A. It's really a matter of what goals you have for the country. I can't, as an economist, say what the public ought to want. I can say only that in most of the world, including the United States, according to surveys that have been done of the general public, there is some feeling that a nation is judged in terms of its cultural accomplishments as well as its economic, military, and other achievements. The question then is, how does one provide cultural achievement? And there the economist can say it can be provided effectively only with assistance from the public sector.
Q. Why is public assistance necessary?
A. There are several reasons. First of all, because like education, the arts presumably yield benefits beyond those who attend directly. For example, in education we say that an educated individual makes a better citizen, is more productive. Therefore, by educating you as a representative citizen of the United States, we all benefit because increased productivity is the result; there is less crime than there would otherwise have been. Those are what economists call spillovers.
Q. So it's a classic "public good" in the sense that the benefit goes beyond what the individual him- or herself receives.
A. Exactly. And in the case of the arts, part of that spillover is of the same form as it is for education; more generally, we feel that cultured individuals make better citizens. At least, much of the public feels that way.
Q. As well as more productive workers.
A. And then there is the phenomenon called option value. That is, I may not particularly want to go to the opera myself, but I'd like to make sure it's there for my grandchildren, if they should want it. There is the story of the king of Naples at the time of Antonio Scarlatti who announced that he was willing to subsidize the Naples opera on one condition: that he never be invited to attend. And that, of course, is the extreme illustration of option value.
Q. How would option value apply to other goods or services in the economy?
A. Well, it applies, for example, to national parks. I may never have seen Glacier National Park, but it's always possible that some day I will regret it if it disappears. Not only for my grandchildren, but (a) for myself, and (b) when my French friends come to visit, I want to be able to show them the wonders of the United States, and so on.
Q. So, one, we have it as a public good that could also make the economy more productive in ways that don't necessarily show up in a simple supply-demand equation; number two, there's option value that similarly doesn't show up. Is there a third dimension in this?
A. There is also the mysterious element that people excited about the arts emphasize most strongly--al-though economists aren't quite comfortable with that--and that is they say that the arts are a great value in themselves and that only philistines don't recognize that. Some economists have given the name "merit goods" to this sort of service; that is, a service we wish to support because we consider it a higher virtue--whatever that may mean.
Q. There is an attitude around--I see it in book publishers, I see it in the movie business and the television business--that, even public goods and option value aside, if people want it, there will be a market for it. Is there a logical fallacy in that kind of thinking, given the kind of economy we have?
A. Oh, there will be some sort of market for it. But the question is, what quality will we achieve? Will the market force us to downsize by cutting out rehearsals, by eliminating productions, etc.? Will we end up with only big-time Broadway musicals and no Eugene O'Neill or Shakespeare?
Q. Well, let's talk about what I think may well be the most important issue. I think people may misunderstand; they may think that the arts and, say, software are competing in the same way in the marketplace. Is that true?
A. The really crucial distinction as far as cost is concerned is what I call the cost disease; it's sometimes referred to as Baumol's disease, which affects the arts along with health care, education, and a number of other handicraft services. And the issue is that these are services that are difficult to automate, to mechanize, to transform into high-tech services rather than handicraft services. The result is that in these items, such as education and health care, productivity has grown slowly as far back as we have records. That means that in these handicraft services--the services in which productivity growth is very difficult to achieve--as wages go up, there is no productivity offset to rising costs. So the costs and the prices of these things go up far, far faster than the average good or service in any industrialized country.
Q. To clarify the point, this is not merely the difference between any service and any good, but between different kinds of services--handicraft services versus other kinds of services.
A. Exactly. Telecommunications prices have gone down in terms of dollars, of constant purchasing power, at an astonishing rate, because even though it is clearly a service, it benefits from all sorts of technological advances which constantly and cumulatively reduce costs.
Q. Are there other examples of services that have become comparatively inexpensive?
A. The services connected with computers are illustrations, although not the software part. Software is a creative activity that you can't really mechanize--or, at least, so far haven't succeeded in doing it.
Q. There have also been major productivity increases in transportation and retailing, I guess going back to the nineteenth century.
A. Yes, but they've been jumps rather than continuous improvements. The computer increases in productivity, it's been estimated, at roughly 19 percent a year compounded, year-in, year-out. That is, the number of computations you get per dollar of investment has increased that much every year.
Q. Whether we need it or not.
A. Whether we need it or not, right. But it has. And that's what makes it ever cheaper to buy the computer.
Q. Just let me cover one other item. There have been jumps in retailing and transportation productivity, haven't there? Like going to the department store, going to the Price Club, probably have increased productivity.
A. Sure, but if you average them over the years, these have been minuscule compared to, say, the cumulative rise in productivity in automobile production.
Q. Okay. Back to the relatively rising costs of the arts, are there empirical data that demonstrate that inflation in these areas has risen more quickly than it has in other?
A. Tons of material. It's been shown again and again not only in the arts but in medical costs, education costs--in all of the fields I have been mentioning.
Q. Roughly, what do they show?
A. They show that, for example, for a visit to a doctor the costs have risen over the postwar period roughly 100 percent more than the rate of inflation. The cost of a hospital room, as I remember it, has risen about 700 percent faster than the rate of inflation. In the arts,it's been closer to the cost of a physician visit. And, incidentally, in education it's been higher than the rise in the cost of the physician visit.
Q. So, then, more or less, what is the rise in arts versus the Consumer Price Index for some other genre?
A. It's about two percentage points a year higher than the rate of inflation, which, over decades, compounds to an enormous figure.
Q. And this computation goes back to when?
A. I've got some figures that go back to the beginning of the nineteenth century. But the most reliable figures are those from the postwar period.
Q. And they suggest, . . . I'm just trying to get back to that 700 percent number you talked about, I think it was 700 percent for physicians.
A. For a hospital room.
Q. The arts are similar to the physician number.
A. Yes, that's about 100 percent faster than the rate of inflation.
Q. So in that case, what you're saying is that people should realize that if we don't subsidize the arts, the natural workings of our kind of economy will make them so much more expensive than other goods and services in the economy that we'll have to reduce their quantity.
A. That's exactly what you see happening on Broadway. And incidentally, the same thing has happened to movie prices. In fact, movie prices over the postwar period increased faster than the price of Broadway tickets--a fact that few people realize because once you move to the mass media, productivity there has increased very slowly.
Q. I think the audience numbers show that movie attendance is not up over these years.
A. That's right.
Q. What does this do? You alluded to this a little earlier, but I'd like to elaborate a little bit on it. Does this influence the nature of the art form? For example, now a Broadway show has to be spectacular to attract an audience.
A. It certainly makes a huge difference for the commercial forms of the arts. Broadway, of course, is your prime example, where the number of straight plays has fallen, investments are primarily in blockbuster musicals, and where a play now has to run for years in order to break even.
Q. So that the only way that this kind of art can improve its economics is to go after bigger and bigger audiences.
A. That's right.
Q. So we get the Broadway blockbuster, but we also get the movie blockbuster.
A. That's right. It's exactly the same phenomenon.
Q. Is it also true in the book industry as far as you can tell? They keep talking about the end of the so-called middle market.
A. That's my impression, though I have not studied the book industry.
Q. We can conclude, then, that without government subsidies, not only, in effect, will there be fewer arts, relatively speaking, but without such subsidies of some kind, the very nature of an can change.
A. That's distinctly possible.
Q. Is that what you think we've seen over the last twenty or thirty years?
A. We certainly have seen it in the theater. We've already discussed what's happening on Broadway, but even the noncommercial theaters are having to do less experimental work, less risky work, because they just can't afford to take chances.
Q. So that's yet a third area. It's not only a matter of making blockbusters, it's a matter of a reduced ability to take risks on unproven ventures.
A. Exactly.
Q. You've talked about this for a long time. Do you think legislators and policy makers understand this about the arts, or do they tend to think that markets are more or less neutral and will just give the people what they want?
A. A few of the better-informed legislators do understand it. Pat Moynihan, for example, has expended a lot of effort not only in working with this analysis but in trying to spread the ideas among his colleagues. But many of them, I know, do not get it.
Q. Does that distress you?
A. Yes.
Q. What's the evidence that they don't get it?
A. Just read the debates on the subject. This was made a big issue during the health-care debate last year, and the number of people to whom this analysis was explained and who still didn't get it straight was astonishing.
Q. In a nutshell, then, what will happen if we significantly reduce government subsidies for the arts?
A. The arts will go back to being amateur activities. I don't think they will disappear, but you will pay a price in terms of quality and in terms of variety.
Q. In your own opinion, can a society afford that--in your opinion as a "layman"?
A. I think not. As an economist, that's outside my realm of expertise; but I certainly feel it strongly as a citizen.
Q. Does your work suggest what approach to government subsidies works better than other approaches, or does it not say anything about that subject?
A. No, it really hasn't dealt with that subject, I'm afraid.
Q. Do you have any opinions about that in particular, or do you stay out of that debate?
A. I have pretty well stayed out of that debate.
Q. Because the critics of subsidies, of course, always talk about who can pick good art and favoritism, don't they?
A. Of course, there is always that problem. That was one of the reasons I'm one of the inventors of the voucher program of Theater Development Fund, in which, essentially, the theater going public picks who gets subsidized.
Q. How does that work, in a nutshell?
A. The Theater Development Fund provides vouchers that pay for part of the admission to any Off-Off Broadway theater--you buy a ticket for , say, and the theater gets for it from the Fund.
Q. And that is an active program now?
A. Yes.
Q. So, in effect, it's subsidizing the ticket price, as opposed to the government picking a play or a movie or subsidizing a particular artist.
A. That's right.
Q. And how well has the Theater Development Fund worked?
A. It was very effective at its beginning. In recent years, inflation has cut down its value substantially, but the Theater Development Fund is now reorganizing the program, and it is hoped that it will become effective again.
Q. Do you think it might be applicable to other forms of art?
A. Oh, certainly. In fact, it was used for dance and for music.
Q. Thank you.
