Seeker Blog

Americans have had it so good, for so long, that they seem to have forgotten what government’s heavy hand does to living standards and economic growth. But the same technological innovation that is causing all this dislocation and anxiety has also created an information network that is as near to real-time as the world has ever experienced.

America’s manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it’s likely that you don’t and won’t.

That productivity growth is accelerating is not widely known or discussed. Nor that productivity growth makes everyone wealthier. And the rate of technological change is accelerating too. It’s interesting that so many people think times are “worse than ever” in the context of the unarguable data that shows them better off. Likely the TV big-hair folk have no idea.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it’s accelerating.

So both US presidential candidates are promising “change”.

Both Mr. McCain and Mr. Obama view the world from a legislative perspective. Like the populists before them, they seem to believe that government can fix problems in the economy. They seem to believe that what the world needs is a change in the way government attacks problems and fixes the anxiety of voters. This command-and-control approach, however, forces a misallocation of resources. And in Internet Time this will become visible in almost real-time, creating real political pain for the new president.

In contrast to what some people seem to believe, having the government take over the health-care system is not change. It’s just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy.

Wesbury argues that the speed of information dispersion today could work to curtail politicians urges to “fix things”. E.g., by the time the cost of the policy mistakes of the New Deal propagated amongst the voters the connection between the pain and the cause was lost. Bush paid for the mistake of the steel tariffs within two years:

For example, President Bush put steel tariffs in place in March 2002. Less than two years later, in December 2003, he rescinded them. This is something most politicians don’t do. But because the tariffs caused such a sharp rise in the price of steel, small and mid-size businesses complained loudly. The unintended consequences became visible to most American’s very quickly.

McCain’s health care and tax reforms appear to be moves in the right direction, towards less command and control. But everything Obama promotes and many of McCain’s other planks are moves towards more command and control.

The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it’s called change or not.

Martin Wolf in FT chose this headline for his June 10 essay “Sustaining growth is the century’s big challenge“. I agree. I hope that voters will assess the candidates policies carefully in this light: will this help or hinder our economic growth? China can grow at 10% because the US economy grows at 3%. Do the voters know how many people have been lifted out of poverty by this growth? Martin Wolf:

Is it possible for the vast mass of humanity to enjoy the living standards of today’s high-income countries? This is, arguably, the biggest question confronting humanity in the 21st century. It is today’s version of the doubts expressed by Thomas Malthus, two centuries ago, about the possibility of enduring rises in living standards. On the answer depends the destiny of our progeny. It will determine whether this will be a world of hope rather than despair and of peace rather than conflict.