By Mark Croughan and Trip Calihan
The relationship between technological progress and the ability to mass produce at a higher level is easily comprehended; the more automated a process is, the less manual labor is needed to fine-tune every product, and thus a machine based system will often be both cheaper over time and be able to produce without slowing down. However, a rather overlooked byproduct of the mechanization of the American economy is the effect it has not on mass-produced goods, but services that cannot be mechanized. American Economist William Baumol has addressed this as part of his theory of "Cost Disease" and is quoted as saying, "in a world of rapid technological progress, we should expect the cost of manufactured goods — cars, smartphones, T-shirts, bananas, and so forth — to fall, while the cost of labor-intensive services — schooling, health care, child care, haircuts, fitness coaching, legal services, and so forth — to rise." And although the theory was proposed years ago, Baumol's words hold true. Goods as a whole have declined, whereas services such as health care and education have risen (relative to the inflation rate.) We can observe these phenomena below:
In accordance with Baumol's accurate hypothesis, we can see how American government spending has become far more focused on service spending as a whole. While conservative mindsets potentially view this as a tragic misuse of government dollars, Baumol suggests that there was no avoiding this. He claims, "It was simply inevitable that these services would get more expensive over time...the rising cost of services is an unavoidable side effect of rising affluence generally." This holistic rise of affluence is again, another byproduct of American mechanization and technological advance. As we become further and further ingrained to a mechanical system, we learn to work better around it and force the system to produce as much as it possibly can for the economy. Bottom line, this growing capability to mechanize the production of goods has completely reshaped the proportion of dollars going towards goods versus services.