As I explained in a previous post, the effects of heterogenous productivity growth across sectors has huge impacts on the economy and on the cost of providing government services.
Here’s Larry Summers on this issue:
Third, increases in the price of what the federal government buys relative to what the private sector buys will inevitably raise the cost of state involvement in the economy. Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing, and more than a hundredfold relative to the price of televisions. Similarly, the complexity, and hence the cost, of everything from scientific research to regulating banks rises faster than overall inflation. These shifts reflect long-running trends in globalization and technology. If government is to continue providing the same level of these services, government spending as a share of the economy has to rise, by at least 3 percent of GDP.
Finally, here’s the new book itself – Baumol’s The Cost Disease: Why Computers Get Cheaper and Healthcare Doesn’t.