23
share of the common goods, this medieval view is hardly endorsed anymore.
Yet another fallacious demand-side argument is that price increases lead to even bigger falls in
demand and thus to fall in revenues, hence supply subsidies must be given. This is unconvincing, since
demand for cultural products is often inelastic so raising prices does raise revenues. If this means that
concert halls, theatres etc. are not fully utilised, there is a better case for boosting demand rather than
supply for concerts, theatre etc. Finally, a popular argument for granting government subsidy is that
cultural goods are merit goods. If society demands an insufficient amount of these goods even though it
can afford them, the government should subsidise them. Although this paternalistic argument may justify
subsidising cultural education, it does not convince for across-the-board cultural subsidies.
4.3 Unconvincing supply-side arguments
Some argue that cultural goods are produced under decreasing average costs, so subsidy is needed to
ensure full utilisation of concert halls, theatres, museums etc. and ensure that operations are profitable.
This argument is pretty unconvincing. If these venues do not pull in audiences, they can experiment with
cheap last-minute tickets and spend more time and effort on marketing. This phenomenon provides a case
for stimulating demand through education, vouchers, action plans and programming subsidies, not for
extra supply subsidies. Another unconvincing argument is that culture contributes to employment. In an
economy with a tight labour market, this is a fake argument and has nothing to do with market failure.
The freedom to educate oneself as an artist does not oblige the government to provide for enough
orchestra's, theatre companies, etc. in order to employ all art graduates. The employment argument may
be valid for certain professions (e.g., restoration) if one fears that otherwise valuable skills will be lost for
future generations. The fact that many artists are poor is not a valid argument either, because it makes
more sense to subsidise all people that are poor regardless of their occupation.
The most cited and at the same time least understood economic insight by the cultural sector is
undoubtedly Baumol’s cost disease. It is argued that the performing arts and other cultural goods are
labour intensive and thus suffer from Baumol's cost disease. Performing Hamlet or Don Giovanni or
making a sculpture take just as much hours of work as in the time of Shakespeare, Mozart or Rodin.
Compare that with the huge technological progress during the last few centuries in services and
manufacturing. Since productivity growth lags behind, the cost and price of these cultural goods rise over
time unless wages in the arts lag behind wages in the rest of the economy. To make sure demand and the
provision of these cultural goods do not fall, many argue that government subsidy is required. This is
unconvincing, since the increase in productivity elsewhere gives rise to huge increases in purchasing
power. If people value this labour-intensive culture, they will use their new riches to pay for it. With
Cobb-Douglas preferences, the ratio of output of cultural to other output dwindles away and prices of