Kenneth Rogoff, European Voice
The US is battling with a question that other countries also face: how to innovate in the public sector, a part of the economy in which innovation is especially hard?
As the world watches the United States grapple with its fiscal future, the contours of the battle reflect larger social and philosophical divisions that are likely to play out in various guises around the world in the coming decades. There has been much discussion of how to cut government spending, but too little attention has been devoted to how to make government spending more effective. And yet, without more creative approaches to providing government services, their cost will continue to rise inexorably over time.
Any service-intensive industry faces the same challenges. Back in the 1960s, the economists William Baumol and William Bowen wrote about the “cost disease” that plagues these industries. The example they famously used was that of a Mozart string quartet, which requires the same number of musicians and instruments in modern times as it did in the nineteenth century. Similarly, it takes about the same amount of time for a teacher to grade a paper as it did 100 years ago. Good plumbers cost a small fortune, because here, too, the technology has evolved very slowly.
Why does slow productivity growth translate into high costs? The problem is that service industries ultimately have to compete for workers in the same national labour pool as sectors with fast productivity growth, such as finance, manufacturing, and information technology. Even though the pools of workers may be somewhat segmented, there is enough overlap that it forces service-intensive industries to pay higher wages, at least in the long run.
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The unstarvable beast (2)
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Reading the whole article gave me rather strange impression about the well-known economist. At first, he acknowleges the increse in the government involvement in the economy and the ineffciency of the goverment. Then, he seems to be convinced there is no alternative, and the answer to the problems is to make the government more efficient.
I have bad news for the academic: it can not be done. To be honest, the US has developed into full-blown cleptocracy. The coroprations not only suck huge sums of money out of the government [read taxpayers] through health care system, military etc. but government also just prints money and hands it over. In the Soviet Union the economists thought the growth in the information technology will make viable centrally planned economy possible.
There is only one solutionto the problem how to make the government more efficient and it is: STARVE the BEAST.
I have bad news for the academic: it can not be done. To be honest, the US has developed into full-blown cleptocracy. The coroprations not only suck huge sums of money out of the government [read taxpayers] through health care system, military etc. but government also just prints money and hands it over. In the Soviet Union the economists thought the growth in the information technology will make viable centrally planned economy possible.
There is only one solutionto the problem how to make the government more efficient and it is: STARVE the BEAST.
"The problem is that service industries ultimately have to compete for workers in the same national labor pool as sectors with fast productivity growth, such as finance, manufacturing, and information technology. "
Is it really a problem? The productivity growth is mostly because of automation that increases the national labor pool (much less workers are needed because of robotics, computerization). Besides, traditionally service industry labor pool and highly trained qualified labor pools are separate. Only very recently PhD-s are applying for janitor positions to put bread on table.
Is it really a problem? The productivity growth is mostly because of automation that increases the national labor pool (much less workers are needed because of robotics, computerization). Besides, traditionally service industry labor pool and highly trained qualified labor pools are separate. Only very recently PhD-s are applying for janitor positions to put bread on table.
Arvamus
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