Baumol is so last-century

Yesterday's discussion about the "Baumol effect" says as much about the times William Baumol was working in as it says about economics.

In the 1960's it was taken for granted that as labour productivity improved, wages would increase. Economists had a hundred years of data proving that to be the case. Baumol concerned himself with what was essentially a side-show; why did wages increase in occupations that did not enjoy productivity improvements?

Developments in the North American and some other Western economies since the 1970's have vaporized the underlying assumptions that Baumol and every economist of his generation took for granted. The goods-producing sectors of the economy have seen wages go down even as productivity continues to go up.

Instead of some of the surplus accruing to the workers who produce the goods, it now goes more than ever to the owners of the means of production. This class of patriots owe their allegiance in the first place to every American millionaire's number one most cherished value; the right to accumulate capital.

To that end the rich and their lobbyists and their politicians and their press have prevailed in molding a tax regimen that reflects their interests and values.

That's why we have Tim Cook in the news lecturing the US senate about how Apple's offshore cash hoard will stay offshore unless and until American taxes are cut to the level the company enjoys in those offshore tax havens.

That such a spectacle is even possible speaks volumes about how dysfunctional the American democracy has become.

After thirty years of contract-stripping there are still folks who want you to believe unions are too powerful

Globe and Mail columnist Jeffrey Simpson is one of them.

Simpson telegraphs his prejudices by putting the word "powerful" in front of his mention of the Canadian Union of Public Employees, or CUPE.

CUPE is so powerful that they were unable to prevent Toronto mayor Rob Ford's privatization of garbage collection in the city.

The powerful CUPE was able to extort a $25 hourly wage from the hardworking tax-payers of Toronto for the folks who pick up their trash. And that's just the start of it. Those molly-coddled trash collectors had PAID SICK DAYS!!!

I know! Who can even imagine such an outrage?

Trash collectors making twenty-five bucks an hour and living large on paid sick leave.

No wonder the country is going down the shitter.

No wonder Rob Ford won the election.

Then again, maybe twenty-five bucks an hour in a city where the average house price is north of half a million isn't really all that great an achievement for the "powerful" CUPE.

Then Simpson really muddies the waters with a gratuitous misrepresentation of the "Baumol effect."

William Baumol was an economist who noted that productivity gains across an economy raised all wages, even in sectors that didn't have productivity gains.

Sectors like health care and education.

If you want to double the productivity of your local kindergarten teacher, just stuff forty kids in that classroom instead of twenty.

It's simple!

And there are simple reasons why we don't do it, and we don't need to resort to obtuse references to "Baumol cost disease," nor do we have to slag imaginary "powerful" unions.

We don't put forty kids in that kindergarten because our kids or grandchildren might be going there.

Simpson doesn't mention that Baumol himself found the cure for "Baumol cost disease."

Higher taxes.