K-12 Tax & Spending Climate: Race to the Bottom?

Walter Russell Mead:

But America shouldn't compete on the basis of cheap labor: we are not nor should we try to be the Walmart of Work. So the first question becomes how do we compete in ways that don't involve endlessly ratcheting down wages and benefits? And the second, related question is how can we generate enough demand for American workers so that market forces drive incomes up from year to year and decade to decade?

The key to success is obvious: we need to continue to raise productivity throughout the economy. If productivity goes up quickly enough, wages can rise here even if they are falling elsewhere. This is getting harder; productivity is both easier to measure and to raise in manufacturing than in services. But substituting capital and technology for human sweat has to be a large part of what we do.

To raise productivity significantly, and especially to do it in ways that give us some long term advantages, we are going to have to do more about productivity in services. In particular we are going to have to look at health, government, education and the legal industry. Health care accounts for 18% of our GDP; education for 7%, and government spending (federal, state and local) accounts for 40%. (Because a lot of government spending goes to health and education, the total from these sectors is closer to 45% of GDP than 65%.)

Posted by Jim Zellmer at March 2, 2011 1:19 AM
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