Why the economy is sicker than it seems

Economies work best when leaders have a specific (concrete) goal in mind. They falter when leaders implement policies for ideological reasons. You can see it in centrally planned economies compared to market economies. Sadly, you can also see in the United States today, where economic initiatives have nothing to do with addressing the needs of the country. That is the essence of Concrete Economics, an excellent review of economic policy at work.

The introduction says it all – literally. It is a compact, hardhitting, fact filled précis of the topics of the book. It is hard for the book to live up to that impressive start, but the authors add hardhitting extras like the institutional racism under Eisenhower, and how individual Asian economies adopted the early American strategy of high tariffs, business subsidies and insular financial laws to their own huge benefit, while the US abandoned it in favor of essentially nothing.

The authors focus on the good old days, when Alexander Hamilton set up policies and institutions to help business get started and compete on an uneven playing field with Britain. The Lincoln era, connecting the whole country with railroads, permitted outposts to import and export. FDR’s New Deal underpinned a truly massive drive and boost to consumers. There was never a macroeconomic model in mind; it was all about supporting people to turn the downward spiral upward again. The Eisenhower interstate highway system gave business breadth it could never enjoy before, and a whole suburban economy that boosted economic activity nationwide. When government took this kind of action and leveraged its control, the economy prospered, again and again, all over the world.

The authors say the US went off the rails in the 1980s, when government suddenly became the problem, and hundreds of years of institutions were torn down and simply not replaced. The result is a flabby, bloated economy that is bland and non productive. Moves in the 80s have resulted in a “negative sum healthcare system” that is entirely about processing claims, with providers hiring armies of clerks to do battle with clerks of the insurers and government over codes and reimbursement. Totally nonproductive, consuming hundreds of billions of dollars every year. There is also the financial sector, producing literally nothing, except massive amounts of new money out of thin air, or rather from computer entries in accounts. Cash issued by governments now accounts for just 6% of the money supply, as central banks have been bypassed completely. The nonproductive financial sector siphons the brightest minds and has more than doubled its share of the economy, without producing, improving or exporting anything. Quite the opposite, as wealth is concentrating to the detriment of the vast majority, including to the detriment of governments that enabled it all. Healthcare and finance account for a quarter of the American economy.

It would be difficult to make these judgments without the perspective of hindsight. But the overarching theme is something we can learn from – ideological economics leads to disaster, whether they’re communist or neoliberal. The middle ground, where government paves the way and stands back, works far better.

David Wineberg ( )