An older article, but a really good look at the problems with our economy 3 years later. By comparing the Great Recession to the Great Depression the author lets us see some of the deeper problems we are facing.
He discusses our inherent advantages over others:
This country continues to have advantages that no other country, including China, does: the world’s best venture-capital network, a well-established rule of law, a culture that celebrates risk taking, an unmatched appeal to immigrants. These strengths often give rise to the next great industry, even when the strengths are less salient than the country’s problems.
While pointing out the weaknesses endemic to our current economy
Even before the financial crisis began, the American economy was not healthy. Job growth was so weak during the economic expansion from 2001 to 2007 that employment failed to keep pace with the growing population, and the share of working adults declined. For the average person with a job, income growth barely exceeded inflation.
In particular, three giant industries — finance, health care and housing — now include large amounts of unproductive capacity. Housing may have shrunk, but it is still a bigger, more subsidized sector in this country than in many others.
Health care is far larger, with the United States spending at least 50 percent more per person on medical care than any other country, without getting vastly better results. (Some aspects of our care, like certain cancer treatments, are better, while others, like medical error rates, are worse.) The contrast suggests that a significant portion of medical spending is wasted, be it on approaches that do not make people healthier or on insurance-company bureaucracy.
In finance, trading volumes have boomed in recent decades, yet it is unclear how much all the activity has lifted living standards. Paul A. Volcker, the former Fed chairman, has mischievously said that the only useful recent financial innovation was the automated teller machine. Critics like Mr. Volcker argue that much of modern finance amounts to arbitrage, in which technology and globalization have allowed traders to profit from being the first to notice small price differences.
IN the process, Wall Street has captured a growing share of the world’s economic pie — thereby increasing inequality — without doing much to expand the pie. It may even have shrunk the pie, given that a new International Monetary Fund analysis found that higher inequality leads to slower economic growth.
The common question with these industries is whether they are using resources that could do more economic good elsewhere. “The health care problem is very similar to the finance problem,” says Lawrence F. Katz, a Harvard economist, “in that incredibly talented people are wasting their talent on something that is essentially a zero-sum game.”
In the short term, finance, health care and housing provide jobs, as their lobbyists are quick to point out. But it is hard to see how the jobs of the future will spring from unnecessary back surgery and garden-variety arbitrage. They differ from the growth engines of the past, which delivered fundamental value — faster transportation or new knowledge — and let other industries then build off those advances.