It would have been more precise to say BCD explains why most artists have trouble finding paying gigs. Wages for artists rise, their output stays more or less the same [1], so the proportion of artists whose output is good enough to justify the rising price shrinks.
The artists who aren't "good enough" (whatever that means), or have trouble convincing buyers that they are "good enough", have to take other jobs, e.g. as waitstaff, to make ends meet until their careers take off.
[1] Mass production has made some kinds of artists more productive, like novelists and screenwriters, but the net effect is a similar winner-take-all situation. Many unknowns compete to be the next Umberto Ecco or Dan Brown.
I don't think the BCD effect goes as far as you say. In a nutshell, the effect is that because artists can make $X working day jobs, you have to pay O($X) for them to perform. But this effect stops working before artists price themselves out of the market, because artists actually like performing and adjust their price to clear the market. This is why you can hire a really good band to play at your party for only several hundred bucks.
Artists face inverse-BCD. They aren't qualified for other jobs (primarily because of their lack of a resume) so they lose out on the options that someone with 5 years' experience as a corporate grunt would have. This makes them poor relative to the corporate grunt.
We, as entrepreneurs, are also facing inverse-BCD with the bad economy, as everyone familiar with the phrase "multiple liquidation preferences" is aware. VCs aren't issuing shitty term sheets because they're in trouble-- the money they're investing was raised before Sept. 2008-- but because entrepreneurs have fewer options in traditional employment than they did 3 years ago.
Apparently I've got this wrong. Baumol's Cost Disease is a theory in dispute. I just googled "Baumol's Cost Disease Arts" and found:
The first link is to the wp article. The second is an Amazon listing for a book called Baumol's Cost Disease: the Arts And Other Victims. (http://www.amazon.com/Baumols-Cost-Disease-Other-Victims/dp/...). The author is apparently an economics professor at a University in England. There's also an abstract from the Journal of Cultural Economics. Baumol apparently developed his claim in the 1960s by looking at the economics of the performing arts, and then generalized it to education and health care.
I'm not sure you can argue, as the article does, that musicians' productivity hasn't increased either. In the age of digital distribution that same string quartet can (potentially) generate far, far more revenue than their 18th century counterparts.
Hmm, I'm not so sure about that. The thing is there's nothing unique about string quartets or orchestras. Prior to the availability of recorded music, you couldn't listen to music without musicians, and for something complex like a symphony or an opera that meant you had to go buy a seat.
But nowadays there are lots of orchestras, whereas the number of consumers who can tell the difference between a good performance and an outstanding performance is pretty low. This has been good for orchestras in places like Eastern Europe, who in recent years have made money by playing music for sample libraries, movies and videogames for much less money than it would cost to book a similarly skilled orchestra in the USA.
On the other hand, as the number of recordings increase, consumers have less and less need for new ones. In terms of pure sound quality recording techniques have largely ceased to improve - the fidelity modern recording gear far exceeds the resolving power of the human ear, so if you go out and buy a great surround recording of a Beethoven symphony, that's pretty much as good as it gets, technically. You won't get a better recording in 5 years; you can only hope for a better performance.
But very few consumers care so much that that they want to accumulate multiple different recordings of the same music, deriving pleasure for the individual interpretations of different conductors and orchestras. Most of them will either buy 'all the classic hits you'll ever need' (performed by some hack orchestra, but hey, it's 99 tunes in a box), or else go for what most people agree is the best (Pavarotti singing Pagliacci or whatever).
And the supply of new orchestral tunes, and the audience for them, is very small...film soundtracks are probably the main source of orchestral raw material, and the payments for that are generally a fixed fee.
One issue I do have with the Baumol thesis is that saying that wages of musicians have risen is sort of meaningless, because so have prices for other things. It's unclear to me whether the purchasing power of musicians has risen relative to the cost of goods and services, or whether it has merely kept pace with inflation...but I blame the summary nature of Wikipedia for that.
Elite string quartets like the Emerson or Takacs earn far more than the average string quartet. Perhaps the market for their music is small compared to that of pop artists but you can't argue that they're interchangeable.
People consume cultural stuff in large part because other people are consuming it, or as an implied comment on stuff other people are consuming.
So the mass production of cultural stuff is limited by the amount of attention people have to dedicate to that sort of thing. Long tail-style fragmentation may change this for all I know. IANA Cultural economist.
But in the world we've been living in, the result is a tournament model, where the Stephen Kings and Britney Spearses provide books and music to more people than they would if everybody chose what to read and listen to in isolation.
Baumol's Cost Disease is what forces artist-hood to be boolean. If you don't become a bestselling novelist on the national stage, you make no money at all as a novelist, and have to make ends meet as a technical writer or something.
It sounds like you have some misconceptions about Baumol's Cost Disease. I'm absolutely not intimately familiar with it, but the principle is clearly:
1) Effectiveness increases in one industry.
2) Wages increase accordingly in that industry.
3) To remain competitive, other industries increase wages.
The article clearly states that this means artists also receive higher wages.
I do not have a specific quarrel with your conclusion that an artist must be very successful to make lots of money, but your arguments so far have not shown any reasonable negative causal relationship between wage increases across industries and the lifestyle/wealth level of the average artist.
It's entirely plausible that the situation artists face in being successful or failing is due to other factors, some of which are technological and some of which are cultural.
It's also plausible that this situation is merely imagined. There are likely many failed artists across the world, and there are certainly many successes, but the number of musicians who play medium/small gigs, the number of artists who sell commissioned works on a small scale, the number of architects and sculptors and 3D artists who do work for regular wages -- and so on -- is probably not miniscule. The number of writers employed by the television, film, commercial, music, and theatre industry must be enormous.
There are regular dayjobs for artists too, you just have to look for them.
The connection is actually the inverse of "Baumol's Cost Disease". BCD describes the increase in labor costs when the laborers have other options.
The problem for artists and writers is that they're concentrating on their artistic work, rather than building a resume and career, just because the artistic careers require so much energy, and most of what they end up doing is not transferrable to mainstream work. So they have fewer career options, and those who patronize them (e.g. publishers, agents) are able to exploit their weak bargaining position.
For the same reason, academics in the humanities are often paid less than those in the sciences; science professors have other options. You can say that BCD is making the science professors rich, or making the humanities professors poor-- two sides of the same coin.
