Tuitions & Baumol's Cost Disease

Why cheaper computers lead to higher tuition

Steven Pearlstein of the Washington Post, writing about a new book by William Baumol

. . . .In the goods sector, new machinery and production techniques have made it possible to produce each bushel of wheat, car, computer and suit with many fewer hours of labor. Because of these huge gains in productivity, the inflation-adjusted price of goods falls, leading to increases in consumption and production. The number of farmers and blue-collar workers declines, even as their wages go up to reflect some of the productivity gains.

Meanwhile, it still takes as many teachers and nurses and police officers and accountants to provide the economy with services as it always did — that’s Baumol’s disease. Despite no gains in productivity, however, the pay of these service workers rises — after all, if it didn’t, over time all those service workers would be lured to the higher-paying goods sector. Moreover, demand for services rises because all those farmers and factory workers want to use their increased income to buy more services. In response to the increased demand and the higher pay, service companies raise their prices. . . .

Not only should we not be surprised, argues Baumol, but we shouldn’t be that concerned. Given the large productivity gains in the goods producing sector, he says, we cannot only afford the higher prices for things such as health care and education, but still have plenty of money left over to pay for more food, more cars, bigger houses, more clothes and more home appliances. The idea that we can’t afford medical care or higher education, he argues, is just an “illusion” reflecting some fixed notion of what percent of our income should be devoted to such activities.

This doesn’t mean that there aren’t things we can and should do to bring down the price of medical care or of a college education. . . .

And as the melodrama at the University of Virginia revealed, the higher-education establishment is finally beginning to address the challenge of using technology and new teaching strategies to lower costs, increase the number of students and improve learning outcomes.

Hmm. . .it always comes back to that, doesn't it? There's got to be a way to make teaching cheaper, more efficient.  But given all the incentives we have to make it so, wouldn't you think we would have discovered and implemented it by now?  Also, as a commenter  notes, professors' salaries haven't been climbing nearly as fast as tuition; in fact, as we all know, on a per-section basis, the cost of teaching labor has probably fallen, thanks to increasing of adjuncts. It's the administrative/support systems, and the salaries in those sectors, that are growing.  

Also, a final caveat: Baumol did some of this work with William Bowen of Princeton.  As someone who went to grad school on a fellowship based in part on Bowen's prediction that there would a shortage of humanities proffies in the late '80s/early '90s, I'm skeptical of the man's prognosticatory abilities (but grateful for the fellowship; at least I don't have debts).