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What Obamanomics is missing: Disruptive innovation

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By Matt Miller
Wednesday, September 22, 2010

With Larry Summers following Christina Romer and Peter Orszag out the door, President Obama has a chance for an economic policy reboot. Clearly he needs to try something different.

There he was, at that town hall meeting the other day, and even his supporters were lashing out. "Is the American dream dead?" they asked. "I'm tired of defending you." They're squeezed on jobs, health care, college costs, you name it.

But wait a minute, said the president. I've done x, y and z. It takes a while to get out of this hole.

On the recovery, he's right. A country can't have this kind of meltdown, with this kind of debt hangover, and not have to work it off over a period of years. His initial economic team deserves credit for throwing enough spaghetti against the wall to prevent something worse.

But on college, or health care, or schools, the problems are actually deeper. Here the president has talking points on things he's "done." But he doesn't really have answers.

To see why, think of America as a set of "industrial complexes."

The Medical Industrial Complex has pushed health costs to 17 percent of the gross domestic product when every other advanced nation is at 10 or 11 percent, with similar health outcomes. But every dollar of health care "waste" is somebody's dollar of income. It's impossible to cut costs when doctors, nurses, hospitals and drug companies conspire to make sure reform won't pinch their wallets.

Or take the Higher Education Industrial Complex. For years tuition has soared much faster than inflation and family income -- increases that are enabled by federal loans and subsidies. Yet college presidents and professors act offended and resist fiercely if asked how much student learning we're actually buying for these excess billions.

Then there's the K-12 Industrial Complex, which leaves us spending more than other wealthy nations, even as we're stuck in the middle (or worse) on international tests.

The late economist Mancur Olson, in his classic study "The Rise and Decline of Nations," warned that advanced democracies eventually grow encrusted with powerful interest groups that hijack government to serve their narrow economic ends. Inefficiency reigns. Growth languishes.

Seen in this light, Obama has been shooting the wrong ammunition.

Sprinkle a few more Pell grants, and colleges transform them into higher tuition.


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