Aside from dodging the paparazzi and the persistent attentions of Hollywood starlets, one of the most difficult jobs for economists is sorting out what is economics and what is management.
Economics often gets the credit for things that rightly belong on management’s ledger. This is generally a timing issue more than anything else. The old saying, “A rising tide lifts all ships,” has a direct application to the world of commerce in the sense that a growing economy tends to carry along even mismanaged businesses.
An economy that is in full swing, in fact, tends to carry along all but the spectacularly inept. And this is to be kept in mind as we now survey the wreckage in both private industry and government services.
The automobile industry is certainly the most visible hulk. Once the jewel of the private sector, General Motors and Chrysler are now unwanted, high-maintenance house guests at 1600 Pennsylvania Ave. The economy is given credit for their fall, but what is closer to the truth is that the U.S. auto industry had been mismanaged for a very long time, and had little hope of surviving intact as the high-cost producers in a global market suffering from overcapacity.
That is why the administration’s hope of providing short-term credit until the financial markets came back was doomed from the start. Somehow it is difficult to blame politicians or economic policy makers for being appalled by the impending job losses and wanting to do something about it, but the idea was still doomed.
The automakers’ story is paralleled in the government sector, but in slow motion. The car story has been headlines for months, but it is just now that the public has begun to realize the mess that state and local governments have gotten themselves into.
And while dissent in the case of the administration’s auto industry policy has not been particularly visible, citizens have been in the streets protesting actual or proposed cutbacks in government programs, particularly health care. Protests in California and in Washington state had very a very similar feel to them, very likely because they stemmed from the same source: the realization that all the financial fakery in their state capitals was coming down to real numbers of real people suddenly being cut loose by the system to fend for themselves.
In the case of California’s health-care cutbacks, the state’s financial systems have been running on empty for years — the result of making bigger and bigger “elect me” promises that could neither be supported by income nor underwritten by credit. Voters repeatedly expressed their preference for the dreamy surrealism of promissory candidates over those still tethered to reality, so the dimensions of the state’s financial mess are daunting.
This state’s financial bind — the one that is forcing cutbacks in the basic health-care plan that serves people who have few financial resources — isn’t as intense as California’s, but it does make us long for better management. It is politically smart to blame the problems on the economy, but it is certainly true that this particular economic downturn didn’t sneak up on us overnight.
Washington was one of the last states to feel the effects of this recession and had months to watch it head this way. That should have given Olympia plenty of time to move things around and adjust priorities.
Instead, we are dumping people from the health-care system while we pursue dubious construction projects around the state — spending billions of dollars to pump sewage uphill for miles to move it away from King County voters; and burrowing under Seattle in order to subsidize the few people in this area who might want to ride to work on an underground train without a view of their beautiful surroundings.
None of this makes any sense, but one thing is clear: This is a management issue, not an economics problem.
It is hard to see much good in the pain and dislocation of people, but if there is anything positive about the California and Washington situations, it is that Americans will get a better perspective on the costs attached to pretty promises.
For all the words and promises that have been expended on the health-care subject, for example, we have not really had anything like a national, responsible debate on what to do about health-care costs. Perhaps the reason may be found in the numbers: Personal out-of-pocket spending accounts for only about 10 percent of the expenditures on health care. We are so detached from the economics of health care that we feel unable to do anything about its costs. This has to change. And now, with the effects of the recession multiplied by poor management, perhaps it will.
James McCusker is a Bothell economist, educator and consultant.
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