One of the most important things about the health care and education segments of the economy is that part of what customers want is attention. Parents like the idea of small class sizes, and patients like the reassuring face-to-face presence of a doctor with a good bedside manner. But personal attention has the pretty special characteristic of being immune to productivity enhancements. This creates the following trilemma as economy-wide productivity rises:
— One: The wages of teachers and doctors can fall relative to average wages, because teachers and doctors aren’t increasing their productivity as rapidly as the average worker.
— Two: Paying the salaries of teachers and doctors can account for an ever-growing share of national output, because the rest of our output is getting more efficient and teaching and treating isn’t.
— Three: The amount of attention provided by teachers and doctors to students and patients can decline.
It’s not that you need to pick one of those three things, but you can’t pick zero of them. And it’s not that three necessarily needs to mean declining educational and health outcomes. Attention is important to people, subjectively, but it’s hardly the only thing that matters for learning and it’s definitely not the only thing that matters for health. If doctors spend less time with their patients but are able to prescribe more effective drugs, that’s a net benefit. And it’s possible to increase reliance on less-trained kinds of medical professionals who are paid less than doctors but may still be competent to perform attention-paying functions. On instinct, though, people’s preferences are for smaller classes, more face time with doctors, and more of a sense of personalization and customization. I still hear older people sometimes reminisce about the doctors of yore who’d pay house calls, hardly noticing that this inefficient use of medical professionals’ time just reflects low economy-wide productivity.
I find that a frustratingly large share of discussions of these issues involves too much talk of dollars and cents and not enough qualitative talk along these lines. That allows people to avoid saying what they mean. Hold the growth of federal health spending to the rate of inflation? Sounds great! But what does it look like? If the bottom third of the income distribution stops being able to afford to see the doctor, that frees up more doctors’ time to pay attention to richer people. So that’s one possible answer. But if that’s what you mean, that’s what you should say. And if you think we need to increase the relative wages of teachers while further shrinking class sizes and sustain that policy over time, it’ll mean steadily increasing taxes, no one-off increase will undue the Baumol Effect. That’s one possible answer—America is lightly taxed compared to other rich countries—but you owe it to yourself at least to face up to that.