Post #10509 by mungofitch on the Berkshire Hathaway board

Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤

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Highly productive sectors will pay higher wages, which forces the less productive sectors to raise wages in response. However, higher wages do not lead to better productivity in these less productive sectors. This would result in either higher labor inputs, stagnant employment, or more expensive goods from the less productive sectors.

Nice. Not a lot of posters know about Baumol's cost disease. The labour productivity of a string quartet is no higher than it was 250 years ago, but to keep the violinists on staff you have to pay them enough to keep them from going to work for Microsoft as programmers, so the quartet business is not very profitable.

What's next? discussing Ricardian Equivalance? That might be suited to some recent threads.
"...attempts to stimulate an economy by increasing debt-financed government spending will not be effective because investors and consumers understand that the debt will eventually have to be paid for in the form of future taxes..."
It does rather rely on the analytical intelligence of the median taxpayer. So my view is that (a) sure it works but (b) not for all that long.

Jim

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