The Obama administration is going to be rebuilding and reconstructing five major sectors of the American t [economy]. It has no choice--there is no other option. It has to remake:
- Housing finance
- High finance
- And the big one—health care
On what principles and through what procedures is this extraordinary exercise in structural economic reform policy going to be accomplished? I get how to do the macroeconomics of Obama administration economic policy. I don’t get how to do the structural side…
The structural side, for you non-macroeconomists, is the part of the project that involves actually doing something. So if you are talking about going to Mars for example, the macroeconomics would be "we need a vehicle to take us to Mars." The structural part would be such matters as, figuring out whether a rocket could get you there, how you build a rocket, finding out who could build it, all the way down to the effect of wind sheer stress on the little bolts that hold the fueling hoses to the gantry on their way up to the second stage fuel tanks, and whether the expense of the bigger bolts is justified. That is, in short, finding out if it is possible, in the sense of actually being able to do it, in the sense of like, actually doing it. But don't worry, the macroeconomists have figured out we need a vehicle. It is very good, essential really, to get that settled. And we know from that classic Towards a Theory of Vehicles that a vehicle is a thing that takes you from point A to point B. This much is uncontroversial.
So all we have to do is carry out an "extraordinary exercise of structural reform" on high finance, and then housing finance, and then the energy sector and of course, last but not least the health care sector, which is by itself what, 16 percent of GDP? Oh yes, I almost forgot, the auto manufacturing sector. Did we leave anything out? Anybody have any ideas how to do this? Anybody? Come on, you've done the reading haven't you? Isn't there somebody here who knows the answers?
My guess is we shall have to do with policies, and that those policies shall have to be imposed by agents working with firms. Yes, that should do it. Of course, we should take incentives into account. They're important. And how should we decide these policies? Perhaps with procedures? Administrative agencies? Rule makings? Comment periods? Motions for en banc review of a final judgment issued by the US Court of Appeals for the DC Circuit? Anyway, this is all just implementation. Not to worry. Time to get to work!
Lest my irony be lost on new readers, let me come out and say, it is not possible for our government or any government this side of the pearly gates to "structually reform" these sectors of the economy. It is possible for them to try and to spend lots of money doing it. The reason Professor DeLong does not know how to do it is that nobody knows how to do it. The reason nobody knows how to do it is that it is impossible to do. As the Hayek despised by these guys has noted, you could spend your whole life studying how bread gets to the market, and still not really understand it. But somebody is supposed to understand how to "restructure" the US auto industry so as to make it, uh, profitable? Do we still care about profits, or is that something we need to reform away from as well? We can let people try to do it, but the idea that Congress or some federal body can just decree there is going to be a profitable American auto industry and that it is going to make cars people want to buy and it can make money selling to them, is risible. We are very lucky if we can figure out after the fact what has happened. The idea that we can just decide what we want to happen and then make it happen, on the scale of whole industries and economies, is sheer fantasy.
One just has to hope the Obama economic team is not so clueless, that they are not so far up in macrovariable land. If they are, we are in even more trouble than we know already. Obama's a lawyer, not an economist, so perhaps there's hope. Imagine saying that, but there it is.