The economic analysis in my last post led me to read some more articles from the author’s blog. He’s a liberal/progressive economist, with solid-seeming creds. Here are two of particular interest.
The first is a follow-up to that previous post, and looks at concrete ways to improve wealth distribution in the US:
An earlier post on this blog looked at the proximate factors which took substantial growth in GDP per capita (which grew at about the same pace after 1980 as it had before) down to median wages that simply stagnated. As discussed in that post, this was principally due to a shift in distribution from labor to capital, and a shift within labor from the lower paid to the higher paid. (Demographic effects, principally the increased participation of women in the labor force, as well as increases in the prices of items such as medical care relative to the prices of other goods, were also both important during this period. However, both have now become neutral, and are not factors leading to the continuing stagnation in recent years of median wages.)
The purpose of this blog post is to look at concrete policy measures that can be taken to address the problem. The issue is not slow growth: As noted above, per capita growth in GDP since 1980 has been similar to what it was before. The problem, rather, is the distribution of the gains from that growth, which has become terribly skewed.
The second is an explanation of Baumol’s Cost Disease, which I had not heard of before, and which provides a pretty convincing explanation of why the costs in certain sectors, like healthcare and college education, have increased so dramatically over the decades:
A point on which all agree, whether conservative or liberal, Republican or Democrat, is that the cost of government keeps rising. Whether it is the cost of building new roads or new military jet fighters, or the cost of schools or health services, the cost now is much more than in the past. And this is not simply general inflation. The cost of government services has risen at a significantly faster pace than general inflation.
This is true. But what is not generally recognized if the fundamental cause, nor the implications as we as a nation have struggled to maintain government services. The fundamental cause is not waste and corruption, nor lazy government workers. Rather, it lies in the nature of the goods and services used for the public services the government provides.
This blog post will first review the facts on what has happened to expenditures on government goods and services (which for brevity, will hereafter often simply be referred to as government goods) over the past 60 years. The 60 year period is taken so as to encompass most of the post-World War II period, but to begin once the numbers had stabilized from the very high levels during the war and the immediate post-war fluctuations.
The post will then review the fundamental cause, drawing on the work that has come to be called “Baumol’s Cost Disease”. The post will discuss how this applies to the government sector, and the implications.