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has occurred in many different countries indicates it is not specific to the health or education systems of a particular nation. Baumol also noted that it had occurred over many decades, so could not be linked to a specific economic event. He concluded that these services, like the performing arts, have a “handicraft” aspect. They cannot be automated; on the contrary, their “production” involves the individual attention of the person delivering the service to its users. And their quality also depends on the amount of time and effort spent on their delivery. There is no or only limited scope for standardization and the use of technology to increase productivity. The increase in output is tightly limited by the amount of time spent by an individual performer—or teacher or nurse. If these workers are paid more as the years go by—just like everyone else in the economy thanks to economic growth and rising living standards—the cost consumers must pay for their services will rise relative to other prices.

Baumol wasn’t alone in noting this phenomenon—a number of economists at that time, thirty or forty years ago, made the point in different ways. In his well-known book The Social Limits to Growth, Fred Hirsch diagnosed the problem as affluence allowing more and more people to demand “positional” goods whose output could not be expanded in line with incomes. His examples included classic public goods such as uncongested roads, definitionally scarce goods such as high-status houses, and also services similar to those explored by Baumol, such as medicine. John Kenneth Galbraith made a similar point in The Affluent Society—in turn citing Keynes. Galbraith wrote that consumer desires that result from efforts to keep up with others “may indeed be insatiable; for the higher the general level, the higher still they are.” Emulation means that the satisfaction of some wishes creates new ones.9

As the fact that we’ve continued to afford health care and education over the intervening decades shows, we shouldn’t thereby conclude that it will become ever harder to afford these “luxury” services. For one thing, there is some slow improvement in productivity in these services. For instance, new communications devices save health workers time—computers automate some record-keeping, and perhaps they can download the day’s tasks on a mobile device rather than dealing with paperwork. There are thus incremental savings of time, freeing up a bit more time for the same individual to perform their core tasks.

More important, there has been and continues to be massive productivity growth in the rest of the economy. So we can afford more of the “luxury” services. Baumol writes: “To achieve such a goal—ever greater abundance of everything—society must change only the proportions of its income that it devotes to different products.” The share of total incomes and GDP dedicated to spending on these services will rise over time. His back of the envelope calculations based on extrapolating then-current trends indicated that between 1990 and 2040 spending on education and health care could come to account for a half of GDP but even so American consumers would still have nearly quadrupled their consumption of all goods and services.

Yet there’s still a challenge in this pattern.

In many countries—less in the United States than elsewhere but there too—many of the services characterized by this pattern are currently provided by the government. If that doesn’t change, the trend implies that the government will account for a growing share of GDP. It seems unlikely that people will be happy for a rising share of their incomes to go in tax, even if they are also consuming more public services, at least without greater confidence that governments can spend well. But a debate about what services should be transferred from the public to the private sector will be politically contentious—especially in the context of a necessary and severe squeeze on government budgets in coming decades.

There is also a psychological difference in how people feel about different types