Which Sector Should Lead?
By Arnold Kling
I think markets are failing to solve an economic calculation problem. The economy needs some new things to do but another bubble will not work, much of finance is frozen or contracting, and economic and political uncertainty is encouraging a scramble for liquidity and decisions to wait. We can see the information — about what to do next, economically — disintegrating before our eyes.
Where would an an omnisicient central planner or a well-functioning market direct resources?
Economic historian and Nobel Laureate Robert Fogel has pointed out that the share of food, clothing, and shelter (broadly defined to include consumer durables) in the economy has been declining secularly. He sees the long-term growth sectors as education, health care, and leisure. I think that Fogel’s perspective should inform our central planner or well-functioning market.
1. It could be that we should be taking a lot more leisure. Perhaps people should be retiring earlier, in spite of the drop in stock market wealth.
2. I would not like to see more resources put into health care or education without first undertaking major deregulation. Unfortunately, the chances of a major move toward de-credentialization on the supply side and vouchers on the demand side are nil.
3. To me, the phrase “green jobs” means substituting labor for energy. If you want to raise the gas tax and cut payroll taxes in order to substitute labor for energy, now would the time to do it. On the other hand, when I think of centrally planned green jobs, I picture human rickshaws.
4. Incredibly to me, there are people who want to subsidize mortgages, as if we need to throw more resources at housing and housing finance.
5. The United States is still the tallest pygmy. The Eurozone is not doing well, nor is Asia. The OPEC nations must really be hurting. So I don’t think that exports are going to be our leading sector.
6. “Infrastructure” is a codeword for shoring up the budgets of state and local governments using Federal dollars. And for pork.
In a better world, we would have deregulation in health care and education that would be sufficient to unleash entrepreneurial energy to improve performance in those areas. Absent that, I do not think that either the central planner or the market are going to find a leading sector.