The Baumol effect

It is an economic term, ill defined and ill understood.

The Baumol effect answers the question, what happens to other sectors when on sector gets a productivity boost in a connected economy.  Keep it basic, let us keep prices out of the definition.



Baumol is all about automatic scale changes.  A productivity boost is the ability to keep production the same while reducing the scale effect, and reducing the scale of a sector moves the sector left on the yield curve and moves everything else right on the yield curve. The position on the curve represents the economies of scale.

In other words, Baumol is a description, in economic terms of the theory of everything, and its mechanism follows exactly the Huffman encoder to the right on this blog. Listen to what I said. The productive sector moves left, loses economies of scale, the other sectors move right and gain. It is exactly the algorithm, a bubble sort of the data, then a requant by grouping the two most common terms. Wash rinse and repeat until the curve is packed. The Baumol effect is exactly that algorithm.

Think of a node on the Huffman tree as a Baumol network, and Baumol is about structured queues.

We can see that prices will follow along as required once the queues are stable (the pit boss has reset the 'items per basket' so scale is stale).  Walmart checkout managers do it, the Huffman encoder to the right does it,  atomic orbitals do it.  How do prices follow?  When apple gain in productivity, the violinist moves to a larger auditorium and changes less per ticket, making the difference.  Violinists had to change scale to adapt.

The economists should have brought this up before professor Baumol died, and he could decide the debate. If there are any old, worn economists who need their theory reworked, call me.

Baumol is about economies scale, as is just about everything in the universe.