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.