BERKELEY – It is almost impossible to assess the progress of the United States economy over the past four decades without feeling disappointed. From the perspective of the typical American, nearly one-third of the country’s productive potential has been thrown away on spending that adds nothing to real wealth or destroyed by the 2008 financial crisis.
Since the mid-1970s, the US has ramped up spending on health-care administration by about 4% of GDP and increased expenditure on overtreatment by about 2% of GDP. Countries like Canada, the United Kingdom, and France have not followed suit, and yet they do just as well – if not better – at ensuring that their citizens stay healthy.
Meanwhile, over the same period, the US has redirected spending away from education, public infrastructure, and manufacturing toward providing incentives for the rich – mostly in the form of tax cuts. The US spends 10% more than it used to on making it easier for the rich to accumulate wealth, but it has cut public investment in physical and human capital by roughly 4% of GDP, compared to what would have been expected if spending patterns had followed historic trends.
Forty years ago, for example, the US spent roughly 4% of its GDP on finance. Today, it spends twice that. And the results have been catastrophic. Despite the plutocracy’s claims that the heads of financial companies and other CEOs deserve their increasingly outsized compensation packages, there is no evidence that they are doing a better job than they used to at running their companies or allocating capital more efficiently. On the contrary, the lion’s share of the responsibility for the economy’s continuing struggles can be comfortably laid at the feet of America’s hypertrophied, dysfunctional financial sector.