Anytime an economic thinker is confused, befuddled, or in love with his own genius, it is profitable to go back to Adam Smith; and realize that most of what has been done is footnotes to The Wealth of Nations. In the case of political economy, the desire to be free of competition and collect revenue forever based on work that was done in the past is the single dominating factor that leads to the dissolution of free markets. Rent is an interest which, almost by definition, knows how good it has it.
In the case of the US, the powerful rents are banking, education, health insurance, defense, suburban real estate, and energy. How are banks doing? Let’s read what one finance guy who was on board with the bubble bursting early:
These companies don’t want to allocate funds to the shadow-banking market and don’t want to hire people to trade. You have the likelihood that loan-loss provisions will increase. The state of the bank balance sheet will now support substantially higher earnings than was ever the case before. The competitive environment changed to focus more heavily on banks as the drivers of financial system than the shadow banking unit. I’m arguing that stocks are very cheap and will triple in value in the next few years.
Dick Bove, in a Forbes.com interview.
How about health care? Here’s the money shot from the Economist’s cover article:
Jonathan Skinner, an economist at Dartmouth College, cautions that factors other than health-care systems—attitudes to teenage pregnancy, say, or smoking—may influence the numbers. Even so, he thinks the system is wasteful. In a paper in the Journal of Economic Perspectives last year he and Alan Garber, of Stanford University, argued that America’s health system was “uniquely inefficient”, producing too little per unit of input and consuming far too much of the country’s resources. (more…)