alt Hacker News```
Each of these phenomena have a name: there’s Jevons Paradox, which means, “We’ll spend more on what gets more productive”, and there’s the Baumol Effect, which means, “We’ll spend more on what doesn’t get more productive.”
```
I don't think that's exactly right. Jevons says "we consume more on what gets more productive" and Baumol says "the unit cost increases for that which is less productive".
The typical example for Baumol is the orchestra (or live music) which is today much more expensive than in the 1800s. I don't think we spend more in aggregate than we did in the 1800s!
Edit as I continue reading: ```
Other goods and services, where AI has relatively less impact, will become more expensive - and we’ll consume more of them anyway. ```
This definitely NOT the case. Basically the author is saying we will consume more of everything, which is not true! We famously stopped using horses and all the relevant industries.
The unit cost for horses, however, did increase!
What the author should be stating is that the new production bottlenecks will command a higher price and probably play a bigger role in the economy, but not everything gets to be a new bottleneck.
Replies
Another way to think of this intuitively is simple economies of scale. Or volume discounts if you work in sales.
When you buy 10,000 handbags you pay the wholesale price whereas buying a single handbag can be quite expensive.
If there is way lower hose demand (volume of sales), the horse producers will have to charge a higher price per horse.
Thus, society in aggregate spends way less on horses while the price of a horse goes up.
Going back to econ 101 & supply/demand curves:
Jevons describes the supply curve moving out, resulting in increased quantity
Baumol describes the supply curve moving back, resulting in higher prices
The modern day example that really made Baumol click for me is child care, particularly day care. It’s a highly labor intensive with basically minimal opportunities for productivity enhancements (due both to regulation and parental preferences, as well as just baseline sheer human decency). As the rest of the economy becomes more productive, the relative cost of child care goes up and up and up - which is why we now see situations where two-earner households can an entire after-tax income consumed by child care costs once they need to put 2-3 kids into daycare.