The "Grumpy Economist," University of Chicago professor John Cochrane, has a typically intriguing post about a lecture by Lawrence Summers. Professor Summers said:
In the United States today a higher fraction of the workforce receives disability insurance than does production work in manufacturing...
These phenomena are related. No one could give a Feldstein lecture without recognizing the possibility that a social insurance program had a distorting disincentive effect and that is certainly the case with respect to disability insurance.
Professor Cochrane writes:
One conclusion [not Larry's!] you can draw is that greater government involvement has caused lack of competition, innovation, productivity growth and price increase in the sectors it has come to dominate, and therefore is a large part of the cause of stagnant real wages measured by CPI. ...
Blog readers will know where I stand. Sectors like health care can have huge productivity improvements if governments get out of them. Services like airlines, package delivery, and telecommunications, have all seen huge productivity improvements when governments got out of them. Service sector like retail that our government never was in (other than to slow down low-cost entrants that serve poor people, from A&P to Wal-Mart) have seen huge productivity gains.
