WHAT AILS US.

Forgive American consumers if they feel a bit perplexed. Policymakers and pundits have been warning them about the prospect of deflation (a prolonged and widespread decline in prices), but there's no sign of any decline in many of the prices that people pay every day. Car-insurance premiums jumped more than nine per cent last year. Health-insurance costs are soaring, to say nothing of the cost of a haircut. Cable-TV prices have risen sixteen per cent since 2000. And then there's college: tuitions at private colleges have jumped 5.6 per cent annually over the past three years, according to the College Board, and public colleges are even worse. In times like these, it's hard to get worked up about deflation.

Why the divergence? It may have something to do with Mozart. When Mozart composed his String Quintet in G Minor (K. 516), in 1787, you needed five people to perform it--two violinists, two violists, and a cellist. Today, you still need five people, and, unless they play really fast, they take about as long to perform it as musicians did two centuries ago. So much for progress.

An economist would say that the productivity of classical musicians has not improved over time, and in this regard the musicians aren't alone. In a number of industries, workers produce about as much per hour as they did a decade or two ago. The average college professor can't grade papers or give lectures any faster today than he did in the early nineties. It takes a waiter just as long to serve a meal, and a car-repair guy just as long to fix a radiator hose.

The rest of the American economy functions differently. In most businesses, workers are continually getting more productive and can produce a lot more per hour than they could ten or twenty years ago. In 1979, workers at G.M. needed forty-one hours to assemble a car. Today, they need just twenty-four. In the nineties, according to the consulting firm McKinsey & Company, retailers boosted their sales per hour by sixty per cent, and that was nothing compared with computer makers, whose productivity since 1995 has gone up sixty per cent each year. Because companies are producing more for less, they can hold down costs, and when times are good they can raise wages without hiking prices. So, in the late nineties, as productivity rose, wages did, too, though inflation lay dormant.

Generally, productivity growth is a boon, but it creates problems for non-productive enterprises like classical music, education, and car repair: to keep luring talent, they have to increase wages, or else people eventually migrate to businesses that pay better. Instead of becoming nurses or mechanics, they become telecom engineers or machinists. That's why teachers are getting paid a lot more than they were twenty years ago. (The average salary for an associate college professor has risen almost seventy per cent since the early eighties, and that's if you adjust for inflation.) ...