Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

David Leonhardt writes today that if we expect the economy to eventually rebound the way it did after the Great Depression of the 1930s, we’re sorely mistaken. There’s obviously something to this: after World War II, which finally ended the Depression for good, the United States had (a) a huge pool of savings that people were eager to put to use, and (b) a strong potential export economy since the rest of the world had been blown to smithereens. We didn’t need to import goods from Japan or China, and we didn’t need to import oil from OPEC. We had all we needed right here at home.

Today, even after we crawl out of our current malaise, things will be just the opposite. Our debt overhang will probably be a drag on growth for a long time to come, our trade balance is persistently negative, and the price of oil acts as a significant constraint on economic growth. So some pessimism is warranted. But I’m not so sure about this:

Three giant industries — finance, health care and housing — now include large amounts of unproductive capacity. Housing may have shrunk, but it is still a bigger, more subsidized sector in this country than in many others. Health care is far larger, with the United States spending at least 50 percent more per person on medical care than any other country, without getting vastly better results….The contrast suggests that a significant portion of medical spending is wasted, be it on approaches that do not make people healthier or on insurance-company bureaucracy.

In finance, trading volumes have boomed in recent decades, yet it is unclear how much all the activity has lifted living standards….Wall Street has captured a growing share of the world’s economic pie — thereby increasing inequality — without doing much to expand the pie. It may even have shrunk the pie, given that a new International Monetary Fund analysis found that higher inequality leads to slower economic growth.

The common question with these industries is whether they are using resources that could do more economic good elsewhere. “The health care problem is very similar to the finance problem,” says Lawrence F. Katz, a Harvard economist, “in that incredibly talented people are wasting their talent on something that is essentially a zero-sum game.”

I’d treat these three things separately. Housing is a purely short-term issue. There’s really no reason to think that it will act as a permanent drag on the economy. Sometime in the next few years it will return to its trend rate of growth and that will be that.

Healthcare is different. There’s unquestionably some waste, both in human and economic terms, and this really is a misallocation of resources. At the same time, the big reason we pay more for healthcare than other countries is simply because we pay doctors more, we pay hospitals more, we pay insurance companies more, and we pay pharmaceutical companies more. I happen to think this is a bad thing, but it’s not as if the money falls through a sieve and disappears. It all stays in the economy and gets spent one way or another.

And then there’s high finance, which as near as I can tell, really has turned into a huge leech on the economy. If I had to guess, I’d say that upwards of a quarter of all financial activity today is actively damaging to the economy, and reforms like Dodd-Frank will have only the slightest impact on that.

So what’s my beef with Leonhardt? Just that I think he’s overstating things a little bit? No. My beef is with the bolded sentence above. The problem is that there’s very little evidence that housing and healthcare and finance are actively sucking away investment dollars that could be better used elsewhere. Rather, the problem seems to be a drought of good investment opportunities, which leaves lots of money idle and looking for something else to do. The result is the same — lots of money going into unproductive sectors — but the arrow of causality is different. If there were lots of great, high-yield investment opportunities in the real world of consumer goods and services, money would flow there instead of blowing up housing bubbles and enriching a bunch of testosterone-fueled Wall Street traders.

A couple of days ago I argued that our capacity for innovation might be healthier than it’s often given credit for. But if there’s a strong counterargument, I think this is at the core of it. If we really are innovating at the same pace as in the past, why are the world’s investment dollars flowing so heavily into useless crap instead? It might be, as I sort of argued on Friday, that present-day innovations are as great as they’ve ever been, but simply don’t cost very much and don’t employ very many people. Maybe. But in any case, the great investment drought of the past decade is, I think, at the core of everything. One way or another, we need to figure out why it happened and why it seems to be persisting.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with The Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with The Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate