Economists have suffered enormous difficulty trying to explain why productivity has failed to expand as rapidly as it has in the past. A recent report supplied by the polling company Gallup singles out anti-competitive and wasteful practices by teachers unions, associations of physicians, universities and local governments. Researchers tracked health, education and housing costs from 1980 to 2014. They find that the combined spending in these three areas rose from 25 percent to 40 percent of GDP since 1980 without commensurate improvements in quality.
These are areas in which America has spent more to achieve the same or worse outcomes. That suppresses productivity growth by diverting scarce resources away from potentially more useful areas. As reported in the Wall Street Journal, here’s an example of how productivity growth can be stymied. Economist Morris Kleiner notes that dentists in North Carolina recently attempted to keep others from selling teeth-whitening kits, which could reduce their consultation fees. The result is that fewer residents have white teeth and people end up spending more for the kits.
