Recently, I’ve been reading about the Baumol Effect – which talks about the phenomenon where wages in labor intensive sectors rise, even while the productivity in those sectors remains fairly stagnant, especially compared to other sectors that experienced significant productivity growth. It made me wonder about the impacts of these in the light of AI.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗕𝗮𝘂𝗺𝗼𝗹 𝗰𝗼𝘀𝘁 𝗱𝗶𝘀𝗲𝗮𝘀𝗲?
(Aside from a very cool name)
Baumol looked at 100 year records of the NY Philharmonic. There are no cost benefits or productivity gains in the Philharmonic, the same people need to play the same instruments for a concerto. Contrast this with the cost of a car which has decreased exponentially and you understand the theory that all prices are relative, as one segment goes down the other increases (and the orchestra player’s wages go up even though their productivity hasn’t)
Agatha 🔍 Christie said: ” I never thought I’d be so wealthy to own a car, nor so poor not to have servants” which illustrates the theory perfectly.
𝗟𝗼𝗼𝗸𝗶𝗻𝗴 𝗮𝗵𝗲𝗮𝗱
As AI develops further, costs in currently expensive sectors should decrease. My thoughts are that healthcare (e.g. reviewing scans) and education (your personal tutor) have current high cost areas ready for disruption. Where do those relative cost savings move? What becomes more expensive?
My crystal ball is a little foggy, but as I’ve said before I believe the personal becomes even more valuable. An actual person helping you is the ultimate flex; that can be in education, luxury experiences and personalised attention for you. What do you think?
Brendan McNulty 