The Impediment to Productivity Growth: Waste that Makes Some People Rich

May 24, 2022

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.


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