Brad DeLong: The 7% of GDP That America Totally Wastes
CENTER FOR LATIN AMERICAN STUDIES, UC BERKELEY: INEQUALITY: DIALOGUES FOR THE AMERICAS, FALL 2012: OCTOBER 15, 2012 http://www.clas.berkeley.edu/Events/series/inequalityfall2012/index.html
As for the other question, yes, over the past generation the U.S. government has decided more or less by accident--in the same way, that Britain decided by accident to conquer two-thirds of the world starting in 1750--that it wants to shift seven percent of GDP out of manufacturing and other sectors and into what the market was telling us were the sectors of the future.
So we shifted three percent of GDP into health care administration, and four percent of GDP into finance.
Now even at the time we noticed that shifting an extra three percent of GDP into health care administration was a huge mistake. What the extra three percent of people working in health care administration are doing was working for insurance companies trying to find ways not to pay for the treatment of sick people. They are not only not producing anything useful, they simply increase risk and fear--and make people scared that if they do go to the doctor they then will not understand the bill they get and will not be able to pay it.
We still have a three dollar dispute with NorCal Radiology. It impacts our credit rating. It does not make us terribly happy.
There is also the four percent increase in the share of GDP going to finance. This, too, is surely a zero or a negative sum game.
Consider one of Mitt Romney’s big backers--I’m picking on Mitt Romney more than usual these days, I’m not quite sure why--Anthony Scaramucci. Wall Street mogul. Thinks that what the world really needs is far less regulation of Wall Street, and far more room for Anthony Scaramucci to go about his business.
What is his business? His business is charging people one percent of their wealth each year for the privilege of hearing him tell them which hedge funds will do best over the next year and thus which hedge funds they should invest in.
Now if Anthony Scaramucci actually knew enough about hedge funds to know which would do best over the next year, he would be making even more money by running a successful hedge fund himself. He would be competing with Renaissance or Bridgewater. He’d be up there as someone who was making money for his clients. But he doesn't.
He’s in a position where lots of people want an expert to tell them what to do, have been told by their friends that he is the expert to listen to.
As near as I can see, what the extra four percent of U.S. GDP devoted to finance is doing is taking money not so much from the bottom eighty percent but from the rest of the top ten percent that wants to know where to put their money--through price pressure, through arbitrage, through fees. It doesn't do anything productive in terms of spreading risk, improving corporate governance, or diminishing moral hazard in the credit channel--rather the reverse. But it does increase uncertainty. And it has brought us our current depression.
So we have moved seven percent of the U.S. economy into activities that are at best completely unproductive. Now we have to figure out how to move resources out of these sectors. At the moment we’re unable to do so because we’re still fighting the lesser depression and trying to keep it from turning into a greater depression.
Any advice as to how to deal with our short run problem, so we can then turn to the long run problem of structural adjustment, would I think be very welcome.
