America, Fast and Slow: The Economy's Love Affair With Efficiency

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David Brooks is right: The U.S. economy is an uneven landscape, where highly productive sectors rub up against industries that are adding people more than output. What's the fix?
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Between 1990 and 2008, the U.S. economy added nearly 30 million jobs. It's as if, in those two decades, we added a second California and a second Texas and employed those new sates at the same rate as the rest of the country. That's a lot of working people.

More than 97 percent of those workers went to the slower part of the economy that's called the "nontradable sector." That's the inelegant term for the sectors that we cannot trade around the world. Big industrial machines? We can put those in boxes and ship them to China -- tradable. Consultants? You can employ a Seattle firm from Sweden -- tradable. But nobody in China seeks a dentist in California. Health care and education aren't playing the same global competition game. That makes health care, education, and government the three pillars of this nontradable sector.

Nontradables are where the people are. Between 1990 and 2008, government and health care accounted for 40 percent of net new jobs in the U.S., according to Michael Spence. More recently in Texas, our job juggernaut, the majority of new jobs have come from government, education, and health services in the last four years.

This morning, David Brooks has a very nice distillation of the gap between the "fast" tradable economy and the "slow" nontradable economy." In his words, "there are two interrelated American economies"*...

On the one hand, there is the globalized tradable sector -- companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.

On the other hand, there is a large sector of the economy that does not face this global competition -- health care, education and government. Leaders in this economy try to improve productivity and use new technologies, but they are not compelled by do-or-die pressure, and their pace of change is slower.

Give a man a hammer, and every problem becomes a nail. Give a man a politico-cultural column, and every problem has a politico-cultural conclusion. And so, inevitable as the tides, Brooks' excellent economic analysis lists dangerously into the rocky cliffs of party politics:

In politics, we are beginning to see conflicts between those who live in Economy I and those who live in Economy II. Republicans often live in and love the efficient globalized sector and believe it should be a model for the entire society ... Democrats are more likely to live in and respect the values of the second sector.

It is highly unlikely that a meaningful majority of Republicans live in the "efficient globalized sector." Making cars and machines is a globalized business. What does it say that a Democratic administration is vocally protective of manufacturing? Health care belongs to the slow economy. Are doctors, insurance agents, pharma scientists all more likely to be protectionist liberals? Dean Baker's headline puts things nicesly: "Since When Did Unionized Autoworkers Become Republican and Family Farmers and Doctors Become Democrats?"

It's true enough that some Republicans love efficiency and think it should be a model for the entire society. And it might well be true that government involvement in the nontradable sector is restraining competitiveness and innovation that could make education, health care, and governance more affordable. But it's not reasonable to think health care costs would behave more like the fast economy -- say, flat screen television manufacturing -- if we just got rid of Medicare.

The hallmark of the "slow" economy is local services. Both words -- local and services -- are important. The first means you won't shop internationally for it. The second means it's done by a person. Dentists are people and they serve a local community. You search ZocDoc for dentists within a driving radius. But televisions are products created by a global supply chain. You can buy a TV made in Asia and get it shipped to you for a couple bucks. Dentists aren't TVs. They're really nothing like TVs. And it's crazy to think we could make dentists more like TVs if only Washington scrapped public health spending.

Here's where I'll meet the efficiency argument half-way. Dentists and teachers aren't TVs, but the principle of competition could still improve the cost and quality of their services. A transparent way of comparing dentist performance would eliminate the bad ones and encourage the okay ones to reduce costs or add quality. Perhaps finding a smart way to magnify the impact of superstar teachers like Salman Khan could globalize teaching, bring down costs, and make kids smarter and more engaged with math.

Since local service industries are difficult to infuse with efficiency, good affordable health care and high-quality, low-cost higher education is a challenge that will probably have to draw on the best ideas of both economies, I and II, fast and slow, efficient and lagging.

___

*The "two economies" isn't Brooks' neologism. Nine years ago, James Surowiecki of the New Yorker coined the same term to describe a similar phenomenon:

There are really two American economies: one that's getting more productive and one that's not. In the first--the economy of Dell, Toyota, and Wal-Mart--consumers have grown accustomed to paying less for more. In the second--the economy of Harvard, the Yankees, and Bob's Body Shop--they pay more for the same. The first economy has policymakers worried about deflation. The second has consumers worried about paying their bills.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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