I want to urge you to read Brad DeLong’s musings on whether we’re in for a protracted period of slow growth that may, in fact, go on forever. In one paragraph he summarizes pretty well my view of where we are right now:
Say that the expansion of finance from 4% to 8% of GDP has been a waste, that the 18% of GDP we spend on health–twice as much in real dollars as other North Atlantic countries with better health outcomes–is half wasted, and that our 6% of GDP spent on education doesn’t buy us anything more than 4% did 30 years ago. Add those up, and reach the conclusion that GDP per capita growth over the past 30 years has been overstated by 0.5%/year. That would mean that the 1.8%/year of measured growth in the economy’s potential to produce real GDP per capita has actually been 1.3%/year. Apply the 0.5%/year reduction in labor quality and participation growth we got from Lindsey, and get 0.8%/year–and note that we are now up to a doubling time of not 35 years for real GDP per capita but 87 years.
In the post he reviews, I think quite fairly, the views of Brink Lindsey, Tyler Cowen, and Robert Gordon, each of whom is a serious economist who has published on this subject. I will leave you to read Dr. DeLong’s analysis, counter-arguments, and prescriptions. My only comment is that I believe that anyone who believes that we are embarking on a period during which we will do substantially greater redistribution of income and wealth within the United States than we have over the last forty years may be doing brilliant economics but is seriously misreading history, psychology, technology, and politics.
Another way of saying what I’m getting at here is that although I agree with the president’s remarks today about the problems posed by income inequality, I don’t think that redistributing from the top .1% of income earners to the next .9% of income earners or, worse yet, entirely within the top 1% of income earners, which is what the bulk of our redistribution does will do much about income inequality. Try noodling around with pencil and paper (or with Excel if you’re not into hand calculations) and you’ll see what I mean.
But that’s where the “commanding heights of the economy” are pushing us and their momentum will be darned hard to overcome.
… I don’t think that redistributing from the top .1% of income earners to the next .9% of income earners or, worse yet, entirely within the top 1% of income earners, which is what the bulk of our redistribution does will do much about income inequality.
Typo alert: That should either be 9.9% or 10% later.
Also, I’m not sure this is really what’s happening. The income redistribution seems to be from the bottom 90% to the top 3%, or thereabouts based on what I’ve seen. (I don’t follow this as much as I used to, though, as it is too depressing. Just like realizing that we’re somewhere between four and five million full time jobs short of where we were six years ago, and having it called a B+ economy or better.)
That pesky, falling median income indicates that wealth is being redistributed upwards, not downwards, or in a swirl at the top.
Perhaps I should distinguish between policies that are inherently and openly redistributive and those that are “accidentally” and effectively redistributive.
Our main openly redistributive policies are Social Security and Medicare. Who benefits most from Medicare? Answer: those at the highest end of the income scale. They’re the patients most adroit at getting the subsidies, the service providers who receive the payouts, and the stockholders who derive income from the various for-profit sections of the healthcare industry. Because of caps and longevity the rich benefit more from Social Security, too.
Who benefits most from the home mortgage deduction? How about from barriers to entry in the financial or healthcare sectors? Who benefits most from the bonds the federal government sells?
Who receives most of the money spent on defense? It’s not poor people.
And who pays the lion’s share of the income tax? The lions. Where does the money go? Other lions.
Your argument is strongest when considering state and local governments because so many state and local taxes are regressive but even there upper income earners are the big recipients.
The issue of income inequality can only be addressed by enabling workers to capture a proportionate share of productivity gains, a matter of policy just as an exceedingly wealthy 1% taking a huge cut of those gains is a result of policy.
It’s not about stocks, it’s about flows.
To answer the question in the title of the post: growth is not harder, our choices and refusal to dismantle a highly centralized, maladaptive system are interfering with growth that could be had easily. Note that “serious” economist like Cowen explicitly assume the current economic dysfunction is desirable and inevitable, which is exactly why they are an enormous part of the problem.
The “accident” has been going on for over 40 years now. That’s one Helluva fit of the clumsies.
I tried to read the piece through, but could not get past the claim of declinism attributed to a slowing of the increase in the number of years of school. Would we really be better off if everybody was in school for 30 years? 40 years? Perhaps our problem in education starts with lack of good metrics.
Let’s see….
Finance – rent seeking facilitated by government.
Healthcare – subsidized by government.
Education – subsidized by government.
Must be a coincidence.
Ben – you know I disagree with your assertion. In best Arnold “I’ll be back.”
Just for the record, although I think that the degree of income inequality we have now is troubling and injurious to social, economic, and political health, I also think that perfect income equality would not be good. I don’t honestly know what level of equality is optimal but a) we ain’t there and b) the policies we presently have are not producing greater equality.
If, as Cowen insists, what we currently have (but more of it) is the best we can hope for then it’s time to burn the whole cancerous thing to the ground. Any system which is incapable of doing something other than what it has done for sixty years has an adaptive rate approaching zero, and will therefore perish.
PD Shaw:
Would we really be better off if everybody was in school for 30 years?
Likely not. Other hand, would we be better off if kids who effectively drop out at 10th grade level in their studies really earned high school degrees, if people who now get HS degrees got AA degrees at a decent community college, if more community college grads transferred to 4 year colleges and graduated, if more BA graduates went on to MA degrees? I think it pretty clear we would be. Partially because better (i.e., longer) academic education equips one for a greater variety of jobs, partially because education has value in its own right. The fellow selling you a life insurance policy, for instance, may not be able to explain why taking two semesters of art history in college has improved his earning potential, but he probably doesn’t regret taking those courses and in other settings he might be eager to discuss with you the latest Impressionist exhibit at your local art museum. Which is to say that education has the power to improve us and the ways in which we interact, even if the immediate gain in GNP is not quantifiable.
So. There’d be some visible gains from increasing the average level of education, some of it as increased economic growth, some of it as increased gentility and personal pleasure.
Dave Schuler:
anyone who believes that we are embarking on a period during which we will do substantially greater redistribution of income and wealth within the United States than we have over the last forty years may be doing brilliant economics but is seriously misreading history, psychology, technology, and politics.
Likely you’re right, but there are two argument against this.
First: There’s a very narrow balance in American politics right now between conservatives (broadly construed, including Republicans, libertarians, Tea Party boosters, etc.) and liberals. The economy is not in great shape from the viewpoint of most people. We’ve been though a dozen years of not very satisfying foreign wars. Political partisanship in Washington is at a higher level than at any time since the 1930’s or perhaps the 1850’s. It isn’t likely that this will continue for all time. Probably, much of this tension will have dissipated within the next decade. (If only because of redistricting to match the 2020 census, which is probably going to benefit Democrats in Congress.)
Secondly: Until quite recently, the Official Economic Story of the USA was that average worker income rose in parallel with average worker productivity. That was virtually deemed a law of nature. It was the unqualified truth which demonstrated the value of the capitalistic market-based economy and disproved the foolish notions of socialists. Everybody learned this.
And now . . . everybody learns it ain’t so. Productivity and GNP have been climbing steadily since the end of World War II, to be sure. But income for the average worker rose along with that productivity only until the 1970’s, and since then has risen only 10-15% while productivity has more than doubled. In fact, the increases in GNP have not gone to ordinary workers and their families, they’ve swollen the incomes of the top 1% of American households — and even more specifically, the top 0.1% of American households. Any liberal economist blogger can whip up graphs to demonstrate the point, just about any academic poly science blogger; in fact, so can 9 out of 10 conservative economic bloggers. Most liberals who cruise economic and political web sites are familiar with that information, and it seems possible that some conservative web surfers will learn about it someday. And once the notion that “ordinary” wage earners are no longer being rewarded for their effort as fairly as we were told they were in elementary school seeps into enough heads, we might expect that schemes for increasing “fairness” in American society might find attentive listeners.
I concede this will not happen immediately. Other hand, arguing that ordinary workers have not been treated fairly when there is 50 years of data to show a trend is probably easier than when there is only 40 years of data. Even really stubborn libertarians ought to understand the message at some point.
So maybe this time will (eventually) be different.
The fellow selling you a life insurance policy, for instance, may not be able to explain why taking two semesters of art history in college has improved his earning potential, but he probably doesn’t regret taking those courses and in other settings he might be eager to discuss with you the latest Impressionist exhibit at your local art museum.
Can the fellow selling me life insurance explain to me how having to pay off student loan debt for those two semesters of art history is negatively impacting his spending potential at that point in his life?
And it looks like the O-care death spiral may be starting. But we all know that The Hill and especially Harvard are just right-wing wreckers….
Sorry for the blown hyperlink.
And it looks like the O-care death spiral may be starting. But we all know that The Hill and especially Harvard are just right-wing wreckers….
mike shupp:
Thanks for the thoughtful, measured comments. Unless you’ve been lurking for a while, it might be prudent of me to place myself in the political spectrum. I’m not a conservative, a progressive, or a libertarian. I’m a centrist whose political views are probably best described as “eclectic”. Another word that has been used is “pragmatic” although pragmatism has fallen into disrepute lately.
Today we only have one populist movement and it’s a minarchist one that has become increasingly socially conservative: the Tea Party. Why did the various “Occupy” movements, the left populist movements, fail to gel? IMO it’s because there’s no room for them in American politics. They don’t fit into the Republican Party at all and the Democratic Party leadership is split between technocrats and pragmatic union and party bosses. Both of those groups whatever their expressed ideals are mostly self-serving.
We are a two party system and will likely remain so. That means that any populist movement must work within that system. Anything else is useless.
Our basic economic problems are two-fold: we import too much of what we consume and the other major economies, namely Germany, Japan, China, and India don’t import nearly enough. Additionally, we have imported a large workforce of unskilled and semi-skilled workers who compete with our own native unskilled and semi-skilled workers, pushing wages down at the bottom.
To correct our problems we’d need to undo about fifty years of bad policy and I don’t see any stomach for that in either party.
Ellipsis:
Today’s message: the “Young Invicibles”, necessary to make the healthcare exchanges actuarially sound, will sign up in droves.
Tomorrow’s message: the PPACA is such a moral imperative that it doesn’t make any difference whether it’s actuarially sound or not.
Wasn’t tomorrow yesterday the day before last?
It’s getting so the future is ancient history.
@mike shupp
… would we be better off if kids who effectively drop out at 10th grade level in their studies really earned high school degrees … [snip] … I think it pretty clear we would be. …
Most high school degrees are worthless.
Most people in the US are vastly over-educated. @Dave Schuler has discussed higher education, but I include lower education as well. For most people, a middle school education is all they need – reading, writing, and arithmetic. Most people could start working after that. Historically, adolescence is a few years.
All the people who do not work do not need much education, and many with higher education degrees do not need more than a good high school diploma. Historically, many of the jobs done today only required a high school diploma at best.
The US is an affluent country, and it can afford the luxury of universal education. But, universal education is a quality of life issue.
The tax treatment of marriage represents a transfer of wealth from singles to marrieds, for no good economic reason. The public education system represents a huge transfer of wealth from the childfree to the breeders.
Both the public university system and the national park and forest systems represent a vast transfer of wealth from the poor and non-white to the richer, whiter Amerikan.