Don’t invite these economists to your New Year’s party
The dismal scientists at Gallup came up with “No Recovery: An Analysis of Long-Term U.S. Productivity Decline.” Here are some excerpts:
Conventional wisdom — as reported in many major newspapers and media — tells us the U.S. economy is “recovering.” Well-meaning economists, academics and government officials use the term “recovery” when discussing the economy, implying that growth is getting stronger.
The study finds there is no recovery. Since 2007, U.S. GDP per capita growth has been 1%.
Think of our country as a company, America Inc., which has more than 100 million full-time employees, with about $18 trillion in sales and $20 trillion of debt. The most serious problem facing it is no growth. In addition, America Inc. has three soaring expenses threatening to bankrupt the company and its shareholder-citizens: healthcare, housing and education.
As this report notes, in 1980, these three sectors accounted for 25% of total national spending — today, they account for more than 36%. They also account for most of the total measured inflation over this period. And without inflation in these sectors, real annual productivity — defined as GDP per capita growth — would have been an estimated 3.9% instead of 1.7%.
Why does it matter if we’re spending all of our money on pimped-out houses, gold-plated health care, and Club Med-style universities? Isn’t that what rich people would do? The economists say no, it is just that we are inefficient and stupid:
- “The U.S. population’s health has stagnated or even declined on several measures since 1980, especially for the working-age population.”
- In 1980, the rent-to-income ratio for the median family was 19%; by 2014, it swelled to 28%. The costs of owning have also increased. … the evidence largely suggests that the quality of housing has at least slowed in growth if not deteriorated, even as prices have increased. People are now living in smaller homes that are older and located farther away from their places of employment. Government statisticians take into account quality when calculating housing inflation, and their data show a price increase of 250% from 1980 to 2015. [“Percentage of Young Americans Living With Parents Rises to 75-Year High” (WSJ, Dec 21, 2016) suggests that these data are correct.]
- The U.S. education system has failed to instill any measurable gains in the cognitive performance of children and young adults for decades, as U.S. students and adults struggle with poor rates of literacy and numeracy despite high spending growth.
Why don’t Americans want to leave a secure government or big company job to start something new? The economists blame the decline in entrepreneurial activity on health care inflation: “There is always an element of risk in creating a new business, but the rising costs of healthcare magnify that risk. In previous decades, an employed worker could quit his or her job and pay for healthcare expenses out-of-pocket if necessary. Now, out-of-pocket expenses for the non-insured are extremely high, so an employed worker who quits to start a business likely gives up a valuable healthcare plan and may have to impose those costs on his or her own fledgling business at a time when revenue is dangerously low.” How steep is the decline? “The number of new firms with at least one worker per capita has fallen by about half since the late 1970s.” (Unlike journalists and politicians, these folks at least seem to adjust for population size appropriately throughout this report.)
A chart on page 84 shows that the U.S. legal landscape for employers changed enormously during the early 1980s. Employment at will was thrown out in favor of “implied contract” such that it became expensive to get rid of an unwanted or no-longer-affordable employee.
Although it is not central to the report’s arguments, page 85 contains a seemingly false statement: “Sugar is also heavily subsidized in the United States.” I thought that it was the opposite. We have sugar import quotas to keep prices high in the U.S., no?
We are crazy inefficient: “It costs the average U.S. physician $83,000 per year to process claims or otherwise interact with healthcare payers.” These are pre-tax dollars, presumably, but it is still a huge number, exceeding what a young primary care doc would have to pay in child support after a one-night sexual encounter in Massachusetts.
The economists say that teacher pay is low but don’t explain how this squares with the hundreds of applicants for every open position and the low quit rate of teachers.
Out of 100 pages just 2 are devoted to suggestions for how to get out of this stagnation. The purported suggestions are in fact mostly “well, we tried all of this stuff before and it didn’t work.” The idea of lower tax rates is dismissed on the ground that it has already been tried. They don’t grapple with the greater-than-90-percent rates faced by some of America’s potentially most productive workers. Singapore has a top tax rate of just over 20 percent and no estate tax. So the older highly productive worker in Singapore looking to improve his or her children’s wealth would have a vastly greater incentive to work than a similarly situated American. Ireland certainly has prospered after cutting tax rates (higher per-capita GDP than the U.S. or the U.K.; this from a country that was formerly notable for its poverty).
Readers: What do you think of the doom and gloom in this report? Would it really be that hard to get Americans to put down their Xbox controllers, stub out their legal marijuana, turn off the football game, and get to work?
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