> If some sectors of the economy become drastically more efficient... overall society has become wealthier

That's a weird one - what's your metric for the "wealth of overall society"? Stock market indexes can't be it because those are subject to extreme levels of unreported inflation and gaming.

How can you measure something that is subject to extreme inflation when that inflation is not only unmeasured but not even acknowledged as a phenomenon?

At present, the "wealth of overall society" is a unicorn metric as opposed to the perfectly measurable and extreme levels of income and wealth inequality. In other words, the overall losses from skewed distribution dwarf the gains from higher efficiencies.

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michaelt a day ago | parent | next [-]

If the orchestra performs less often because the violists have better paying jobs in a factory making the latest and greatest TVs, more homes will have the latest and greatest TVs.

Of course, this relies on the assumption most work - and hence most productivity - is a net social good. If the violinists have instead got jobs operating an orphan-crushing machine, that would be a bad thing. But hopefully your society is structured in such a way that the average worker is contributing to the prosperity of their local community.

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tomrod a day ago | parent | prev | next [-]

GDP produced divided by costs required measures intensity. These will be typically normalized (inflation removed) or, if a ratio, can be nominal since both have the inflation ratioed out.

GDP is known to be an imperfect measure, especially for capturing cottage industry and due to the distribution effect you described, but it's not horrible to start with.

	▲	BurningFrog a day ago \| parent [-]
		GDP is how much wealth is produced in society at a moment in time. The total accumulated wealth in a society is a related but entirely different number.

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bloppe a day ago | parent | prev [-]

The main metrics are mean and median real income (i.e. inflation-adjusted). Baumol's only occurs if mean real income rises. Unless inequality rises simultaneously, then median real income (the metric most people care about) will rise as well.

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AnthonyMouse 20 hours ago | parent [-]

Suppose that every single person in society receives the same compensation and has the same wealth, i.e. there is perfect equality.

Society produces housing and other necessities and people consume them in some amount and then have what's left as disposable income to spend on whatever they like, e.g. for going on dates.

Then a law is passed prohibiting the construction of housing with more than two stories. Building ten housing units on ten lots with ten foundations requires more labor than constructing ten units all on the same lot, so the price of housing increases, people have to spend more on housing and have less money left to buy flowers and some people quit their jobs at the flower shop to go pour concrete (while still getting paid exactly the same amount as before).

There is zero change in inequality but the cost of something has gone up and people have to eat it by getting less of something else.

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bloppe 13 hours ago | parent [-]

How is this related to Baumol?

Baumol does not describe general inflation. It specifically describes when prices go up in some sectors because of an increase in productivity in another sector.

Baumol is also rooted in the concept of price elasticity, which in your contrived example seems not to exist.

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AnthonyMouse 12 hours ago | parent [-]

> How is this related to Baumol?

Because people claim that higher costs are a result of Baumol and are hypothetically something good or normal when it's actually regulatory costs and government capture stealing from working people. "Don't worry, prices are only up because we got so much more productive, not because of artificial scarcity or because it now requires 10 people to do certain things that used to take one."

> Baumol is also rooted in the concept of price elasticity, which in your contrived example seems not to exist.

Because the example is housing, which is a necessity and therefore has fairly inelastic demand. If the price goes up, you pay it, because otherwise you're homeless. And then people buy flowers less because they can't afford it, so people lose their jobs at the flower shop, but new jobs open up in construction because it became more labor-intensive and has fairly inelastic demand.

> It specifically describes when prices go up in some sectors because of an increase in productivity in another sector.

Here's the less contrived example: Productivity improves in things like electronics or manufacturing, giving people more disposable income. But there is certain amount of disposable income people have to be left with before they'll revolt, and the increase in efficiency leaves them with more than that. Which allows the government to increase regulatory overhead or real dollars per capita collected in taxes or pass rules that artificially increase scarcity at the behest of campaign donors, without making people feel like they've lost ground.

But the efficiency improvements should have allowed them to gain ground, which is what has been taken from them.

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bloppe 12 hours ago | parent [-]

Sure, there are plenty of ways that the government can interfere in an otherwise fair market. That's not the point. Absent some sort of market interference, Baumol is empirically good at predicting price movements.

	▲	bigbadfeline 3 hours ago \| parent \| next [-]
		> there are plenty of ways that the government can interfere in an otherwise fair market There's no such thing as "otherwise fair market" outside of government regulation. Ergo, any "interference" is for someone's benefit, and as a rule that's not the government. In other words, seeking economics explanations to political phenomena isn't going to lead to anything useful. > Baumol is empirically good at predicting price movements. Until something else explains the facts better - AnthonyMouse wrote about a better theory that can actually be expanded to a fairly precise descriptive model, despite the fact that the quantitative part of it would be politics dependent.
	▲	AnthonyMouse 12 hours ago \| parent \| prev [-]
		The trouble is that the same empirical data is also consistent with the theory that when efficiency improves it attracts market interference to capture the surplus. And then it could be either one, or some combination of both, but the people doing the capturing prefer to direct attention to an alternative explanation so they can continue their extraction.