How Cheap TVs Made Healthcare Unaffordable!

In partnership with

Stay Informed, Without the Noise.

Your inbox is full of news. But how much of it is actually useful? The Daily Upside delivers sharp, insightful market analysis—without the fluff. Free, fast, and trusted by 1M+ investors. Stay ahead of the market in just a few minutes a day.

Subscribe today.

If you wanted to be one of the first people to own an Apple Macintosh computer back in 1984, it would have cost you around $2,500, which is equivalent to about $7,300 today. Around the same time, one of those newfangled cell phones could cost as much as $10,000 in today’s money, not to mention the service fees, which could be hundreds of dollars per month.

In the 1970s, a Sony Walkman cost about $200, which would be around $700 today. A microwave was about $2,500, and a 21-inch color TV could cost the 2024 equivalent of approximately $33,000. A VCR was around $5,000.

In an era when so many necessities seem unaffordable, it’s nice to remember that at least some things cost less than they used to. Additionally, what you get for your money today is much more powerful and efficient—though also often more disposable. However, these savings may have come with a hidden cost.

A theory developed in the mid-20th century suggested an economic link between the decreasing cost of goods like electronics and appliances and the rising costs in other industries such as healthcare and education. Today, this is known as "Baumol’s cost disease" or the slightly less grim "Baumol effect." It was originally discovered by studying starving artists.

Being a stage actor, concert musician, or dancer has never been considered a lucrative career choice. However, in the 1960s, economists William J. Baumol and William G. Bowen were surprised at how difficult it was to make a living in the performing arts, and they wanted to understand why. The organizations that typically employ these artists—such as theaters, orchestras, and dance companies—tend to be nonprofits, which puts them in a uniquely difficult financial situation.

Unlike for-profit companies that seek to maximize revenue while minimizing costs, nonprofit arts organizations strive to provide the highest-quality service possible to the widest audience. More significantly, they are considered a stagnant sector of the economy in terms of productivity.

Over the last century, technology and globalization have transformed the American economy. Innovations in engineering and manufacturing, along with cheap foreign labor and streamlined supply chains, have drastically reduced the cost and time required for production in many industries. In economic terms, this is known as an increase in worker productivity. As a result, companies can lower product prices while increasing wages for their remaining workers.

However, as Baumol and Bowen pointed out, some sectors of the economy simply cannot become more productive. The output per hour of a violinist performing a Schubert quartet in a concert hall is relatively fixed. Likewise, it is difficult to reduce the number of actors necessary for a performance of Henry IV, Part 2.

The economy is interconnected, meaning changes in one sector affect another. If workers are free to change jobs, the performing arts sector must compete for talent with technologically progressive sectors. While musicians, actors, and dancers may accept lower pay for the psychological benefits of their work, they still need to pay rent, which continues to rise due to wage gains in more productive industries.

Eventually, something has to give. For example, two theater majors may leave the stage for careers in finance. Nonprofit theaters can either raise ticket prices—potentially driving away their already small audiences—or compromise the quality of their productions by hiring only performers willing to work for very little, often due to inexperience or personal wealth.

This may explain why a 2019 study found that the wealthier a person’s family is, the more likely they are to pursue a creative career.

If you’re not personally interested in the performing arts, this might not seem relevant. However, over the last 50 years, economists have realized that Baumol’s effect extends far beyond the arts. Many industries experience slow productivity growth.

There is a hard limit on how many patients a nurse can care for, how many students a teacher can instruct, and how many streets a police officer can patrol. Technological innovations may streamline their work, but as Baumol noted, these advancements must be both persistent and progressive to keep up with sectors like technology and manufacturing.

I wouldn’t want to live in a world without theater and music, but I also couldn’t live in a world without healthcare and education—neither could you. These industries have had to increase wages for workers who aren’t becoming significantly more productive, which in turn makes these services more expensive. This trend is proportional to the production savings seen in goods like computers and TVs.

This isn’t the only reason for rising costs, but Baumol’s effect is evident all around us. When a teenager can make $20 an hour by pressing buttons on an espresso machine, they will expect at least that much to babysit your kids—probably more, since childcare is a much harder job. When tech companies offer six-figure starting salaries, it’s no surprise that so many bright young people who might have pursued medicine or law are now majoring in computer science instead.

Baumol’s effect impacts local governments especially hard, as they employ many workers in low-productivity but high-importance roles. Unlike private companies, governments cannot simply shut down if their budgets don’t add up.

This problem may seem unsolvable, but not everyone thinks so. Some argue that every industry has the potential for productivity gains—we just haven’t developed the necessary technology yet. Artificial intelligence could be the breakthrough.

Perhaps one teacher could manage a dozen classrooms simultaneously with AI assistance. Patient-facing chatbots might reduce the number of doctors and nurses needed at a hospital. Our streets could even be patrolled by an army of robotic peacekeepers. What could go wrong?

I’m not sure if there would be an audience for an all-android production of Julius Caesar, but at least the tickets would be cheap.