Tuesday, March 17, 2009

Greenspun: How Rich Countries Die


This is a book report on The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, by Mancur Olson.  There isn't a whole lot about how nations pulled themselves out of their medieval stagnation (see A Farewell to Alms for that), so a better title for this still-in-print book from 1982 would be "How Rich Countries Die."
Olson showed back in 1982 that modern macroeconomic theory was basically worthless in developed stable countries.  Macroeconomics posits a free market in which wages and prices adjust dynamically.  That applies to an ever-smaller sector of the U.S. economy.  We have a rapidly growing governnment that directly or indirectly employs more than one third of our workers, many of whom are unionized.  We have a health care system that consumes 16 percent of GDP and is staffed with doctors who restrict entry into the profession via their licensing cartel.  The financial services sector is about 10 percent of the economy and they now tap into taxpayer money to keep their bonuses flowing in bad times.  The automotive industry kept itself profitable over the years by successfully lobbying for import tariffs.  When the profits turned to losses, they successfully lobbied to have taxpayers pick up those losses.

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