Pearlstein: Broken politics will wreck hot US economy
Even as a bitter and partisan impeachment trial plays out in Washington, the signals emanating from the economy continue to be amazingly positive. The unemployment rate is at record lows, the stock market is near record highs, corporate profits remain strong, and growth, at around 2%, is the highest among advanced economies.
At some level, this disconnect between economics and politics reflects the underlying strength of the U.S. economy — the innovation, the efficient use of labor and capital, the quality of management — that existed long before Donald Trump became president. Business and economic fundamentals don’t change overnight.
But Americans should understand that there will be a significant, long-term economic cost to our polarized politics and dysfunctional government, which has now reached the point of near-total breakdown of comity and cooperation between the parties, between the houses of Congress and among the various branches of government.
In the modern era, there are few if any examples of a country with a healthy, thriving economy and a broken political system. What distinguishes a successful economy from a failing one — what distinguishes Denmark from Italy and South Korea from North — is not how much capital it has or technology it produces but the quality of its institutions — the laws, rules, norms and policies that create the framework in which any economy operates. And there should be no doubt that as a result of broken politics, the quality of the United States’ institutions is already on the decline.
We can see such deterioration in our inability to adapt to changing conditions — the rise of China as an economic superpower, the influx of economic and political refugees, and the threat from global warming. People will inevitably disagree about how to deal with these serious economic challenges, but a country with a working political system would rather, after a modest debate, embrace the obvious compromises, building on what works and fixing what doesn’t.
In the United States, by contrast, our approach has been to deny the problem, demonize those with whom we disagree and ostracize anyone who dares to compromise. As a result, we now have millions of blue-collar workers who are idle or underemployed, millions of immigrants without the skills we need who entered the country illegally but too few of the skilled immigrants that we do, and an unending series of devastating floods, wildfires, droughts and other extreme weather events. The cost, in terms of lost output and economic damage, runs to tens of billions of dollars every year.
We see our institutional decline in the persistence of a health care system that continues to cost twice as much as in other countries while delivering some of the worst health outcomes in the industrialized world. The reasons are not seriously in dispute: (1) too much care that is unnecessary and too little of the kind that keeps people healthy, and (2) corporate profits and medical salaries that are higher than necessary to attract talent and incentivize investment and innovation. For decades, opposition from special-interest groups prevented anything from being done. When it finally was — Obamacare — most of those same interests used everything within their power to make sure even this modest reform would not succeed.
Economists Anne Case and Angus Deaton recently calculated the direct cost of all this overspending at about $1 trillion a year, or $8,000 for every household in the country. The indirect costs, in terms of lost output due to preventable death and illness and lost sales on global markets because of excessive labor costs, surely add hundreds of billions more.