethoven string quartet today as was needed in the 19th century; the productivity of classical music performance has not increased. On the other hand, the real wages of musicians (as in all other professions) have increased greatly since the 19th century" This seems painfully naive to the point of farce. Do they really believe the value of playi…

Did you drop out?

I did not. I hold a degree in economics and another in anthropology.

Re: Baumol Effect

#39

Post by paulsutter »

The FANG effect in Silicon Valley, where salaries have skyrocketed over the past 10 years, has nothing to do with current productivity and everything to do with effective monopolies, whether due to network effects, or data, or whatever gives each dominant company it's lead.

Google's core search/ads is hyperprofitable, not based productivity of the current workers, but instead the accumulated R&D that created the great product that it is today.

This hyperprofitabity means Google can pay high salaries to many thousands of very talented people, most of whom are not working on core search/ads. Many of whom seem to be "working from the bus" when you stop by Google at 4 in the afternoon. One can speculate on the average productivity.

This high pay at Google (and Facebook and Apple) has raised the pay for all talented developers even at early stage startups (where productivity is zero, there's no product yet shipping to anyone. Like my company, please don't take this as a dig against startups).

EDIT: Don't have a gripe, it's just an observation

Re: Baumol Effect

#40

Post by mrfredward »

Lerc wrote: post #36

The article makes for odd reading. The example of the productivity of musicians seems both arguable and unnecessary. The principle could be better described with a theoretical task. As a hypothetical, There is a magic button in Australia that has to be pressed by a human being once a minute or London explodes. They used to pay someone a loaf of bread a day to press the button. Now they have to pay someone a real inco…

Musicians are used instead of imaginary button pressers because this is a real world effect.

Think about it this way...assume everyone is paid fairly for the value of their work, no "exploitation" (although that's a tough thing to impartially define). A factory worker who does 10% of the work in producing 1000 widgets per day can enjoy a much higher standard of living than his grandfather who made 5 widgets a day with hand tools. In fact, all else equal, his standard of living could theoretically increase 20X, but in reality widget prices go down and there is a factory owner taking a cut.

A doctor who still sees 10 patients a day, the same rate her grandfather saw, will not have seen any increase in standard of living at all, unless she's charging more per patient.

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