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of services. Going out to concerts or the theater feels like—it is—a completely discretionary activity. If we feel rich, we don’t mind paying more. A rising share of household spending is already going on entertainment of various kinds—films, concerts, holidays, music—and it doesn’t feel odd to describe this as a “luxury” that is one of the fruits of modern affluence. However, it does seem perverse to describe health and education as “luxuries.” We know we’re going to need more of them. The growing number of pensioners will need carers, nurses, and doctors. Advances in medical technology mean our expectations of health care are constantly on the increase, and we expect the health service to provide us with the latest techniques and drugs. Similarly, expectations of the education system are rising in what is so often described as the “knowledge economy.” More young people are staying in higher education, and we expect standards to continue improving at every level. It doesn’t feel like an option not to consume more and better health and education services as time goes by.

Figure 12. Who will care?

Yet one consequence of the way services like these are eating up a rising share of personal and government budgets is the employment of a growing army of low-paid and low-status workers in these sectors, sometimes illegal immigrants. At the same time that many people would insist on the intrinsic value of carers, teachers, and so on, they’ve grown increasingly reluctant to pay them higher wages. There’s definitely a paradox in the willingness to pay for costly entertainment and consumer gadgets compared with the reluctance to pay for higher salaries in social care and teaching. The psychology of this difference would be well worth exploring.

It’s a paradox we’re all aware of, though. Particularly after the financial crisis, it’s clear that the gap between private rewards and social value as between, say, investment banking and teaching, is untenable. Teachers contribute more socially than they are paid, especially in the public sector, whereas bankers’ social contribution is greatly exceeded by their pay—especially with bonuses included. The existence of a gap between public and private value is well known, and indeed forms the basis of conventional welfare economics.10 Rarely, however, has that gap appeared to be as much of a chasm as it does today.11

Will Baumol concludes:

The same arguments apply to the live performing arts, to libraries, to police protection, to restaurants, to welfare support for the impoverished and to many other critical services. If we do not think through the complex problems just described, or fail to do so in short order, we face a society increasingly characterized, in the words of JK Galbraith, by private affluence and public squalor. Already, unmistakable and disquieting signs are available for all to see.12

He is right. The political rows about school or police budgets, about low pay in the caring services, about fair access to the best possible health care, are ubiquitous and intense. How should these services be valued and priced, and how paid for? And are there any clues in the way we think about “new economy” sectors that are starting to experience the same effects?

THE ECONOMICS OF MUSIC

As Baumol pointed out, the same pattern applies to many services—his other example was the performing arts. Take a string quartet. They will sell some recordings but a high proportion of their income is likely to come from live performances. Of course, they will earn less than Bono of U2 or Madonna make from concert tours. But classical performers will still have to charge enough to pay themselves a living wage, and the level of a living wage will rise as living standards in the whole economy rise. While we might expect artists to be willing to suffer a bit for their art, and be a bit poorer than the rest of us, we don’t insist that they are paupers. What they earn will not drift too far from earnings in other sectors of the economy—just as with teachers or nurses. At the same time,