To reinforce something I said in comments below and something I’ve been saying around here for some time, I honestly don’t know how we’ll manage to dig ourselves out of the hole we’ve been digging ourselves into for the last several decades. In my view we’re enormously over-invested in housing, healthcare, retail, finance, defense, and education. We’re giving massive subsidies to housing, healthcare, retail, finance, defense, and education and, as we should expect, we get more of them or, at least, those in them get paid more. Practically all of the job growth over the last decade has been in housing, healthcare, retail, finance, defense, and education.
Unless we take as long to dig ourselves out of the hole as we took to dig ourselves in, the amount of dislocation in the economy as a result of any change will be enormous. Unless we start undoing the harm we’ve done soon the damage we’re doing may be irreparable. It may already be irreparable.
Subsidies distort the marketplace and when you apply them for long enough the economy looks no more like the real unsubsidized economy would than your image in a fun house mirror looks like you. Only it’s not the reflected images, our perceptions, that are being distorted but the underlying objects themselves that are being tortured out of shape.
I would quibble a bit on education. Business is tilted towards short term results. Basic research has always been mostly a university/military dominated endeavor. The jobs we have been losing are not in the, mostly, creative sectors, but in manufacturing. The rest of the world is not so much doing new stuff as it is doing the old stuff much more cheaply. If China and India get out ahead of us on development, not just manufacturing, then we are in big trouble.
I also think that universities have done a superb job of marketing. Private universities have seen their costs rise faster than inflation like everyone else. Harvard and Yale do not charge a lot because of govt subsidies, they charge because they can. Basic market economy. Most spending on education is at the state and local level anyway.
Otherwise, pretty good. Wish we had answers as taxes and regulations are at low historical levels for the last decade or so, and we did not see much job creation other than n the cited sectors.
Steve
Dave –
“Practically all of the job growth over the last decade has been in housing, healthcare, retail, finance, defense, and education.”
Decade?? I’d say 2 decades, at least.
“Unless we take as long to dig ourselves out of the hole as we took to dig ourselves in, the amount of dislocation in the economy as a result of any change will be enormous.”
I think that’s correct. It will be a dislocation politically impossible to fix. I see a 15-20 year gradual fix, minimum. Is that possible given our culture, our public discourse, our nature? Heh. I think we need a transformational leader. And it ain’t you know who. He’s goin’ the other way.
“Unless we start undoing the harm we’ve done soon the damage we’re doing may be irreparable. It may already be irreparable.”
More pessimistic than me, but the clock sure is ticking.
“Subsidies distort the marketplace and when you apply them for long enough the economy looks no more like the real unsubsidized economy would than your image in a fun house mirror looks like you. Only it’s not the reflected images, our perceptions, that are being distorted but the underlying objects themselves that are being tortured out of shape.”
Truer words have never been spoken, and why I reject notions that “market economics haven’t worked.” What market economics?? So I have a very serious question (not snark) to ask. Why are you a Democrat? I know full well the rudderless, weak kneed go along-get along posture the Republicans have taken over time. But Democrats, by basic philosophy, have looked to government intervention and subsidy in all of the areas you lament for 70 years now . And look what happened? (And I don’t except finance. The Dems are clearly doing the nasty with Wall Street.) Imagine if the Republicans didn’t have to constantly fight against seductive Democratic promises of free beer for everyone?
steve –
“Business is tilted towards short term results.”
I’d quibble a bit on that. Public firms, maybe. But have you noticed how important private equity, with ther long term view, has become in the past 15 years? Golly. The capital markets detected a market failure, and began addressing it. Who’d a thunk it?
“Basic research has always been mostly a university/military dominated endeavor.”
steve – you are a doctor. Eli Lilly? Merck? etc That’s a pretty impotant arena in our economy.
“The jobs we have been losing are not in the, mostly, creative sectors, but in manufacturing. The rest of the world is not so much doing new stuff as it is doing the old stuff much more cheaply. If China and India get out ahead of us on development, not just manufacturing, then we are in big trouble.”
What’s wrong? Hollywood can’t be the basis of an economy? Tell them to start voting Republican.
“Private universities have seen their costs rise faster than inflation…”
“Harvard and Yale do not charge a lot because of govt subsidies, they charge because they can.”
True, but you are talking about a tiny spec of the education market. And when were Harvard and Yale EVER market driven??
Today, no one pays the tuition. You know that, right?
“Wish we had answers as taxes and regulations are at low historical levels for the last decade or so, and we did not see much job creation other than n the cited sectors.”
Take a look at various available websites and just query on Fed, state and local taxes as a pct of GDP or whatever metric you think appropriate.
Oops, meant spending. My bad. Had just read Mandel’s recent post. Off this week and was smoking pork shoulders, which requires several beers.
http://innovationandgrowth.wordpress.com/2010/06/24/government-spending-1979-vs-2007/
“Public firms, maybe. But have you noticed how important private equity, with ther long term view, has become in the past 15 years? Golly. The capital markets detected a market failure, and began addressing it. Who’d a thunk it?”
Fair point. I was thinking publicly traded corporations mostly when I wrote this.
” Eli Lilly? Merck? etc That’s a pretty impotant arena in our economy.”
They do not perform a whole lot of basic research. There has been a good bit written on this lately. For several reasons, at least in biotech and the medical field, there is a hold up in basic research getting translated into new products. Like most problems it is multifactorial, including some problems from the government side. There have also been issues on the physician side with too many docs accepting too much money for “research”.
I still think we have a structural problem which goes well beyond taxes and government spending. When you can make stuff in China for half of what it costs here, your economy is going to undergo changes. We have to be out front if we expect to maintain our standard of living.
Steve
I’ve explained it a couple of times around here previously. I don’t fit congenially into either party, to participate fully in the political system of Illinois you’ve got to belong to a political party, and, if you live in Chicago, you might as well be a Democrat. As one of my neighbors put it “In this neighborhood a Democrat is an independent who wants his trash picked up”.
I’m too Jeffersonian in both domestic and foreign policy. The Republican Party leans Jeffersonian on domestic policy while the Democratic Party leans Jeffersonian on foreign policy.
Another reason: I’m old.
I can’t forgive the Republicans for accepting Jesse Helms and Strom Thurmond into leadership positions. They should have been pariahs on the American political scene. In my view social conservatives’ dominating the Republican Party isn’t an accident. The libertarians and paleo-cons aren’t organization types.
As I’ve said I’ve only voted for two presidential candidates in 40 years who actually got elected: George W. Bush in 2004 and Barack Obama in 2008. Kerry was a manifest idiot and I believed then as I believe now that withdrawing from Iraq (as he almost certainly would have done) would have been immoral, illegal, and bad policy.
I think that John McCain is an honorable, brave, and decent man as politicians go but I was genuinely concerned that his foreign policy would be too bellicose. I have different criteria for the use of force than, apparently, President Bush did or Sen. McCain does.
President Obama has only disappointed me in foreign policy by being a bit more activist in that area than I thought he would be. I thought that under him our foreign policy would be likely to be on automatic pilot (to a large degree it has been) and there were worse things. On domestic policy the president is largely just there to hold the Congress’s coat. If you don’t like what’s happening domestically, blame Congress.
Steve:
I’m not sure how that graph supports your claim. To my eye it looks as though we see a peak at the end of Bill Clinton’s first term and another right now. Remember a change of state can occur very suddenly. The difference between hot water and boiling water isn’t a large percent but the tiniest increase in temperature.
Dave-Yes, I misread. he prior peak is 1991 and is now peaking agin, but this is a spending graph. Sigh. Anyway, I have only briefly scraped the surface looking at regulatory changes. My assumption has been, with some substantiation like on banking and finance, that we have greatly deregulated since 1980. As I think about it, I probably do not have the data to support that assertion for other areas of the economy. I would think it true given who has run government, but that is not enough proof.
Steve