Sometimes dreams are so sweet that we don’t want to give them up, even though the morning sounds are doing their best to awaken us. A world without politics is one of those dreams.
Economics without politics, or with a lot less politics, is a dream that some of us cannot completely let go of
even when wide awake. It is only with great difficulty that we force ourselves to remember that our country, a sweet dream in its own right, was created by politics. And politics provides the gravitational force that holds a market economy together; otherwise it would spin out of control and destroy itself.
The fundamental, yet intricate, relationships between politics and economics are very much on people’s minds these days, or at least they should be.
A new report from the Peterson Institute for International Economics paints a gloomy picture for the future of government debt, not just in the United States but in virtually all of the world’s developed economies. The report, entitled, “The Global Outlook for Government Debt Over the Next 25 Years” was prepared by Joseph Gagnon with Marc Hinterschweiger, and forecasts continued growth of public debt around the world — to “dangerous and unsustainable levels.”
The selection of a 25-year time line for the forecast is particularly interesting since it brings us to 2036, the year that Social Security’s trust funds will be exhausted.
Once the reality of public debt and its toxic effects sinks in, our natural instinct is to ask: Who did this? Who is responsible for this mess?
Economists, though, maybe less natural than most people, tend to ask somewhat different questions: How did this happen? And why is it happening to all of the world’s economies at the same time?
The answer starts with technology and how it interacts with the gravitational forces holding politics and economics together.
We’ve known for a very long time that technology shapes and reshapes economies, largely through productivity increases. We know a lot less about the downstream effects of technological change, and almost nothing about how the speed of that change affects economies.
The speed of technological change in recent decades has been bewildering. And one of the unintended consequences has been the accelerated growth of dependence on government services of one sort or another.
As rapid technological change dominates and reshapes economies, societies change, too; people become more vulnerable to displacement, more disoriented and more dependent on assistance from government.
This process was more visible in the lethargic European economies than in the United States, where, until the financial crash, economic growth was more robust. Our recession has given us and Europe a new perspective on the full costs of this level of dependence.
The increasing dependence on government was a very satisfying process for those who believed that government could provide stability and growth for an economy in a way that was superior to what market capitalism could deliver.
That view turns out to be only half right. Central governments can provide stability but cannot effectively provide economic growth in a developed economy.
The reason, again, is rooted in technology as well as the nature of government itself. One basic reason is that governments are “late adapters” of technology at best, and are, in general, backward and very inefficient compared with the private sector.
The faster that technology changes the worse this comparative inefficiency becomes. It is not an accident, for example, that the rapid pace of technological change over the past twenty years has left our federal government further and further behind — and now thoroughly dependent on private sector contractors for work previously done by dedicated and skilled in-house civil service workers.
The relative efficiencies of public and private sectors become a problem when government attempts to provide economic growth through Keynesian stimulus programs. These programs essentially move resources from the private sector to the public sector, from the efficient part of the economy to the inefficient part.
A stimulus program can have psychological value in a crisis and provide needed stability for an economy, but moving resources from efficient to inefficient use is not an effective way to deliver economic growth.
The first rule of economic survival is: If it works, do it again. If it doesn’t work, do something different. Our system is not working and we need to do something different if we are to avoid the abyss.
What is truly scary is that in the wide-awake world the answer is going to be found not in economics but in politics. Economics can tell us how, why, and why not, but only politics can deliver a way out of the fix we’re in. And that’s our cue. We’re needed.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
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