The Synthesis

by Dave Schuler on March 7, 2013

In his most recent column Michael Barone produces an interesting synthesis of several ideas I’ve explored around here over the years. Read the whole thing. Otherwise I’d need to excerpt the whole column and that goes well beyond “fair use”.

In summary, Mr. Barone suggests we may be in for an extended period of slow or no growth because a) U. S. population isn’t growing as quickly as it did 50 years ago and b) technological advancement isn’t producing the productivity gains it did 50 years ago. Our government education, labor, healthcare, and welfare policies all assume things as they were 50 years ago and those assumptions just don’t hold true any more.

A year or so ago I produced a lengthy series of posts which explained slowing growth as an artifact of the aging of the Baby Boomers. You can search for the posts if you care to. I’ve also posted on the subject of the realities of technological advancement.

This might be a good time for me to give an example of why I think that technological advancement isn’t being reflected in the sorts of productivity gains it resulted in decades ago.

Governments at all levels are subsidizing healthcare to the tune of well over $1 trillion per year. The federal government’s share of those subsidies alone is more than $800 billion. Those subsidies are expected to continue, increasing even, for the foreseeable future. That means that capital investment in healthcare including healthcare research is seen as a sure thing by investors. It constitutes about 25% of all R&D investment and I suspect it would be even more if its results weren’t so weak.

Here’s the point: nearly all of the results of that subsidy and investment is retained by producers as producer surplus. Check out nearly any statistic you care to. Outputs, however measured, are declining relative to inputs, not increasing. Said another way, healthcare R&D doesn’t result in increased productivity.

That could be changed but the social costs of making the change would be so high that I don’t expect the changes to be made. Unless we do, the more money we put into healthcare the worse the overall economy will get.

Back to the policies. What education, labor, healthcare, and welfare policies make sense during a period of slow or no growth? I’ll tell you one that makes very little sense: large public employee pensions. Illinois Gov. Pat Quinn’s 2014 budget proposal (which I may complain about later in the day) calls for the state to devote 25% of its budget to public employee pensions.

{ 17 comments… read them below or add one }

Icepick March 7, 2013 at 8:58 am

What education, labor, healthcare, and welfare policies make sense during a period of slow or no growth?

Let’s see.

How about importing millions of people with poor education into the country to suppress the wages of native workers, while straining the current education, healthcare and welfare systems?

How about encouraging native talent to bury itself under large amounts of non-dischargeable debt for useless degrees so that the native talent will forgo household formation, marriage and starting families of their own?

How about adding about 6% of GDP to the federal debt every year in perpetuity?

How about financial policies that discourage savings in favor of debt?

How about making energy production more expensive?

How about adding to the regulatory burden of, well, everybody?

How about increasing taxes?

Dave Schuler March 7, 2013 at 9:09 am

As I’ve said before I think the federal government is stuck in the 1950s.

Icepick March 7, 2013 at 9:45 am

I don’t think so. Which of the above, with the exception of higher (nominal) taxes, were policies of the 1950s? The day-to-day functioning of the government may be reflective of the 1950s, but the policy goals don’t seem to be anything like it.

Dave Schuler March 7, 2013 at 10:44 am

It’s the policy goals and underlying assumptions that I’m talking about. I’ll give some examples.

“My parents came through Ellis Island from X. This country was built by immigrants!” Absolutely true in 1950. Growth was robust in the 1950s and 1960s and we were limiting immigration severely enough that it didn’t affect native-born workers much. Importation of unskilled and seasonal agricultural workers from Mexico was handled under the Bracero Program which allowed many more Mexican workers into the country legally than is the case now.

“What’s good for General Motors is good for the country.” They’re imagining a handful of dominant domestic companies with large, unionized labor forces and trying to tailor policies for such an environment. Hence the importance of saving the UAW, er, GM.

That both of these policies bolster what they believe to be faithful Democratic voters is a happy accident. One of those things that just works out neatly.

“My father went to school on the GI Bill.” In 1950 a college education, theretofore a hallmark of the aristocracy and upper middle class, was in fact a ticket to a secure living. Additionally, there was an expectation that wages would rise through life which meant that debts incurred in your teens and twenties became easier to pay off as you progressed. If there’s such an expectation now, it’s ill-founded.

jan March 7, 2013 at 11:14 am

We seem to be following in Japan’s fiscal footsteps, with the same results — economical stagnation. Other examples, like the Netherlands, Sweden, and Canada, who have stabilized their economies more by controlling their budgets, even seeking surpluses, are apparently off the radar of consideration by our politicians. For, under the current social progressive administration we haven’t even produced a budget since 2009! Where’s the public’s outrage or push-back on this fiscal dereliction of duty — as stipulated in the Budget Act of 1974. To be fair, however, the deadlines in this act have only been met 6 times since it’s passage — a failure incurred by both democratic and republican administrations and Congresses.

In the meantime, though, what this country seems bent on doing is making a bad situation worse. Like in Barone’s article:

But in a slow-growth, new-normal economy, it doesn’t make sense to borrow to buy a house whose value will only stagnate. It doesn’t make sense to take out college loans for degrees that won’t get you a job.

And the policy of transferring money from current workers to retirees — Social Security, Medicare — simply isn’t sustainable if current workers aren’t going to be producing and earning substantially more than those they’re subsidizing.

Essentially, the U.S. is in a rut of broadening it’s base of neediness, through expanding social freebies as well as refusing to reconfigure outdated entitlement programs, while discouraging economic growth by it’s taxation and regulation policies. It’s on a path to nowhere!

Here, for instance, in cash-strapped CA we are now offering free cell phones for all low-income and homeless people, expanding a federally funded program that was put on steroids by the Obama administration. Add on that foolishness of the 30% tax hike to high earners, the ‘smart train’ fiasco, the implementation of the CA Global Warming Solutions Act, as well as other monetary-suppressing head-spinners, and all we have going for us in this state is a lot of fiscal cognitive dissonance.

Mercer March 7, 2013 at 12:02 pm

” nearly all of the results of that subsidy and investment is retained by producers as producer surplus. ”

I think higher spending and loan subsidies for education has similar results.

jan March 7, 2013 at 12:18 pm

When I look at both of the major political parties I see little in their actions but maintaining status quo legislation, favoring growing a nanny state, in order to be reelected. This opinion is based on their overall tepid policy-making or courage of innovation-seeking convictions, especially convictions that may rile their base, or be easily distorted by an opponent to the ever-increasing numbers of uninformed, entertainment-oriented voters.

However, lately the republican party seems to be cultivating a more demanding, gutsy breed of politicians, originating mostly from the wave of the tea party rebellion. Although this group has been successfully derided by the left and their left-sided media, some of the brassiness of calling government out has remained in a few representatives.

Ted Cruz, the newly minted senator from TX, seems to be asking hard questions in the confirmation hearings.

Ron Johnson of WI, has also been openly critical of the government’s handling of events such as Benghazi.

Last night Rand Paul, stood and filibustered for 13 hours on the Senate floor, in an attempt to bring greater focus on our drone policies, especially as they are implemented and enforced here on U.S.soil.

Tom Coburn continues to be a convincing whistle blower on government waste and fraud, aided and abetted by others like Sen John Barasso of WY, and Rep Tom Price of Georgia (both physicians)

Then you have Paul Ryan — the left’s pet ‘fiscal’ target — who keeps plugging away at our budget problems, tinkering with and updating his own ideas/plans that have been in the making for years. He now has a 3rd generation budget in the mill, one in which he says will balance the budget in 10 years, rather than his previous one that honed such a goal in 25 years.

As Ed Morrissey explained, in today’s Hot Air article regarding Ryan’s work-in-progress budget revisions, much of which continues to revolve around reforming medicare:

A 10-year window provides a much shorter time frame for vigilance and a much better chance for successful completion of the reform. The faster these costs come under rational control, the more quickly investor confidence will return, and economic growth may even end up accelerating the end of budget deficits.

Without having a solid proposal on the table, it’s impossible to determine whether Ryan is on the right path or not. However, Ryan is one of the few taking his leadership responsibilities seriously and attempting to budget for long-term reform and fiscal sanity, rather than attempting to drive off one short-term political cliff after another for momentary political gain. That much is worth celebrating and supporting.

I agree.

steve March 7, 2013 at 4:09 pm

Mostly a rehash of Boskin’s work, with the same lack of evidence. Notice that he just talks about transferring money from the young to the old, but cannot bring himself to mention Medicare. He is a bright guy, so I assume he knows that our real problem is health care spending. Like most partisans, he carefully avoids mentioning what is one of our most popular programs. The GOP base is old people. We need to cut benefits to old people. Creates quite a bit of tension.

” Ryan is one of the few taking his leadership responsibilities seriously”

Nope. The only legislation Ryan has ever passed is naming some post office. He specializes in crafting legislation that the red meat base loves, but has no chance of passing. It makes him very popular. IOW, he is a politician. When he does something that makes him unpopular with his base, then we can see him as a leader.

Steve

Steve Verdon March 7, 2013 at 4:37 pm

In summary, Mr. Barone suggests we may be in for an extended period of slow or no growth because a) U. S. population isn’t growing as quickly as it did 50 years ago and b) technological advancement isn’t producing the productivity gains it did 50 years ago. Our government education, labor, healthcare, and welfare policies all assume things as they were 50 years ago and those assumptions just don’t hold true any more.

I’m sorry, but I think this is just silly. One thing it suggests is faster population growth…which would likely just exacerbate the health care issue over the medium to long term.

I think we have a growth problem because:

1. The government (at all levels) hoovers up then redirects an immense amount of resources.
2. Health care spending is so damn high.

Granted, 1 & 2 are closely inter-related since a great deal of health care spending is via government at various levels, but by and large alot of that spending is non-productive or provides little in the way of increases to productivity.

For example, ages ago over at OTB when talking about fiscal stimulus a commenter said something to the effect that if we made a bunch of tanks and dumped them off a pier into the ocean it would still be good for the economy. If this strikes you as errant nonsense…well that is because it is errant nonsense. Sure you pay some workers and some firms, but all the other inputs to creating a tank are lost…gone…they are no forming a new reef and the fish may like it, but to the rest of us it provides practically nothing. You can’t even argue it provides that pure public good national defense because tanks at the bottom of the ocean don’t defend anything.

Dave Schuler March 7, 2013 at 7:24 pm

Perhaps “productivity” isn’t well-chosen but I’m not sure of what the right word would be.

Imagine for a moment that the weaver’s guild had been handed control of the deployment of the Jacquard loom. I’m guessing that the weavers’ incomes would have skyrocketed, they’d be making the same arguments that docs are now about the rigorous training that weavers receive and how only very special people can become master weavers, and we’d never have seen the enormous growth in manufacturing that dominated the economic landscape for the next 150 years.

steve March 7, 2013 at 8:09 pm

“they’d be making the same arguments that docs are now about the rigorous training that weavers receive and how only very special people can become master weavers,”

You need to write a post about how exactly this would work. Anyone who wants can practice medicine and caveat emptor, ie let the market decide? Mid levels can do whatever they want, and caveat emptor? Regulated mid levels? I have yet to read a cogent presentation from any libertarian on how this would work. Maybe you have a plan.

Steve

jan March 7, 2013 at 8:10 pm

Nope. The only legislation Ryan has ever passed is naming some post office. He specializes in crafting legislation that the red meat base loves, but has no chance of passing.

The House passed his last budget. But, I believe it didn’t get anywhere in the Reid-controlled Senate.

The value of Ryan is that he is knowledgable about budget numbers, actively applies them in creating ways to stem the tide of spending, crafting it all into some kind of ‘real’ written legislation. You view it as merely red meat, while others see it as at least having the courage to address one of the major reasons for our debt/deficit problems — medicare.

BTW, what legislation did Obama ever pass as a fly-by-night Senator? And, when he was in the Illinois Senate, what kind of a spark plug legislator did he turn out to be? From what I read he either took over other people’s legislative work, or simply voted ‘present’ numerous times so he didn’t have to make any waves while he awaited his promotion to a higher national platform.

Drew March 7, 2013 at 9:53 pm

jan

Obama was a zero. Period. Full stop.

jan March 7, 2013 at 10:49 pm

Drew,

It’s not that I really take issue with criticisms towards any specific person or politician…but at least spread it around equally, instead of being determined by the R or D next to their name.

For instance, in Ryan’s case, he at least wrote a bill, and had a lot of support for it in the republican controlled House. The one budget I remember Obama submitting, received zero votes — nary a democrat even raised a yea for it!

The same kind of lopsided finger pointing was noted throughout the last election, too. In Romney’s case he was beseiged by the media and others for ‘details’ and examples of the cuts he would make in closing loop holes. Both Ryan and Romney answered obliquely, their reasons being that cuts would be mutually discussed and deterrmined by both the Congress and the WH. No one bought their explanations. However, Obama’s economic plans for his 2nd term lacked no details as well — his mantra was raising taxes on the 1%, along with strategizing rhetoric that would divide the country into groups against each other — the old divide and conquer theme.

steve March 8, 2013 at 5:18 pm

” You view it as merely red meat, while others see it as at least having the courage to address one of the major reasons for our debt/deficit problems — medicare.”

Again, it takes no courage, none, to write bills that your base loves and have no chance of becoming law. Obama is at least partially responsible for the ACA, which his base did not like that much. His stimulus contained tax cuts, not appreciated by his base, plus the block grants to the states, generally a GOP approach. Ryan is not trying to solve Medicare, he is positioning himself for power in the party.

Steve

jan March 9, 2013 at 12:11 pm

Ryan is not trying to solve Medicare, he is positioning himself for power in the party.

You and I just disagree on Ryan’s intent. He has had a Road to Recovery plan on the back burner for years, continually revising it up to the present day. The guy is a numbers wonk. That’s his skill set, and I think he is serious about eventually making the numbers work in order to balance the budget in the future. That future has now being pared down to 10 years. But all you credit him with is positioning himself for power in the party? Therefore, I guess anyone that makes a forward move or sound on the right is out for power. Anyone on the left, though, is out for the good of the people. Yeah, got it.

However, I just find it both amazing and troubling that you see Obama’s hand in solving medical costs as being more bi-partisan and better, considering the non-partisan support the ACA received, as well as the way it was manipulated and passed, combined with the continuing public distaste for it.

jan March 9, 2013 at 12:19 pm

Again, it takes no courage, none, to write bills that your base loves and have no chance of becoming law.

Ryan has had uneven republican support for his ideas. But that hasn’t deterred him from pursuing different renditions of structural reform in medicare. One of the problems with his budgets and ideas is that the Senate dems don’t even enter into discussions about them, which is not the way these two chambers are supposed to function and interact.

Instead, Reid censors what he wants to throw out for debate, and what he wants to keep in check. And then he goes out and blames stalemates and obstuctionism on the other party. It’s a good cover if you can get away with it. And, so far that has been the case.

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