I think that Lawrence Summers has a point—the problems that face the world can’t be solved with incremental change:
Greece’s relationship with the euro area has been a financial soap opera for months, and the drama is unlikely to end anytime soon. Concerns about German dominance of Europe are now more salient than they have been at any time in the past 70 years.
China’s stock market has been a roller-coaster in spite of — or perhaps because of — a remarkable (even for China) level of government involvement. And the ability of the Chinese government to deliver the rapid growth on which its legitimacy increasingly depends is very much open to question.
In the United States, while the fiscal picture at the federal level appears healthier than it has in a long time, thanks to a marked slowdown in health-care costs, Puerto Rico is on the brink of the largest municipal bond default in U.S. history. The debt of Chicago — America’s third largest city — has traded at spreads to U.S. treasuries of as much as 500 basis points, or 5 percentage points, even in the seventh year of an economic recovery.
The problems that are beyond the power of incremental change to ameliorate let alone solve are not limited to Greek debt, Puerto Rican debt, and the Chinese stock market. There’s a host of domestic problems that fall into the same category. I’ll just mention two.
The first is healthcare. There has been mention here lately of the “iron triangle” of healthcare: affordability, availability, and quality. The PPACA chose availability over affordability and, in all likelihood, quality. As I have been saying for well over a decade, lower costs will result in more people being able to afford healthcare coverage. Healthcare prices increasing faster than the non-healthcare economy grows will result in spiraling that, at the very least, will result in ever-increasing subsidies which in turn means that national priorities other than healthcare will suffer.
I don’t think our healthcare system can be reformed incrementally. Too many very smart people are dependent for their livelihoods on it for that to be practical.
Similarly, I don’t see any incremental solution to the problem posed by public pensions. Here in Illinois Republican Bruce Rauner wants to strip public employees’ unions of bargaining right in areas of pay, pensions, and overtime and freeze the pay of public employees for five years after which time they could choose between higher pay or their full pensions. I don’t think his plan will fly but there’s one thing you can see about it. He’s not proposing incremental change. If anybody knows of a plan of incremental change that will solve Illinois’s problems, I’m all ears.
These problems all have something in common. They have arrived after years, decades even, of kicking the can down the road. That’s what happens when you fail to address a problem or, as me auld mither used to say “grasp the nettle”. Eventually you’re left without palatable solutions and the solutions that will actually solve are pretty darned radical.
Probably the biggest non-incremental thing we need to do is get everyone into the same health care system. We have multiple public systems and a private system. It means one group gets played off against another. If everyone is affected by the same cost changes or access issues, then it will force changes sooner. This doesn’t necessarily mean a public system, though I suspect some system that is at least a hybrid is what we would get since it is what most other countries do.
Steve
I’m of two minds on the pension problem. On one hand it definitely needs reforming, there’s no question about that. On the other, it’s a contract and some of the folks that are collecting, if their income is reduced they don’t have the means to go back to work. It’s interesting how contracts are considered to be generally unbreakable if they are with a business or organization, but when it comes to contracts with employees many states seem to be more than willing to break them or ignore them.
The problem is that the next layer in the debt Ponzi scheme cannot support the previous structure. In a world of fiat debt, the total amount of debt can never be paid off. It can only be rolled over, and the economy is expanded through new debt creation.
The Ponzi scheme was working as long as it was growing at the same rate as population growth, asset additions, and asset inflation, but when the financiers got greedy, it overwhelmed the system. The additional people burdened with debt could not service that debt, and when their debt began to go bad, it took down everything it was supporting.
Much of this bad debt is still in the system, and it will never be replaced. This would usually be done during a recession, but this is not simply business overproduction and misdirection. Usually businesses will get signalling data to guide them, and when businesses create debt, they can usually service the debt. More importantly, they are expanding the economy.
The bad debt that has been created through the housing bubble is different, but it was not the beginning of the debt creation Ponzi scheme. We need to go back about a century for the start of that problem. Greece, China, and the present US economy’s lackluster performance are all the result of not being able to bring in more suckers for the next layer of the debt Ponzi scheme.
The problem with fiat money is there must be a new layer of borrowers who are able to support the previous amount of debt. If not, you wind up with the situation in Greece. Greece cannot repay its creditors the money it owes, and the solution its creditors have devised is to increase the amount of money Greece cannot repay. This only makes sense to somebody trying to keep their Ponzi scheme afloat.
Most people do not understand how banking actually works. It does not work how you were taught in high school or college, and if you go to Wikipedia it is misleading, also. Banks do not lend deposits. Here is a primer on 20th century banking:
Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse
Conservatives and libertarians should take note of the references to fiat money not working in a free market. They might also take note that using somebody’s property without permission is theft.
Greece, China, and the present US economy’s lackluster performance are all the result of not being able to bring in more suckers for the next layer of the debt Ponzi scheme.
Word association quiz —-> a bigger Bernard Madoff gig.