Third, the cost of government provided services are rising much faster than inflation in general. Automation is reducing the cost of many private sector supplies and you can’t automate large chucks of tat the government does. There are no productivity gains to be had in them, so their relative cost is rising.
This is Baumol\’s Cost Disease.
And the point isn\’t that services cannot have their productivity improved. It is that productivity improvement in services is more difficult, not impossible.
To take a trivial example, one oft used by myself. There was a time when the cure for a headache was bed rest with a comely maiden gently dabbing the temples with a cloth dipped in cool water. It is aboslutely true that as society gets richer, as average wages increase, then this service will become more expansive. Must do, it is based upon pretty much pure human labour and a useful definition of society getting richer is that labour earns more.
We no longer use this method and not just because of the dreadful shortage of maidens, comely or not, in our modern world. We don\’t use this method because someone automated it.
By inventing aspirin.
Oh, and what system is it that increases productivity? Yup, a market based one. Which is the second part of Baumol\’s teaching. That precisely and exactly because much of what government does is services, services where productivity improvements are more difficult, this is why we need markets in the provision of government services.