How a productivity phenomenon explains the unraveling of America

If Baumol’s Cost Disease is an important driver of costs in these sectors, then we should expect them to consume an ever-increasing share of the national income — but not only that. If we socialize those functions so as to provide equal services to the citizenry, taxes will have to increase every year just to keep quality steady. And if we don’t raise taxes enough, then inequality will increase even as costs rise, leaving more and more of the population poorly provided for. And in either case, in a world of tight budgets, these sectors will increasingly be competing with each other for the marginal public dollar, and devaluing competing sectors’ contributions to the public good.

It’s a recipe for perpetual revolt by both by those who pay more into the system, who feel — rightly — like they’re paying more and more for less and less, as well as by those who pay less into the system who feel — rightly — like services are getting less and less equitable even as they are getting economically squeezed harder and harder. And if “perpetual revolt” sounds a lot like America today — and it should — then sadly, because of Baumol’s Cost Disease, satisfying the demands that fuel that revolt may not be possible.