Health Care Has A Bad Case Of `Cost Disease'

William J. Baumol is one of those rare economists whose predictions have been borne out by events. His most famous insight, known as "Baumol's Disease," says that because productivity in the service sector tends to lag behind productivity in manufacturing, costs in services relentlessly rise (BW--Nov. 16, 1992). His favorite example is a Mozart string quartet. While productivity in transportation, manufacturing, communications, and agriculture has increased manyfold since 1791 (the year of Mozart's death), string quartets still require four musicians and four instruments and still take the same time to perform.

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