William Baumol, author of 'cost disease' theory, has died
I&#x27;m having a hard time understanding the  core of Baumol&#x27;s theory as Vox is laying it out. I identify a few premises:<p>1) Rising opportunity cost in the labor market raises the boats of all jobs (within a given grouping of jobs with low friction of employee movement)<p>2) This rising opportunity cost occurred (in the U.S.) due to manufacturing, which was well paying.<p>3) Consumer goods prices are more affordable due to increased capital efficiency relative to income.<p>4) The extra discretionary dollars from (3) are being spent on labor intensive goods, which cycles back to (1) again.<p>One point on which this loses me is the apparently hidden assumption that involuntary un(der)employment is low and stably so, and what markers of inflation we&#x27;re using. I think there&#x27;s an unexplained paradox: if we&#x27;re losing goods-producing jobs, why isn&#x27;t the competition in the service sector a countervailing force driving <i>down</i> wages?<p>Not trying to be a critic, I just want to understand this better.