July 16, 2003
In This Issue
THERE'S A FASCINATING piece in the July 7 issue of the New Yorker by James Surowiecki that talks about the phenomenon of "cost disease" – the fact that, even in a recession, when economists are warning of widespread deflation, the prices of some things (college tuition, for example) just keep going up.
Surowiecki uses the example of Mozart, who wrote his String Quintet in G Minor in 1787. It took five musicians to play it back then, and it takes five musicians today. There's been no increase in productivity over two centuries.
Of course, these days a lot of industries (computer manufacturing, for example) are seeing huge increases in productivity, which allow them to raise wages higher than they raise prices, essentially giving consumers more for less. In order to keep up with the nation's rising wage scales, producers of live Mozart concerts have to pay the musicians more money. That means they have to charge the public more money – for exactly the same service.
It seems like musicians – and teachers, and nurses, and cops, and a lot of other service providers – are ripping the public off. But they're actually caught in an economic bind: they provide services that don't normally show much in the way of increased productivity.
This is more than a fun exercise in academic economics – it has huge implications for the way we fund government in this country, and more immediately, for the San Francisco city budget. Much of what the public sector does – health care, education, public safety – is and will always be labor intensive and have low productivity growth. So even if the level of service stays the same, government will continue to get more expensive.
"Government isn't inefficient," Surowiecki writes. "It's just got a bad case of [cost disease]."
Of course, this is all happening at a time when taxes are going down, not up, and when governements are so squeezed that the only way to balance the budget is to reduce the actual level of services that are provided to people.
As we point out in an editorial, the San Francisco Board of Supervisors has done about the best job it could with this year's miserable budget. But the current fiscal mess isn't going to go away with the next economic boom. It's structural – and until this country reforms the tax system, we're going to be in for a lot more of the same.