Home > Uncategorized > The impediment to productivity growth: Waste that makes some people rich

The impediment to productivity growth: Waste that makes some people rich

from Dean Baker

The New York Times ran a piece discussing why innovations in cloud computing and artificial technology have not led to more rapid increases in productivity. It raises a number of possibilities, but leaves out an obvious one, increasing waste associated with rent-seeking. We clearly see an increase in waste associated with rent-seeking, the only question is whether it is large enough to have a notable effect on productivity growth.

The piece actually touches on, without commenting on it, one of the major sources of waste. It discusses the practices of a major health insurer.

Health insurance does not directly contribute to GDP. Health care (actually health) is what we care about. Health insurers determines who has access to health care. In principle we want as few people employed in the health insurance industry as possible, we want people to be able to get health care, not to have insurers block their path.

However, we have over 900,000 people employed in health and life insurance companies. Much of what they do is made profitable by the fact that patent monopolies make many drugs and medical equipment expensive. In the absence of these monopolies, no insurer would look to block patients from getting the drugs or medical care recommended by their physician.

There are similar stories in many other sectors. The financial industry employs hundreds of thousands of people shuffling assets in ways that contribute nothing to GDP. The same is true with the lawyers and accountants devoting their efforts to help rich people and corporations avoid paying taxes.

Eliminating, or at least reducing, this waste would be a great way to increase productivity. Unfortunately, the people get rich and richer off this waste prevent it from being addressed politically, or even discussed in the New York Times.

  1. Fed up with time wasting AI
    May 25, 2022 at 3:41 pm

    In every industry, there is tremendous waste in AI: errors that no one can fix, electronic sales stalking customers to upgrade to have features that should be basic, constant work-interrupting device updates, complaint systems designed to fob off customers. That is just for starters. The technology is getting worse and worse in user friendliness, accuracy, and reliability. It reached a place of being a useful tool before AI; and since AI, people are widgets whose daily lives and work tasks are nonsensically controlled by AI against their will — and we are paying more and more for that time wasting fight to control our tasks… AI is making technology an idiot master instead of a useful tool.

  2. May 26, 2022 at 1:31 pm

    Hi Dean, is your technical argument right? Health insurance is treated as a final good (part of total healthcare expenditure), not an intermediate good? If that is the case, higher costs of health insurance will show up positively in GDP & productivity.

    Of course, your broader argument is absolutely right, but it is about economic well-being. GDP is a problematic measure of well-being for just the reasons you identify. Unfortunately, we don’t have agreement on how to measure GDP (and the health insurance industry will surely try to discourage us from doing so).

    Public policy conversation suffers from the lack of a solid well-being measure & journalists are resistant to raising the points you make.

    • Tom Palley
      May 26, 2022 at 1:33 pm

      Correction: we do not have agreement on how to measure “economic well-being”.

  3. Romar Correa
    May 27, 2022 at 7:09 am

    Thank you once more, Dean Baker! I think it was Robert Solow (typically!) who quipped that the evidence of the computer revolution could be seen everywhere except in the data. Observers as wise as Mr Baker have noted that we need more time for the impact of cloud computing and artificial intelligence to manifest themselves fully in the evidence. Some distinctions crisscross the Note. There is the venerable, if slippery, divide between productive and unproductive labour. In addition, cloud computing and artificial intelligence can complement labour. They can also substitute for labour. Drones can complement labour in agriculture. They can also be employed to assassinate heads of state.
    The importance of health care and its provision for the underprivileged by the state cannot be emphasised enough. As important is the offerings of health insurance products to the poor and the marginalised. The privatisation of the industry in many countries is not staunchly resisted. Another distinction, that between the private sector and the public sector, cuts in. In the former case, insurer and the insured pray for an early death. In the latter, the disadvantaged can be nursed financially by caring corporates. Lawyers and accountants to the rich coexist with vast members of the tribe fighting, often pro bono, for artists, journalists, academics, political activists, incarcerated by states. I take on board unqualified Dean Baker’s strictures on the finance sector as pure rent seeker. Instruments are created and churned only to drain out every drop of surplus value.

  4. Hepion
    May 28, 2022 at 11:04 pm

    Trouble is systematic, companies employ whenever they think it increases profit, that is often just waste of human labor on the whole.

    We should separate jobs into productive and unproductive ones and discourage latter by taxing or perhaps outright banning them. It would rise productivity considerably. Anything to do with information for example could be easily copied but way too many people are employed, often it is because companies can fragment the market and make a profit by doing so.

    And only if we could get rid of ‘planned obsolesce’ and make stuff that really lasts. We could cut working times quite significantly just by cutting waste, get our lives back. Why on earth products don’t have legally mandated (long) minimum warranty times? It’s insane.

  1. May 27, 2022 at 9:33 am

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