Matthew Yglesias and Tyler Cowen engage in dueling dystopic counter-predictions (i.e. what won’t happen). Matthew Yglesias believes with healthcare reform, the ACA, the welfare state in the United States has reached its zenith:

Realistically, does anyone think we’re going to increase the overall size of the government faster than that? [ed. referring to the CBO’s projection of federal government share of GDP] I sure don’t. And yet there are actually some areas in which I’d like to see the government doing more—specifically nutrion, early childhood education, infrastructure, and probably K-12 education writ large. But on this chart we’re predicting a slow-but-steady decline in non-health care non-Social Security spending.

So the future of American politics is necessarily going to be about things like making the tax code more efficient, finding areas of government spending to cut relative to projection, and thinking of policy measures that will help people that don’t involve spending more money.

Tyler Cowen in turn responds with 12 bullet points that can largely be summed up as very little will change for the foreseeable future.

There is a minor problem with MY’s projection. It’s based on the CBO and not even the CBO believes it. And the Social Security system’s auditors took the unusual step of filing a report dissenting with the Social Security Trustees so we can be fairly confident that the CBO’s baseline projections won’t hold up.

I don’t honestly know what’s going to happen. I’m pretty convinced that anything that can’t be sustained won’t be. I do think that the CBO’s revenue projections are going to look astonishingly rosy. Heck, they looked rosy before the ink was dry. The Federal Reserve has already revised its growth estimates for this year downwards twice, to the point where it’s beginning to resemble reality and the reality is grim—growth under 2% as far as the eye can see.

I think the best we can hope for is for equities to hold their own—the alternative possibility is a major downwards correction. Can anyone really believe that bonds are ready for a rally?

Many public pension plans assume incomes in the vicinity of 8%. With the interest rate near zero (and looking to stay that way for another couple of years) and flat everything else how can that be?

So I’ll present a couple of other things that I don’t think will happen.

1. We can’t have slow or no growth, increasing healthcare costs, and an increased base of government expenditures for healthcare.
2. We can’t borrow (or mint or quantitative ease) our way to prosperity and government doing its darnedest to top 30% of GDP.
3. We can’t solve our fiscal problems solely by cutting the defense budget.
4. We can’t have slow or no growth and meet the public pension obligations we already have let alone expand those. And rising federal, state, and local government payscales automatically increase pension obligations.

I welcome the counter-predictions of others in comments.

Barry Ritholtz, musing over the bankruptcy filing of Blockbuster, wonders what company or sector will be the next to go:

CrowdQuery: Who is the next major company, business, or sector to go belly up?

Let’s consider 3 categories:

1) who goes down in 2010 or ’11

2) who is in danger between now and 2015.

3) Whose long term prospects are clouding up?

My ear is no longer as close to the ground as once it was and I couldn’t name a major player that is likely to “go belly up” in the next year. I do think that home construction, finance, auto manufacturing, and retail all are enormously over-built. I don’t see any likelihood that any of these sectors will return to their former heights and can only explain the degree to which they’ve held on as a product of the enormous subsidies they’ve received over the last couple of years. I think they’re all in a Wily Coyote moment, that frantic act of panic before gravity takes over.

I think that healthcare is over-built, too (not to be confused with over-performing). I wouldn’t be surprised if some health insurers and hospital chains are no longer with us five years hence but I think that based on the way the wind is blowing it will take many years for the gravy train to really reach the end of the line. I probably won’t live to see it.

Here are a couple of other WAGs of companies that it’s hard for me to see bright prospects in the medium run.

Gannett. Is there any area of the company’s business that’s doing well? Unless the new electronic billboards that I’ve been seeing around open up some new markets for the company I don’t see how it can survive.

Brunswick. Although when most of us think “Brunswick” we think about bowling (an area that’s been dwindling for the last 30 years), Marine really runs the show there. Asian competitors kicked them out of the small outboard business decades ago. It’s hard for me to imagine luxury power boats doing well over the next few years. I don’t have access to the details but I suspect they’ve got a lot of legacy overhead from the glory days dragging them down, too.

Other ideas?

Comstock Partners points out that the reason that this recovery doesn’t feel much like a recovery is that it’s far below the average post-war recovery at this stage:

The results are very clear that the current recovery is far weaker than the prior two expansionary periods, which themselves were below the average for post-war recoveries. The results are outlined as follows. Remember, for each indicator we are showing the change over 31-to-33 months after the cyclical peak for the economy.

[…]

The facts speak for themselves. The current recovery is far weaker than the prior two, which themselves were weaker than the average for post-war expansions. Moreover, as we discussed in previous comments, even this sub-par recovery has been losing steam in recent months.

The factors they list include GDP, new home sales, and industrial production.

I’m reminded of a quip attributed to Lincoln: “If this is tea, bring me coffee; if this is coffee, bring me tea.”

As I was researching my presidential quotes post, I found myself quite surprised at the genuine paucity of sensible presidential quotes on the economy. There are a handful.

There are lots of quotes about justice, liberty, strength, and so on. But not much about the economy. Quite a few quotes show a marked hostility towards business without presenting an alternative. That alone may go some distance in explaining the predicament in which we find ourselves.

If you know of any sound, sensible quotes on the economy from presidents living or dead, I’d appreciate it if you’d leave them in the comments.

The blogosphere is all atwitter today over the “Pledge to America” issued by Congressional Republicans today. I think that Steven Taylor’s bullet-form remarks sums it up well: “Better than nothing…but just barely.”

Rather than analyze the pledge, critique it, or mock it, I think I’ll offer up my own aspirations for America in the form of quotes from some of our past presidents. These don’t reflect what I think perfectly or in entirety but they’re a good place to start.

Foreign Policy

Wherever the standard of freedom and Independence has been or shall be unfurled, there will her heart, her benedictions and her prayers be.

But she goes not abroad, in search of monsters to destroy.

She is the well-wisher to the freedom and independence of all.

She is the champion and vindicator only of her own.

John Quincy Adams

Defense

Don’t hit at all if it is honorably possible to avoid hitting; but never hit soft.

Theodore Roosevelt

Government

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

George Washington

Social Policy

Dependence begets subservience and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition.

Thomas Jefferson

Agriculture

Farming looks mighty easy when your plow is a pencil and you’re a thousand miles from the corn field.

Dwight Eisenhower

Economic Policy

After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world.

Calvin Coolidge

I’d like to draw your attention to something from Alan Blinder’s testimony before the Senate Budget Committee the other day:

You all know that we are on an unsustainable long-run path that will require, for its correction, both more revenue and less spending down the road. But the deficit does not pose a short-run problem. The Treasury is now borrowing huge sums of money at extremely low interest rates. It can borrow more. Today, the jobs deficit is more urgent than the budget deficit.

That said, the days of what I call the “Field of Dreams” strategy–build a bigger GDP, and the jobs will come—should be over. It’s a sensible strategy in many contexts, but it has two serious drawbacks in the present situation. First, it is working very slowly because firms are so reluctant to hire. Second, it is expensive—in the neighborhood of $100,000 of government spending or tax cut for each new job saved or created. America needs more jobs now, and because of the large budget deficit, we need them cheaper.

You may recall that Dr. Blinder and Mark Zandi of Moody’s published a spirited defense of the effectiveness of the ARRA (stimulus package) a few weeks back which I and any number of other people dissected at some length.

Dr. Blinder proposes two alternatives to previous policy. The first is a substantially broadened temporary tax credit for new jobs and the second is a direct public employment program for low wage workers, something he reckons can be accomplished for $30,000-$40,000 per job. I’d certainly be interested in how Dr. Blinder would disaggregate the amounts actually paid to the workers from the amounts paid to supervisors and administrators.

Let’s do a little back-of-the-envelope calculation. According to the Bureau of Labor Statistics the total number of unemployed people is 14.9 million, the total number of employed is something like 154.4 million, and the unemployment rate is 9.6%. That means that to reduce the unemployment rate to 6% (by getting people back to work rather than by reducing the size of the labor force), we’d need to create jobs for roughly 5 million people. 5 million X $100,000 per job = $500 billion.

I’m skeptical. I think that the cost of previous policy was far, far higher per job created (or saved!)—something closer to $400,000 per job and a vanishingly small proportion of those jobs actually produced anything with permanent residual benefit.

I agree with John Taylor’s prescription: whatever policy is adopted should be “predictable, permanent and pervasive”. Policy to date has been unpredictable, temporary, and targeted at specific sectors or even specific businesses.

The Department of Labor has released its weekly report of new unemployment claims.

In the week ending Sept. 18, the advance figure for seasonally adjusted initial claims was 465,000, an increase of 12,000 from the previous week’s revised figure of 453,000. The 4-week moving average was 463,250, a decrease of 3,250 from the previous week’s revised average of 466,500.

The advance seasonally adjusted insured unemployment rate was 3.5 percent for the week ending Sept. 11, a decrease of 0.1 percentage point from the prior week’s revised rate of 3.6 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Sept. 11 was 4,489,000, a decrease of 48,000 from the preceding week’s revised level of 4,537,000. The 4-week moving average was 4,519,500, an increase of 2,500 from the preceding week’s revised average of 4,517,000.

It has risen a bit which means that the number of claims was worse than had been expected but is essentially unchanged. Which in turn means that the employment situation is continuing to get worse; it’s just getting worse at the same rate it has been for some time. 10% here we come!

More at Calculated Risk.

The graph above, sampled from this interesting post at Of Two Minds, illustrates a point I’ve been making around here for some time rather nicely. If your complaint is that the top 1% of income earners make too much more than the rest of us, targeting the magnitude of their income is is misdirection. Their income isn’t growing faster now than it has been over the period between the end of World War II and 1979.

What has changed since 1979 is not that the rich are getting too rich but that the remaining 99% haven’t seen their incomes rise nearly as fast as they did prior to then. This raises the question of what is normal? I think there’s a better argument to be made that the period after World War II, with many of the developed world’s economies in ruins, was not a new normal but rather an anomaly.

However, arguendo, let’s accept the old pattern as the objective. How do we get back there?

I think there are essentially three strategies:

1. Protect everybody. Have a planned economy in which incomes are allocated by some sort of board. It worked so well in the Soviet Union!
2. Protect nobody. Eliminate the licensing, credentialing, trade restrictions, and other measures that protect a tiny sliver of American workers. Since one chunk of those who are being protected from competition are government workers, it would be interesting to see how such a plan could actually be implemented. This may be how Arnold Kling arrived at his notion of “competitive government”.
3. Introduce Pigouvian taxes to remove whatever portion of income is due to protection. This would be as impossibly complex as the first solution and as impossible politically as the first since it gores the ox of the most powerful in the country.

I think it should be noted that the selection of the ending date, presumably due to available data, understates somewhat the growth of the income of the top 1%. However, much of the enormous growth of the last five years in the incomes of the top 1% has been due to the financial sector and I think that particular situation is even now, with painful and glacial slowness, winding its way down.

To tell the truth I despair of a solution to this problem or, rather, I think the cures are worse than the disease. Barring some fundamental cultural shift I think what we’re seeing now with the strong income growth of the highest income earners, boosted in part by the protections they enjoy, and the phlegmatic income growth of the rest of us is the new normal.

One of the claims that never fails to irk me is that such-and-such a job is inherently labor intensive. In this instance I suppose what brought it to mind was this post. Implicit in Matthew Yglesias’s observation, cited and apparently agreed with by Megan McArdle, is that government cannot provide the services it supplies more efficiently than it does, presumably because it is inherently labor intensive. I hear it said of government, the law, and medicine, to name a few.

Once upon a time the same thing was said about telephone companies, banks, making thimbles, and even farming. But then analog and ultimately digital switches replaced a switchboard run by dozens or even hundreds of operators, tellers were replaced in their thousands by ATMs, thimbles began being stamped out with dies rather than being hand-crafted, and a dizzying array of farm machinery began doing the work that had been done by thousands of field hands.

In my view the main difference between government workers, lawyers, and physicians just to name a few, is that they’ve been successful at preventing what they do from being done with less labor than telephone operators, bank tellers, thimble-makers, and farmers were. If telephone operators had been as successful at protecting their jobs as physicians have we’d still be asking Gertie to connect us to the bank. Long distance phone calls would be an act of legerdemain that risked causing an international incident.

The hand-writing is on the wall for the practice of law now. A database, a good search engine, and a relative handful of users can now do in a few days what it might have taken a hundred associates months. And those users might as well be in Bangalore as in Manhattan.

The same will ultimately prove true for many if not all medical specialties and for government work. Even now X-rays are being scanned and transmitted halfway across the world and read by radiologists and technicians in India, their findings returned in little more time than it would take to walk the X-rays across the hall.

I continue to be appalled at the absurdly low level of functionality in their digital servants that today’s physicians are willing to put up with. Virtually every time I’ve gone into a physician’s office lately I’ve been treated to the spectacle of the physician, frequently paid $200 an hour or more, functioning as a data entry operator for a badly designed computer application. I can personally testify that there were better medical computer applications 35 years ago than there are now. Today’s physicians are more frequently employees than the docs were then and they’re not as able to reject the computerization as they used to be. Having driven the good and effective uses of automation out, they’re now stuck with junk. Expensive junk, too, I’m told.