Monday, August 22, 2011

'The Great Stagnation' and Our Broken Political System

UPDATE: "Today’s crisis was completely avoidable. You can blame it directly on the fools who brought our country to the brink of defaulting on its debts in the name of saving us from . . . I’m not sure what.

Yes, the tea party types bear primary responsibility — but they couldn’t have done it without the cowardice and incompetence of the Obama administration, which let things get way out of hand. This whole fiasco just enrages me. And it ought to enrage anyone who wants the United States to act like a real country rather than some third-rate failed state run by fanatical factions that hate one another."

Read the Washington Post, This time, the economic crisis is no one’s fault but the government’s.

As society tries to adjusts to a new economic reality, "the most debated nonfiction book so far this year," "The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History,Got Sick, and Will (Eventually) Feel Better," offers a frank evaluation of the situation, and hope for the future:

"America is in disarray and our economy is failing us. We have been through the biggest financial crisis since the Great Depression, unemployment remains stubbornly high, and talk of a double-dip recession persists. Americans are not pulling the world economy out of its sluggish state -- if anything we are looking to Asia to drive a recovery. Median wages have risen only slowly since the 1970s, and this multi-decade stagnation is not yet over. By contrast, the living standards of earlier generations would double every few decades. The Democratic Party seeks to expand government spending even when the middle class feels squeezed, the public sector doesn’t always perform well, and we have no good plan for paying for forthcoming entitlement spending. To the extent Republicans have a consistent platform, it consists of unrealistic claims about how tax cuts will raise revenue and stimulate economic growth. The Republicans, when they hold power, are often a bigger fiscal disaster than the Democrats. How did we get into this mess?Imagine a tropical island where the citrus and bananas hang from the trees. Low-hanging literal fruit -- you don’t even have to cook the stuff. In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land; immigrant labor; and powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are barer than we would like to think. That’s it. That is what has gone wrong. The problem won’t be solved overnight, but there are reasons to be optimistic. We simply have to recognize the underlying causes of our past prosperity—low hanging fruit—and how we will come upon more of it."

Also read several articles about the book, including:

The Washington Post, 'The Great Stagnation', which notes:

“The political system -- and even the economics profession -- tends to be most comfortable talking about the things it knows how to talk about. Immigration, education, health-care costs, tax policy, labor density and so on. The major contribution of Cowen's book is to focus our attention on an explanation for our economic woes -- or at least some of them -- that's not currently central to the debate, and that's somewhat difficult to talk about. I don't think the book has enough data to say definitively how central the declining pace of innovation is to our economy. But there's more than enough to suggest it's a real factor, and one we need to do a better job thinking about and discussing:

1. How do you accelerate the pace of innovation? . .

2. How do we make developing countries into advanced countries? . .

3. How do we get more value out of our health care and education dollars? . .

4. How do we improve our political system?”

And The New York Times, The Experience Economy, which asks

"What happens when wealth and living standards diverge?"

The book may also be relevant to the health care debate. Read the Washington Post, How penicillin fooled us, which states:

"The problem with medicine is that it's very hard to say no, and that means we often end up paying a lot for treatments that do us very little good, and that squeezes the resources available to sectors that could do us a lot of good but are easier to say no to."

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