It's All Stagnation Now, Apparently

Our August 26, 2016, post revisited Baumol's Cost Disease and the productivity trap that has captured private, independent education. The August 7, 2016, New York Times commentary by Neil Irwin, “We’re in a Low Growth World,” makes a case that the rest of the developed world economy is in a similar dilemma. Lackluster economic performance—what economists call “secular stagnation”—portends a period of gloomy global finance, bounded by only minuscule rises in gross domestic product (GDP). This means that wage increases for most are likely to be small at best because higher GDP (and corresponding higher productivity) usually drives wage growth.While not really a cost disease, what Irwin describes seems to be cut from the same cloth: stagnant productivity means that other things stagnate, too.All of this begs the question of whether perpetual growth in productivity is even possible, let alone desirable. Should certain sectors—such as education—be exempt from the expectation of productivity growth? If so, how will such sectors finance wage increases? Or is there a brutal fact we must accept; namely, that handcrafted products (like ours) with fixed (or worse) labor ratios will inevitably be relegated to the sidelines as prices rise at multiples of inflation?I don’t know the answer, but I do know that we must figure it out. The impersonal nature of economics means that the market won’t wait.