Writing in the Washington Post, Robert Samuelson makes a good point—one of the explanations for the slow rate of productivity growth in the U. S. is deadweight loss:
The causes of the productivity collapse are unclear. Some economists say that productivity isn’t measured properly — Internet benefits are allegedly undercounted. Other economists contend that U.S. technology and innovation are lagging. Still others argue that weak business investment after the Great Recession explains lackluster growth.
To this list should be added another plausible candidate: the dead weight losses created by special interest groups, as explained by the late Mancur Olson (1932-1998).
and he goes on to explain. Read the whole thing. What he doesn’t do is name names but I will. The sectors that are the largest recipients of subsidies and responsible for the largest amount of deadweight loss are:
- Finance (particularly the banks)
- the military sector
- education
- healthcare
He does make one error. Business investment didn’t slow following the recession—it had started slowing long before, at least by 2000.
As was pointed out thirty years ago however measured (other than in wages which is measuring inputs rather than outputs) outputs per input have been falling in all of those sectors for decades.
If we’re going to counter our present slump by reducing deadweight loss, we’re going to need to make some hard choices. Making hard choices is not something we’ve been good at.
Nice piece by Smith suggesting we are long overdue for some deregulation.
http://www.bloombergview.com/articles/2015-09-11/hey-republicans-deregulation-not-tax-cuts
Steve
I usually don’t get around to Bloomberg until the afternoon. 😉
It’s an okay article. At least it has a modest criticism of the Republicans’ cargo cult/magical thinking mentality about tax cuts. What concerns me is the possibility that Dr. Smith doesn’t know enough about the subject to write intelligently about it.
The number of areas ripe for deregulation are enormous but I doubt that either political party will seize on it as an issue. I’ll just site a couple. First, certificates of need. Get state and local governments to stop requiring them. On the one hand we say we want more competition in healthcare but on the other we keep stupid leftover laws like certificates of need on the books.
Then there’s the superabundance of regulations at all levels. A little streamlining probably wouldn’t make us less safe but would make it a lot easier to run businesses that do business in more than one jurisdiction.
The Federal CON program ended in 1987. They are now issued by states. As I have said many times, many of the worst regulations we face in health care come from the states, not the feds. That said, we conducted this sonic natural experiment by ending the Fed. CON. About 15 states discontinued CON programs. The other states kept them. I have searched on this before, and AFAICT, costs did not drop in the states that dropped CON, nor did costs rise faster in states that kept CON. My state being one that dropped CON, we certainly didn’t se costs drop, probably the opposite especially in cardiac care. In principle, it should cut costs. In practice, not so much.
My best guess is that provider induced demand is a factor. There is a fair amount of literature showing that when physicians own facilities, utilization increases.
Steve
In a financialized economy, increased productivity in manufacturing and services is achieved by decreasing costs. In finances, output is also input, and I doubt they are capturing that. (Sub-prime loan output is an input for an MBS. An MBS is an input for a CDO. …)
In a debt based monetary system, the credit supply must grow, and the debt created by this credit supply must be serviced. The service charge is always growing. The credit supply growth is necessary for the economy to grow, and it must increase at some minimum percentage.
Because the service continues to grow, the minimum percentage must continue to grow. Rather than a new normal of a lower GDP, the new normal must be a higher and higher GDP. With a globally connected balance sheet, it is easier to manage this trick. China’s unnatural growth was able to cover the lacking US growth.
The service charge for the credit supply is more than just the interest charged for debt. The credit supply has costs to keep it in a steady state, and there are additional costs to increase it. Furthermore, a large portion of the credit supply is in the private (shadow) banking sector, and it is only indirectly quantitatively measurable. For this reason, it is usually dismissed until a disaster.
On the other hand, the economic models could be working perfectly, and we are all having a simultaneous hallucination. Actually, this would explain quite a few things.
I disagree about the military – we seem to be getting much more war for the buck than when I was young.