P. Greenspun has a review of Mancur Olsen's, "How Rich Countries Die." Interesting hypothesis on how special interest groups can drive decline. Here's are the most salient paras (the bolded portions are the groups that have the choke hold on the US economy):
Olson divides the economy into a fixprice sector and a flexprice sector. The fixed price part of the economy includes government workers, union workers, products produced by cartels, agriculture supported by government, and imported raw materials whose price is set on world markets. The flexprice sector would include simple services such as cleaning houses and babysitting, In the event of deflation, the output in the fixed price sector will collapse, driving a flood of young and newly unemployed workers into the flexprice sector. The schoolteacher will continue to earn $100,000 per year and retire at 52. The laid-off manufacturing worker will find that the market-clearing wage for cleaning houses is one third of what it was before the economic downturn. This is in fact what happened during the Great Depression. Folks who kept their jobs sailed through; folks tried to make a living as street vendors could not earn enough to eat.
Olson showed back in 1982 that modern macroeconomic theory was basically worthless in developed stable countries. Macroeconomics posits a free market in which wages and prices adjust dynamically. That applies to an ever-smaller sector of the U.S. economy. We have a rapidly growing governnment that directly or indirectly employs more than one third of our workers, many of whom are unionized. We have a health care system that consumes 16 percent of GDP and is staffed with doctors who restrict entry into the profession via their licensing cartel. The financial services sector is about 10 percent of the economy and they now tap into taxpayer money to keep their bonuses flowing in bad times. The automotive industry kept itself profitable over the years by successfully lobbying for import tariffs. When the profits turned to losses, they successfully lobbied to have taxpayers pick up those losses. A university-trained macroeconomist might be able to predict what will happen to babysitters in a depression, but not the price of cereal, the wage of a manufacturing worker, or the fate of those Americans who collect most of our national income (e.g., Wall Street, medical doctors, government workers).
A cashflow approach is much more effective for figuring out where we’re headed. Money flows out to the folks on Wall Street who bankrupted their firms, to schoolteachers who’ve failed to teach their students, to government workers who feel that simply showing up to work is a heroic achievement, to executives and union workers in America’s oldest and least competitive industries. If times are tough and money is tight, that means almost nothing is left over for productive investment. What would have been a short recession will turn into a long depression and decades of higher taxes and slow growth to pay for all of the cash ladled out. Special interest groups will continue to gain in power.
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