- If you wanted to be one of the first people to own an Apple Macintosh computer back in 1984, it would've cost you around $2,500, which is the equivalent of about $7,300 today.

Around the same time, one of those newfangled cell phones could run you as much as $10,000 in today's money, not to mention the service fees, which might be hundreds a month.

In the 1970s, a Sony Walkman cost about 200 bucks.

That's $700 today.

A microwave, around $2,500.

A 21-inch color TV might cost you the 2024 equivalent of about $3,000.

And a VCR, around $5,000.

- [Philip] And in the era when so many necessities seem unaffordable, it's nice to remember that at least some things cost less than they used to.

And what you get for your money today is much more powerful and efficient, though also often more disposable.

- However, these savings may have come with a hidden cost.

A theory developed in the mid-20th century suggested an economic link between the cheapness of goods like electronics and appliances and rising costs in other industries like healthcare and education.

- Today, it's known as Baumol's cost disease, or the slightly less grim Baumol's effect, and it was originally discovered by studying starving artists.

("Two Cents" theme) - Being a stage actor, a concert musician, or a dancer, has never been considered a lucrative career choice.

But in the 1960s, two economists, named William J. Baumol and William G. Bowen were surprised how hard it was to make a living in the performing arts, and they wanted to know why.

- The organizations that typically employ these artists, like theaters, orchestras, and dance companies, tend to be non-profit, which puts them in a uniquely difficult financial situation.

Unlike for-profit companies that seek to maximize revenue while minimizing costs, non-profit arts organizations strive to provide the highest quality service possible to the widest audience.

But even more significantly, they are considered to be a sector of the economy that is stagnant in productivity.

What does that mean?

- Over the last century, the twin forces of technology and globalization have remade the American economy.

Innovations in engineering and manufacturing, coupled with cheap foreign labor and streamlined supply chains have drastically reduced the cost and time of production in many industries.

It just takes fewer workers to make things than it used to, which in economic terms is called a rise in worker productivity.

This allows companies to lower the prices of their products and increase the wages of their remaining workers.

- But as Baumol and Bowen pointed out, some sectors of the economy simply can't become more productive.

The output per man hour of the violinist playing a Schubert quartet in a standard concert hall is relatively fixed, and it is fairly difficult to reduce the number of actors necessary for a performance of "Henry IV, Part 2."

- As we've said many times before, the whole economy is interconnected, and what happens in one sector can affect another.

Assuming that people are able to freely change jobs, the performing arts sector will have to compete for workers with technologically progressive sectors.

Sure, musicians, actors, and dancers get psychological benefits that may induce them to accept less pay, but they also have to make rent, which is steadily increasing thanks to the wage gains in more productive sectors.

Eventually, something has to give, like, say, two theater majors leaving the stage for a career in finance.

- Non-profit theaters can either raise their ticket prices, which could drive away their already small audiences, or compromise the quality of their work by only hiring performers who are able to work for scraps, perhaps due to inexperience or generational wealth.

This may be why a 2019 study found that the wealthier your family is the more likely you are to pursue a creative career.

- If you're not personally interested in the performing arts, this all may not seem relevant to you.

But over the last 50 years, economists have realized that the implications of Baumol's effect go way beyond the stage.

- Turns out there are a lot of industries that experience slow productivity growth.

There's a hard limit to how many patients one nurse can care for, how many students one teacher can teach, and how many streets one police officer can patrol.

Sure, there are technological innovations that may streamline their work, but as Baumol noted, these innovations would have to be persistent and progressive to keep up with sectors like tech and manufacturing.

- I personally wouldn't wanna live in a world without theater and music, but I couldn't live in a world without healthcare and education.

Neither could you.

So, these industries have had to increase wages for workers who aren't getting any more productive, which means these services get steadily more expensive proportional to the production savings that we see in goods like computers and TVs.

- Now, this isn't the only reason for rising costs, but there is evidence of Baumol's effect all around us.

When a teenager can make $20 an hour pushing buttons on an espresso machine, you're going to have to pay at least that much to get them to babysit your kids.

Probably a lot more, since it's a much harder job.

When tech companies are offering six-figure starting salaries, is it any surprise that so many bright, young people who might have pursued medicine or law, are majoring in computer science instead?

Baumol's effect tends to hit local governments especially hard because they employ so many low-productivity, but high-importance workers, and can't just close up shop if the numbers don't add up.

- This problem may seem intractable, but not everyone thinks so.

Some argue that every industry has the potential for productivity gains, we just haven't developed the technology yet.

But we might be close.

- With the help of artificial intelligence, perhaps one teacher could simultaneously manage a dozen classrooms.

Patient-facing chatbots could reduce the number of doctors and nurses needed at a hospital.

And our streets could be patrolled by an army of robot peacekeepers.

What could go wrong?

- I don't know if there's an audience for an all-android production of "Julius Caesar."

But at least the tickets would be cheap.

- And that's our two cents.