economics//economic growth//Baumol effect

The Baumol effect is the rise in the relative cost of activities whose productivity does not grow, in an economy where productivity grows elsewhere, and it explains why the slowest sector comes to dominate total cost. William Baumol's example is a string quartet: it needs the same four musicians and the same time as two centuries ago, while factories produce many times more per worker, so musicians' wages rise with the rest of the economy and live music becomes relatively more expensive.

The Baumol effect is the rise in the relative cost of activities whose productivity does not grow, in an economy where productivity grows elsewhere, and it explains why the slowest sector comes to dominate total cost. William Baumol's example is a string quartet: it needs the same four musicians and the same time as two centuries ago, while factories produce many times more per worker, so musicians' wages rise with the rest of the economy and live music becomes relatively more expensive.

The effect turns a fast sector's success into the slow sector's weight. If software automates the cognitive part of research but experiments, chip fabrication and power plants still take the time they take, those physical parts end up setting both the cost and the pace.

It is the economic face of the rate-limiting step: whatever does not speed up grows in importance until it is everything that matters.