Skip to comments.America's Economic Malady: A Bad Case of 'Baumol's Disease'
Posted on 12/12/2010 2:48:36 AM PST by M. Dodge Thomas
Goods-producing industries could achieve high productivity growth as labor-saving automation and supply-chain efficiencies scaled up. But jobs in nursing and teaching required the same number of person-hours with patients or students as they did in years past. In other words, labor-intensive services had far lower rates of productivity growth than did goods-producing industries. And yet salary increases in those service sectors -- education, health care, government, to name a few -- keep pace with those in industries where raises are justified by greater productivity.
This difference has a consequence that few had noticed before: As gross domestic product rises due to improvements in goods-creating productivity, the relative share of the economy occupied by low-productivity-growth services rises, too. As productivity gains boost overall wealth in the economy, the sum spent on goods decreases as a percentage of GDP, while the sum spent on services such as education and health care increases as a percentage of GDP.
This matches what we see today: The percentage of income spent on manufactured goods such as TVs and computers has dropped, while the percentage spent on health care and education has risen sharply...
This has a direct bearing on government services' share of GDP. Since the labor-intensive productivity typical of government services isn't as responsive to capital investments as goods-producing industries, the public sector's share of the economy rises naturally. This helps explain why government's share of the GDP has expanded regardless of which political party is in power: It isn't politics; it's Baumol's Cost Disease.
(Excerpt) Read more at dailyfinance.com ...
The problem is that economic activity depends on certainty.
Right now there is no certainty as far as business is concerned.
The current jobs that are being created are mostly temporary ones for the Christmas season.
Those jobs will mostly disappear after the season is over.
Furthermore, because of Obamacare and the suffocating regulations coming out of Washington and the Obama administration, this too is also causing major concern throughout the business sector.
Yet another factor is the massive spending coming out of this lame duck session of Congress.
All of these things taken into account is the reason for the anemic growth we are seeing.
We are still in a recession and it is not getting any better and neither this lame duck session of Congress or the Obama administration are taking constructive steps to change the outlook.
I don’t buy it. Oh, I buy the thesis for such things as live theater, for example. But education has become far less efficient than it used to be: colleges have become lifestyle spas and grade schools are overrun with bureaucrats, special ed, team teaching, etc..
Lots of services, including government services (and even higher ed) should become more efficient with technology. Who needs a telephone operator any more? Or a travel agent? Or to actually wait in line for a bank teller? The whole Internet revolution affects the service sector and service-oriented jobs, not manufacturing.
The question is whether this is a normal recession or a one-in-a-lifetime game-changing depression.
If domestic manufacturing jobs do not return (in the millions and millions) it can only be the second.
Opps. Sorry, direct link is:
The Internet revolution has given the service and government sector the opportunity to greatly improve productivity.
Currently most remain mired in ancient management practices which stifle innovation.
One story—I have a very bright nephew who works the night shift for a major corporation. He gets all his work done in an hour, has programmed the computer to do the rest of his work for him, and then reads and sleeps through most of the shift. He keeps his mouth shut and pretends to be busy (smart kid).
Meanwhile the firm has layers of clueless managers who sit around in meetings (during the day, of course) producing nothing.
The wrong guys are in the room.
The essential things that are needed to spur economic growth in the country are:
1. An immediate hiring and salary freeze of all civilian federal government employment.
2. Ending all non essential earmarks except in cases of retrofitting or rebuilding our nation’s infrastructure.
3. Cutting the size, scope and intrusion of the federal government and returning much of that power to the individual states to decide.
4. Repeal Obamacare.
5. Allow states to vote on drilling for oil and natural gas in their respective states including offshore oil drilling. Build and lease more oil refineries.
6. Build and lease more nuclear power plants. Allow each state to vote on this so that each state will be responsible for generating their own power.
7. Make the Bush tax cuts permanent.
8. Adopt the flat tax with no deductions at all and eliminate the IRS for good.
9. Eliminate the Department of Education and have each state in charge of their own education policies.
10. Defund the UN as far as the US is concerned. Leave the UN for good.
11. Investigate all cases of abuse, fraud and waste in all government contracts as well as in all entitlements.
12. Cut foreign aid as much as possible.
13. Enter into trade pacts currently being held up by Congress.
14. Close all unnecessary military bases overseas.
7. and 8. are in conflict. You can’t have both.
I'll play barroom lawyer. If he is on salary, he should be able to leave once his work is done. If he is hourly he should be looking for another job if he cant stay productive during the shift. Sleeping on the job is a bad habit to get into.
Dear Abby ,
My husband has a long record of money problems . He runs up huge credit-card bills and at the end of the month, if I try to pay them off, he shouts at me, saying I am stealing his money. He says pay the minimum and let our kids worry about the rest, but already we can hardly keep up with the interest. . Also he has been so arrogant and abusive toward our neighbors that most of them no longer speak to us. The few that do are an odd bunch, to whom he has been giving a lot of expensive gifts, running up our bills even more. . Also, he has gotten religious. One week he hangs out with Catholics and the next with people who say the Pope is the Anti-Christ, and the next he’s with Muslums. . Finally, the last straw. He’s demanding that before anyone can be in the same room with him, they must sign a loyalty oath. It’s just so horribly creepy! Can you help? .
Signed, Lost in DC .
Dear Lost: .
Stop whining, Michelle. You can divorce the jerk any time you want. The rest of us are stuck with him for two more years!
The kid lives in the real world. He is lucky to have any job in this economy—and it is not his fault the bosses are brain-dead.
His day for leadership will come—we just aren’t there yet.
It is eat or be eaten in this economy. Sleeping on the job is a reason for being eaten..
Is that really so about salaried workers? Enlightened employees might work that way—though they wouldn’t give a full-time staffer an hour-a-day of work—but I was never of the impression that a salary freed an employee from ‘face time’.
I think the most important word here is TRUST. We will not see a glimmer of hope in our situation until the people have trust in thier government. Everyone is in a holding pattern until we see real change
That's one of the big problems with modern office work. We require more face time than productivity. Though I'd suggest that rather than spend the time sleeping, he should spend the time upgrading his skills and knowledge.
It depends upon what type of exempt from overtime salaried worker you are and what is in your contract.
People with administrative exemptions that supervise people maybe required to be on the job, etc.
The main idea is that a company can't treat a exempt employee like a non exempt employee..
I really had no idea. I thought it was just that nonexempt employees got more protections. Thanks.
The fundamental problem is that we (the Human race) can now produce enough to survive without everyone taking part in the workforce. In many ways this is good, but someone needs to give people money to buy the things being produced. This costs a lot, especially in the West where people demand high living standards. And we dont let people starve. So...we make up the slack in the public sector, which involves borrowing $$. And the bill is coming due.
Got it in one. The teachers, assistants, and principals at the school down the street could do a fine, indeed better, job of educating the nation's youth if the vast hordes of divisions and divisions of civil serpents employed in state and federal departments of education were sacked. Better yet, give each parent a voucher for $3-4,000 per school age child and let them spend it at the public or private, religious or sectarian school of their choice. We'd spend far less and get a far better product.
Can you imagine the jump start to the economy it would be if that money were freed to invest in business and jobs?
Tax credits and vouchers are only a good idea **if** the goal is to completely privatize education with parents paying the full cost of their children's education and charity taking care of the poorest.
The real danger of tax credits and vouchers is that we will have is the continual tuition increases that we see in colleges and universities, and gradual control of the curriculum and school policies (Title IX, for example) by the government.
In some states more than $20,000 per child per year is being spent in our collectivist government schools. What ever your state claims it is spending per child in collectivist schooling, that amount should be doubled or even tripled. (Really!) Collectivist government schooling accounting practices would make an Enron accountant blush! For instance, in my state teachers' pensions and benefits are NOT counted as a school expense. Instead, these costs are listed under the category of "retired government employee".
The school property taxes paid by all businesses is passed on to the consumer. Is it any wonder then ( with $20,000/collectivist student/yr.) that our products are not internationally competitive and that businesses relocate off-shore?
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