Cabin in the woods -- looking better and better.
Cabin in the woods — looking better and better.

Declaring the the global economy is “highly vulnerable” to adverse shocks, the International Monetary Fund is urging the United States and other major governments to prepare contingency plans that could be rolled out quickly to boost growth.

What options does the U.S. have? Traditionally, the federal government has two main policy levers: monetary and fiscal policy. If the U.S. had to act in order to counter a global economic slowdown, how are those levers looking at the moment?

Could we lower interest rates? Let’s see. Currently, one-month treasury bills yield 0.19% per year, or close to zero. Thirty-year bonds yield 2.88%. Yes, it’s possible to go lower, but not much lower unless we want to experiment with negative interest rates, which would wreak havoc with the banking and financial sectors with all manner of unpredictable consequences.

A more stimulative fiscal policy, then? According to the latest Congressional Budget Office projections, the U.S. is expected to run a $544 billion budget deficit in FY 2016, and the deficit (under current laws) will continue growing to nearly $1.4 billion a year by 2026 even in the absence of a recession as Baby Boomers retire and start drawing on Medicare and Social Security. Throw in a good recession, and you can add $500 billion or more to the annual deficit.

Fiscal and monetary policy can’t substitute for fixing flawed institutions. Three major sets of institutions — health care, education and transportation/land use — are highly dysfunctional and represent a tremendous drag on the economy. Between them, the three sectors probably account for a third of all economic activity. All are dogged by low productivity, poor quality and/or wasteful spending — and, of course, intensive government/political involvement at all levels.

With Washington in gridlock, it’s hard to imagine any positive change coming out of the nation’s capital. (Actually, it would be hard to imagine positive change even if Washington weren’t gridlocked.)  The only saving grace is that each of these dysfunctional institutions are significantly impacted by state and local policy, which gives states the opportunity to enact at least partial fixes. Unfortunately, there is no will in Virginia to do anything more than tinker on the margins. I see little sense of urgency, much less a consensus on how to reform health care, education and transportation/land use. Given the power of institutional interests to thwart change — witness the power of the educational interests this year to block legislation to allow more charter schools and the uncertain fate of Certificate of Public Need reform — Virginia is mired in the dysfunctional status quo just like the rest of the country.

Time to buy that cabin in the woods. Meanwhile, keep reading Bacon’s Rebellion, the only blog that consistently writes about these under-performing institutions.


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8 responses to “Running Out of Options”

  1. Cville Resident Avatar
    Cville Resident

    Have you ever thought that the world is simply undergoing massive changes that don’t fit any of our paradigms? I think that’s where we are. The Atlantic’s End of Work Issue last year is 100% correct about where we’ll be in 10-20 years. A set of high IQ folks will still “work” and “innovate” and “make returns”, but most in the world will not be “working”. And that’s going to require massive rethinking about gov’t, capital, labor, morality, etc.

    This is what Trump is all about. The less cognitively gifted are realizing what’s happening and they want someone, somewhere to “do something” to “bring it back.” A lot of these people have been chronically unemployed for years b/c of “cheap labor.” Now we’re seeing the rise of automation which may even idle “cheap labor.”

    I think so much of today’s commentary will be laughed at in 20 years. The people thinking that “the market” or “the government” can do anything to arrest these trends are whistling past the graveyard.

  2. In the USA we have low energy costs which is a big plus. Seems to me if there is a global recession, with reduced price of copper/iron/etc., it might be a good time to build infrastructure, maybe wind energy, solar, nat gas power plants, and so on. Now may be the time to put “steel on the ground”.

  3. LarrytheG Avatar

    I think among our bigger issues is ignorance of the issues themselves rampant ideological propaganda and outright disinformation emanating from folks who want to use gloom and doom scenarios to spook the lazy and ill-informed into forming opinions that are totally opposite of reality.

    Let me give some examples:

    Social Security is not in trouble. Without changes it will go until 2030 and even then it operates solely from FICA taxes and by law if FICA is unable to generate sufficient revenues for full payout – payouts automatically reduce. No other fund in govt self-limits itself like this.
    FICA generates about 900 billion dollars a year that are ONLY spent on Social Security, SSD and Medicare Part A (hospitalization -not providers) and compare that to the 1.7 trillion that is generated from incomes taxes and spent on everything else including a trillion on defense and 500 billion + on Medicare and 500 billion more on MedicAid/EMTALA related with about 200 billion more on everything else.

    Medicare Part B, C and D are indeed fiscal disasters waiting in the fiscal closet in large part because both Dem and GOP could not leave Medicare Part B alone which required a 20% co-pay and got the govt into subsidizing Advantage to cover the 20% – basically turning it into an all-you-can eat bloat.

    Even MedicAid is abused as we use it to pay for long-term health care for folks who own their own homes… instead of requiring them to get reverse mortgages.

    Beyond that we sell guaranteed insurance to the oldest and sickest parts of our population for 120.00 a month even if they have 85k in income and a half million in assets..

    Transportation funding, similar to Social Security is self-funded with earmarked money and while one can argue about the wisdom of what we spend it on – it’s largely funded from gas taxes with SOME small amount from general revenues .. it does not endanger our finances. It’s a gnat on the fiscal dog butt ….

    Schools – only 10% or less comes from the Feds. Many states split the remaining 90% between State and Local but take a look at Virginia where many schools systems VOLUNTARILY spend millions of dollars MORE than the State requires for SOQ match.. and most citizens are totally clueless of what it is spent on and the school systems like it that way.

    Health care in general – in all the other industrialized countries IS, in fact, self-funded and is so efficient that it is 1/2 what we pay and it does not suffer from ever escalating costs – BECAUSE while that insurance covers everyone – it is LIMITED to basic care and if you want or need more – it’s up to you to come up with it – unless you truly are destitute – the way that health care OUGHT to operate.

    so our problems are largely self-caused by our own lack of – desire to KNOW THE FACTS – and MAKE HARD CHOICES – LIKE requiring older Americans to pay more than 120.00 a month for health insurance AND NOT GIVE 40% Govt tax breaks for all-you-can-eat health care from employer-provided – something that costs the US Treasury 330 billion dollars a year – approaching what we spend for Medicare.

    Instead of actually dealing with the truth and reality – we play propaganda and disinformation games where the lazy basically choose to be uninformed and hold totally bogus ideas of what the truth is.

    that’s our politics these days… we own it and we own it big time even as many refuse to admit it.

  4. C’Ville may have it right. Read Kurt Vonnegut’s Player Piano, circa early 50’s, in which he describes a society in which the work force consists only of managers and engineers; everybody else is a member of the Reeks and the Wrecks, who do nothing except consume, gratis, what is produced by robots created by the engineers and managed by the managers. Vonnegut was a devoted liberal, but we certainly seem to be headed in that direction ever since he wrote Player Piano. Larry G proves C’ville’s point: Larry wants to tinker around the edges of government policy. C’ville is right that the government can’t do anything about it short of attempting the only thing governments do well, and that’s tyranny. As for markets, they don’t “do” anything in the sense that governments try to “do” things; they only respond to conditions they are faced with. People, who after all make up markets, thereafter “do” things in response to markets. Let’s all be clear about that.

  5. LarrytheG Avatar

    re: ” Larry wants to tinker around the edges of government policy”

    actually not. Just want to get the facts straight so when we talk about changes we actually know what the heck we are talking about.

    govt’s “DO” things – let’s be clear.

    you can compare the 30-40 industrialized countries on earth with the other 160 and clearly see the difference.

    to deny that is to insist on wallowing in ignorance…

    “markets” are fundamentally different in 3rd world countries than they are in OECD countries. you can argue about why – but the facts show those “clear” things one blathers about.

    FYI – I do not disagree with Cville – I think he’s right. But I also KNOW that the WAY that industrialized counrtries respond – IS – fundamentally different than 3rd world countries and that in 1st world countries – education and literacy are KING and play exceptionally important roles in those markets.

    connect with the realities here.. and put the ideology where it belongs.

  6. LarrytheG Avatar

    one has to be divorced from reality to not recognize the difference education makes in markets -and the fact that education in industrialized countries is a fundamental aspect to what they do – that is largely missing or far less provisioned … in less advanced countries…

    to blithely think that ALL that matters is “markets” and govt has no role – ..

    good gawd o’mighty – I’ve even more under-impressed by the ideologues…

  7. LarrytheG Avatar

    The other thing to remember about “markets”

    is the stark difference between how “markets” .. “work” in places that have virtually no rule of law versus places that have the involvement, protection and control of govt – which the folks who proclaim the “market” is better than the “govt” seem to just totally never think about…

    the “markets” we are used to in this country – while true brethren to 3rd world markets in the fundamentals – are also so different as to be Cain and Abel – Dr. Jekyll and Mr. Hyde in behavior and operation.

    yet the “limited govt, “let the market work” folk are largely totally oblivious to this and don’t even know about the “other” brother…until….


    the very first thing they say if you ask how you get remedy from being cheated is so rich and ironic – i.e. – go sue them..or go get the govt to help you.. FUNNY!

    so these folks they want that wonderful “free market” … out the wazoo – and condemn govt as a feckless and incompetent institution – until…..

    sometimes I think .. no, actually I agree… in some important respects – our public education system HAS indeed FAILED because we have all these folks running around blathering day and night about “limited govt/free markets” when in fact they want Mommy/Daddy Govt to protect and look over them as bad as those nasty “leftists” they love to diss.


  8. I figure if you want to get educated, it better be the study of the ways of survival. A masters degree in living like a ground hog might come in more handy than that log cabin mansion in the picture. We already know what happens when people don’t have jobs. They invent new ones that don’t follow the rules of government. Trump is the card being played now by the people. The Joker comes later.

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