Foundations of Sand

We shouldn’t be surprised that we’re seeing slow growth, ever fewer people employed, and wealth increasingly concentrated in the hands of very few. The tax, immigration, trade, and healthcare policies that have been embraced by both political parties over the period of 30 years ensure that’s the case.

Trade policy has served to give industries that are protected from overseas competition by patents, copyrights, or licensing a competitive advantage over those that produce goods which are by and large no longer protected by tariffs or quotas from overseas competitors. Doubly unfortunately, since in most of the world the intellectual property rights of U. S. corporations are routinely ignored, American consumers pay more for products protected by patents and copyrights than people overseas where patents and copyrights are unenforceable do. I’ve read (and published here) statistics suggesting that our adverse balance of trade would largely be rectified but for piracy.

Further, while strengthening trade ties with China in the 1980s was certainly a good thing for both countries, once China had pegged the yuan to the dollar it changed the nature of the game, laying the foundation for the problems that we see today with China buying a substantial amount of the U. S.’s debt while undermining our goods-producing economy with goods manufactured under near-slave conditions at a nearly zero cost of labor and without the labor, safety, and environmental regulations under which companies must operate in the United States all the while engaging in intellectual property piracy in electronics, pharmaceuticals, and so on at an almost unimaginable level.

Tax policy encourages U. S. managers to think in terms of the next quarter only and reduces the benefit of domestic capital investment. Much of what capital investment has taken place by American businesses has taken place overseas.

Immigration policy has ensured that Americans without skills compete for entry-level jobs with illegal immigrants who in some cases work “off the books”, furthering depressing the wages on offer for these jobs. Our naive and vague H1-B and L-1 visa policies have depressed wages in science and engineering and, worse, in combination with our trade policy which has encouraged companies to offshore engineering and high tech production, have convinced enough Americans that there’s no future in such jobs that the number of students electing to pursue engineering and science degrees (other than in the life sciences) has dwindled for more than a decade.

According to the Bureau of Labor Statistics about 139 million people in the United States are employed. Also according to the Bureau of Labor Statistics 14.1 million of those or roughly 10% are employed in the healthcare sector. The sector accounts for more than a sixth of the total economy. When you include the spending of Medicare, Medicaid, the Veterans Administration, other healthcare systems administered directly by state, federal, and local governments, and the employer contributions of the healthcare plans, it accounts for roughly two-thirds of all healthcare spending. Said another way tax dollars account for the preponderance of healthcare spending.

Taken together these things have implications, among them that each dollar spent on healthcare in the United States creates fewer jobs than it would in other sectors and that the sector is dependent on the health of the other sectors for its own health. That’s true of all other sectors, too, but in a very different way. No other sector has such opaque pricing, consumers separated from purchase decisions, and suppliers so influential in determining what will be bought and sold as in the healthcare sector. If the defense sector were deciding when, where, and how we were going to war, it might be analogous.

In my view the privileged status of the healthcare sector, subsidized with tax dollars and protected from competition by licensing, creates a drag on the rest of the economy, simultaneously reducing its international competitiveness and sapping the available investment and talent. Why put money and talent into something else when healthcare is such a sure thing?

I won’t deny that each of these policies has its advantages. However, they have also worked synergistically to reduce domestic capital investment, raise subsidized wages in the healthcare sector to remarkable levels, injuring American competitiveness, reduce the actual value of education even as its cost rises, hammer wages for nearly everybody who couldn’t get the federal government to protect them from competition, and put the country into a degenerative spiral from which its hard for me to see how we might escape.

The policies need to change. Unfortunately, rather than changing them we’re doubling down on them.

11 comments… add one
  • Icepick Link

    I would quibble with the 30 year timeline. Medicare dates from 1965, for example. That was also the year of a major change in immigration policies. But ultimately the point is the same.

    Two other distortions I can think of are agricultural policies and education practices. How much of American obesity is the result of high fructose corn syrup additives in just about everything? And we’ve created an educational system that simultaneously produces too many PhDs, to many worthless Bachelor degrees, and far too much ignorance? Note how the agricultural practices impact our medical system, and the immigration practices exacerbate our educational woes. Thumbs on the scales….

  • Two other distortions I can think of are agricultural policies and education practices. How much of American obesity is the result of high fructose corn syrup additives in just about everything? And we’ve created an educational system that simultaneously produces too many PhDs, to many worthless Bachelor degrees, and far too much ignorance? Note how the agricultural practices impact our medical system, and the immigration practices exacerbate our educational woes. Thumbs on the scales….

    While I agree with you on both of these points, I doubt that either of them are major contributors to the problems we have now. Contributory, certainly.

    I really ought to post on obesity in America some time as I think it’s a more complex subject than the way it’s generally characterized. I can’t comment authoritatively on the role that high fructose corn syrup might plan. More than fifty years ago my mom was what I suppose might be thought of as a health food nut and from that time forwards I haven’t consumed much of anything that used it.

    Lack of exercise clearly plays a role as does diet. I’m shocked at how little most people seem to know about diet despite decades of indoctrination on the subject. I’ve been on a moderately rigorous reduced calorie diet for more than a decade.

    To characterize myself although by BMI standards I’m borderline obese by actual estimation of percentage body fat based on measurement it ain’t necessarily so. The problem is that I’ve been measured as in the 99th percentile on frame—just built on a different scale from most people—and muscular on top of it. My body temperature during the day is about 97F and at rising about 94F. That throws all of the regular tables about diet into a cocked hat.

  • It’s hard to know where to draw the line. We’ve certainly been on the wrong course for a very long time. For example, Nixon’s insane wage and price controls almost certainly played a part. Johnson signed major healthcare reform, tax reform, and immigration reform into law.

    The Interstate Highway Defense Act, IMO one of the worst missteps in American history, was passed under Eisenhower. Agricultural subsidies, energy subsidies, and other instruments of industrial planning took root under Roosevelt. Ditto Social Security and withholding tax. The Constitution was amended to allow the income tax under Wilson.

  • steve Link

    I believe that you are correct to identify the health care sector as our largest problem (even if you fudge a bit by adding in employer contributions). Just in the area of our national debt, it is almost all health care related. Health care costs are rising just as fast or faster in the private sector. While we talk about cutting some defense spending or Social Security or ag subsidies, which could all be good things, it is health care that should be the primary focus.

    This will not be easy to solve. It takes too much political resolve. One party has consistently ignored health care issues, the Republicans. The only time you see a plan of any sort offered, even a free market oriented plan, is in response to a Dem plan. No, I dont count half hearted bits written on paper with no political capital being spent. The Dems, mostly dont accept that spending on health care needs to come down, at least among the rank and file. The economists and many of those who write about it from the left understand and have offered plans, mostly emulating other countries which have been more successful at cutting costs. These have no chance of passing in Congress so we get hybrid plans which may or may not work.

    One quibble.

    “No other sector has such opaque pricing, consumers separated from purchase decisions, and suppliers so influential in determining what will be bought and sold as in the healthcare sector.”

    The financial sector is worse. I can, with a little effort, find out what any procedure costs. Find out total health expenditures for my hospital, state or country. Suppose that in 2006, or now, I wanted to know the face value of all existent MBS securities or derivatives of any sort? (Yes, it is a low bar.)

    Steve

  • Andy Link

    Well gee, Dave, ain’t you cheery today? If it were Christmas, I’d call you scrooge. Unfortunately, I agree with most of your analysis.

    On diet, one thing I’ve been meaning to research are government standards, particularly for schools. I heard a story a few weeks ago that these standards can create some perverse incentives. For instance, meeting calorie targets without using fats results in a lot of sugars and processed carbohydrates.

  • Andy Link

    Oh Dave, do you have any statistics showing domestic business investment over the past several decades?

  • Here’s a good start. I believe that graph originally came from Bloomberg. As you can see it shows disinvestment from 2000 through about 2005. After that I’m not really sure. I suspect it reflects speculative behavior WRT real estate. That would appear to be confirmed here.

    Here’s more.

    I’ve been complaining about this for a very long time.

    More. Here’s the last decade. Notice the role of “structures”, i.e. commercial real estate.

  • Roy Lofquist Link

    Health care costs too much?

    Various things:

    Air, water, food, shelter, clothing, health, vacations, MTV, iPods, designer jeans,…

    Do you seriously believe that people should be deprived of medical care so you can spend 2 weeks in Aspen? Apparently.

  • GoneWithTheWind Link

    We should completely eliminate all taxes on business and replace it with a national sales tax. The tax would be on everything and no one and no group would be exempt from paying it. Make sure the sales tax brought in exactly the same amount of money as the business income taxes it replaced. This would make American products cheaper and foriegn product more expensive. The net taxation to us would be the same since we pay the taxes on business anyway when we buy the products.

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