In response to a question in comments, yes, I believe we have screwed up the economy massively during the entire post-war period. We have over-invested in housing for nearly 60 years. The ten year or more bubble in residential real estate is clear evidence of massive over-investment during that period.
Military spending has been excessive over the period of the last, roughly, 60 years. We have been at war for seventeen of the last twenty-two years.
Healthcare spending has been excessive over the period of the last, roughly, 30 years.
I have previously posted links to studies which suggest that our financial sector is about three times the size that it should be for an economy of our size.
All of the above tie up capital in relatively unproductive ways. That will continue as long as we insist on doubling down on our prior mistakes.
The sums involved aren’t just in the trillions of dollars but in the scores of trillions of dollars.
So, hell yes, I think the degree of misallocation in the economy has been enormous. It didn’t look so bad at the beginning but the consequences become worse and worse every year. That’s the nature of compounding.
Don’t forget the education bubble. It’s a big one, should be on that list, and we should expect some kind of “pop.”
John- I am not so sure about the education bubble popping soon. Just having gone through the admissions process with my son, I cam say it is nuts. About 10% of kids now use some form of a counseling service, prices from $100-$350 per hour, to hep prepare to get in to a good school. My favorite is application boot camp. 4 days, $14,000.
http://www.applicationbootcamp.com/application-bootcamp/
To Dave’s larger topic, Casey Mulligan cited a study showing that 13% of all homes are unoccupied. I think real estate remains our largest drag. While I agree about the financial sector being too large, I am not sure what we do about it now.
Steve
“In response to a question in comments……..We have over-invested in housing….Military spending has been excessive over the period of the last, roughly, 60 years….Healthcare spending has been excessive over the period of the last, roughly, 30 years….our financial sector is about three times the size that it should be for an economy of our size.
Hmmmm. Let’s review – housing, military, healthcare, financial……..and then there is education…….all regulated and subsidized by government intervention. A cost mess. And now we have a President whose worldview is to INCREASE government involvment.
Brilliant.
As I see it the problem we have is rather like one of dealing with addictions. You’ll go into rehab/quit right after that next drink/smoke/hit/shooting up.
The alternatives that might work are tapering off (if we have the will) or going cold turkey (if it doesn’t kill us). But putting off what we need to do to sometime when it’s easier or more convenient?
A lot is government supported, but that Application Bootcamp madness is not.
(My nephew just scored a tennis scholarship, yay)
“The alternatives that might work are tapering off (if we have the will) or going cold turkey (if it doesn’t kill us). But putting off what we need to do to sometime when it’s easier or more convenient?”
As anyone who has read my comments knows my general point of view is guided by management of our portfolio companies and falls on the side of “cold turkey.” However its an interesting notion that certain government programs are so pervasive that cold turkey could kill us. Or perhaps more importantly, some people have organized their financial affairs around the notion that certain government programs would be there, and if not, could kill them.
In any event, there is at least one program, Medicare, that needs reform or it and its beneficiaries are going to go splat…..and all the rest is academic.
“Or perhaps more importantly, some people have organized their financial affairs around the notion that certain government programs would be there, and if not, could kill them.”
Perhaps better: “…..have organized their financial affairs and are of an age that they cannot now recover…..
Related:
Why the British economy is in very deep trouble
Specifically:
“Over the past decade, the British economy has been critically dependent on private borrowing and public spending. Now that these drivers have disappeared – private borrowing has evaporated, and the era of massive public spending expansion is over – the outlook for growth is exceptionally bleak. “
I don’t see how you can believe in good government then Dave. We’ve had 60+ years of nothing but failure after failure after failure. Government screwing things up again and again and again. What is it they say about insanity, doing exactly the same thing over and over again, but expecting different results?
Don’t get me wrong, I feel the same way, it is just that for so long you’ve been singing a completely different tune. Or is it you think that “this time it will be different”?
Lets recapitulate here on the list of failures:
Housing,
Military spending (and probably interventions),
Health care,
Social Security*,
Financial sector regulation and oversight.
These are all pretty damn big, huge in fact. Social Security and Medicare are even bigger than many people think in that they also act as strong dis-incentives to save. Where does investment come from? Savings. So if we have less savings we either have to borrow from abroad or have less investment. Less investment means less economic output in the future. More borrowing for investment means some of those returns are going to be leaving the country. Our balance of payments problem is a symptom of our horrible fiscal situation.
I’ve mentioned before that the only real solution to our bailout problems is to….not do bailouts. People point out the fallout would be enormous. Yes, it would be. Problem is if you don’t cut out the bailouts I’d argue they will just get bigger and bigger until bailouts can’t be supported. Then the costs will be exponentially larger.
Tyler Cowen argued that we could have pulled the plug back in the 1990s with LTCM. It may have had serious negative consequences for the economy, but probably far smaller than we are seeing today.
And the same goes with just about every other item on that list as well. Year-after-year the costs of fixing health care/medicare goes up. Is anything done about it? No. Would fixing the problem sooner vs. later be the right thing to do? Yes. Why isn’t it done? How come, time after time after time “rational” government is totally AWOL? In fact, after the last bout of “reform” if anything the situation looks worse. The current health care system has been expanded and further entrenched. The chief actuary actually had to write his own report stating that current law is a laughable joke when it comes to expected savings.
And here is the problem: no sitting president wants to be saddled with that kind of a legacy/mess. He is going to do anything and everything he can to avoid it. And members of Congress are going to go along as well because they like their power as well and wont want to experience the (at a minimum) voter backlash. The State acts to preserve itself and our State is one that has grown fat and rich off of this enormous mis-allocation of resources.
So tell us Dave, are you having a shift in your world view? I’m curious because right now your posting does not fit with earlier postings. Before the tone was that while things weren’t great there always seemed to be at least a hope that things could work out, at least that was the view I’ve gotten. But taking your more recent posts to their logical conclusions you seem to be pretty much where I am. We are so thoroughly f*cked it is almost funny.
I think your comparison to addiction is probably not all that far fetched. But cold turkey. Hmm…where have I seen that before? Oh yeah, like not bailout out too big to fail financial institutions?
Really, I’m sitting here with a bemused smile on my face.
*Please don’t tell me Social Security isn’t a failure. When you take the list as a whole it is really hard to see how we can save Social Security as it is currently structured. If we just had a problem with Social Security…well we’d be goddamned lucky. But we don’t so we aren’t.
(Mmmm octopus on a stick … but I will pause to comment.)
One only need desire, and demand, better government.
Don’t let the (elusive) perfect be enemy of the good.
But we don’t even have good. We have bad. We seem unable to get to good let alone perfect.
I think it takes continual effort to fight the slippage into bad.
It is a fight we have lost for 60 years according to Dave (and myself).
Riiiight. And yet when I accuse you of cynical apathy you declare not.
Is this another case where, just around the corner, we find salvation in a full reserve banking system? Some other Hail Mary?
“I don’t see how you can believe in good government then Dave. We’ve had 60+ years of nothing but failure after failure after failure.”
OTOH, James Q. Wilson commenting on the downswing in crime statistics:
No, I’ve never said anything of the like.
You really need to grow up and stop arguing with the people in your head and those who you are corresponding with.