Education: Expanding Opportunities; a National Online University

I believe one of the main barriers to people improving their skills is a feeling that they're either not prepared and thus not willing to risk the time and money on education or that they simply  have difficulty in figuring out how to get from where they are today to where they want to be tomorrow.

A national online university would be a partial solution to both of these issues.  It could focus on providing a decent quality, no frills education that people across the United States would be able to access to update their skills and to prepare to move on to more traditional colleges and universities.  Also it would provide a way to provide everyone with access to college preparatory work without needing to worry about how reputable the local schools are.  Of course, efforts would also have to be made to make broadband more accessible to the poor to make this work but that's a separate issue.

The online university would focus on two things, remedial courses and skills small businesses most need that can be taught online, principally business and computing courses.  All courses would also be offered at very low cost to attract as many applicants as possible.

Remedial courses would be offered at no cost, provided that a student passes a course.  If a student fails they would have the option of retaking the course or instead to try the next lower level, no charge will be levied if this course is successfully completed.  This can be repeated until a student passes a course, with a number of well publicized exceptions for extenuating circumstances where a course could be dropped.  These remedial courses would go up to the standard 100 and 101 level courses in subjects such as college writing or mathematics, which have come to grace the course lists for virtually ever university.  The idea is to make going back to college easy, and to make it particularly easy and painless for those unsure if they are capable of doing the work so they can test themselves and gradually build the confidence they need.

The business focused portion should be fairly self-explanatory.  It's simply a low cost way for business owners, or those wanting to become a business owner, to test the waters in a low cost way to see if college courses will benefit them.  It can also provide individuals with a number of skills that will make them better employees.

To a certain degree this would compete with existing community colleges and online universities.  Community college coverage is highly variable across communities however and existing online colleges aren't necessarily widely known about and can be expensive or of questionable quality, sometimes both.  A national school would benefit from economies of scale as well as being easier to promote to those most in need of its services.

[As a side note, Edward L. Glaeser is promoting human capital as a driver of American renewal as well on the NY Times Economix blog.  Being quite a prominent economist I thought I'd point it out.  His vision is to sell this to the Republicans so it is likely to be vastly different from mine.  I personally can't see how we can reach those most in need of a skills update without state intervention but it will be very interesting to see his take in his next post.]

A Special Economic Zone in Burma. Boon or Bane?

Another great NY Times article today is on a development project in Burma.  It seems that a quite massive industrial project, including new port facilities and power generation, is being developed in Burma in a deal between Myanmar's government, the Thai government, and a Bangkok based corporation, Italian-Thai Development.

Generally, I favor special economic zones as a great way to develop an underdeveloped country.  They have several advantages, including a focus that allows truly modern infrastructure to be built in a small location (rather than spread too thinly across a country to have any major impact), a large enough industrial complex to change attitudes in a focused area, a focus on creating real economic gains that can create sustainability through being self supporting,  and the opportunity to separate this small area of the country from the broken and corrupt institutions present in the rest of the country.  If these programs are run like China's original special economic zones, they are something that I think is under-utilized by the foreign aid community.

While it is very early and I am basing my opinion on a single article (always a bad idea but acceptable as a provisional opinion in a blog), there seem to be a few reasons to have doubts about this project.  The biggest one is that this project seems to be as much about environmental arbitrage as it does about any real economic advantages to the location, though some economic advantages are mentioned.  The biggest reason I am sceptical about this project however, is that no mention is being made of special institutional arrangements.  The biggest advantage to special economic zones is that they can allow for a small island of relatively (I have no illusions about these things being paragons of virtue, just better relative to the mean in these areas) well managed activity where the standard problems of these states are reined in by the pressure of international investors.   None of this is mentioned in this particular project.  It may be that this was not reported on or that it is too early to tell but until I hear more I am sceptical if this project will do much more than pollute the area and provide cheap electricity and semi-finished goods to Thailand.  Though I hope it will instead be the thin wedge to a better developed economy in the longer run, much like the special economic zones were in china.

Education: More Second Chances

I believe that a major flaw in our economy is that we give too little support to those that need retraining or that need to upgrade their skills later in life.  I do realize that we have a multitude of different targeted programs that seek to address this, I'm not suggesting that we make the system more complex by simply adding additional programs.  Rather, I'd like to suggest that we make a broader set of programs with simpler rules that would be accessible to most anyone working.  In my next post I'll get into some more involved ideas, in this post I'll lay out some more basic ones.  The objective here is to focus on making education and training accessible to people at every stage of their life and in particular people that have made mistakes that make getting training more difficult.

1.  Expanded education tax credits.  This would supplement existing programs and would allow for a broader range of expenses to be targeted by the credit.  Existing credits would be expanded to cover the entire cost of part time attendance at a state school (this would likely be in the ballpark of up to $8,000 a year total), as well as related expenses including text books and child care.  I had looked at New York State data for rough numbers but quickly realized the subject was too complicated to be worth the time in making specific recommendations in a blog post.  These credits would have to be written carefully, the target is a full time worker going to night school in order to get a better job in the future, or to get new skills because of fear of a job being eliminated or off-shored.  This is not meant as a tax break for wealthier families to put their kids through college, though a kid wanting to pay for their own college would be a perfect target for this credit.  While generally opposed to means testing it is also likely worthwhile to phase this out at high incomes to prevent it from being a subsidy for executive MBAs who don't really need it.  A gradual phase out starting at $100,000 a year may be in order, or if a more complicated provision isn't too distortionary, a lower phase out with an additional allowance per child could also work.  In any case, this credit should be designed so that families don't have to make hard choices about taking a chance on their own success or being able to better provide for their children's needs.  This tax credit should be limited to the income earner, or alternately for dual income households, to the secondary income earner as well.  Other household members should not be eligible for this expanded credit.

2.  Supplementary unemployment benefits.  This program would be designed to encourage unemployed workers to update their skills so that they are more likely to be able to get a job after unemployment at a higher wage then when they went on unemployment.  It would also be designed to encourage them to continue working while receiving unemployment.  The requirements would be that the beneficiary be enrolled in school full time and also that they look for part time employment while in school.  Unlike regular unemployment, beneficiaries would continue to receive benefits if they take a part-time job while in school.  It would extend the unemployment benefits, though it would likely be beneficial to make this at a reduced rate, for up to two years to supplement the income they make from working part time to something closer to the income they received while fully employed.  The objective would be to use periods of economic disruption as an opportunity to upgrade the workforce to meet changing economic needs and reduce long term structural unemployment.  It would also prevent long gaps in resumes by encouraging workers to take jobs that pay much less while unemployed and feeling justified in doing this by having school as a reason for doing this.

Both these suggestions would likely be expensive in the short run, though longer run cost would be more unpredictable since they would be likely to result in larger long term government revenue.  I believe paying for these out of slightly higher taxes on high incomes would be justified and likely acceptable to most Americans.  After all, this isn't giving out freebies, it's giving people an opportunity to work hard to better themselves that they might not otherwise have due to choices they find difficult to make.  Only those willing to take on the task of both working and going to school would qualify for either program.

I'm Ambivalent about Government's Privacy but Individual's Privacy is Another Matter

I was just reading this NY Times article on the most recent information from Wikileaks.  I'm fairly ambivalent about the privacy of the government, while I can't imagine this level of transparency is likely the ideal for diplomacy to fulfill its needed functions I can imagine a version of diplomacy where no privacy is assumed that works well enough, though I'd rather have traditional diplomacy over this nonsense.

What's going too far though is summed up in this line from the article:

Many more cables name diplomats’ confidential sources, from foreign legislators and military officers to human rights activists and journalists, often with a warning to Washington: “Please protect” or “Strictly protect.”

Having information to be revealed depends on having individuals willing to speak their minds.  The long run trajectory for Wikileaks actions isn't a more open government.  Rather it's a world where no one in any official capacity can ever speak their mind or take the risk of being open about anything.  Rather, the threat of being exposed will insure that anyone acting in any official capacity will never say anything aside from the tired lines of bullshit that have been pre-approved up and down the lines of command.  This is a world where no information exists that cannot be safely relayed in a press release and where people only speak their own thoughts with those in their same agency and never risk anyone outside hearing anything.  The world of Wikileaks isn't a more open world, it's a black box.

Bad Labor Habits and Medical Errors

Just finished reading a NY Times piece on medical errors.  It was good and it's worth reading the whole thing.  A couple of quotes jumped out at me though.

Dr. Wachter said: “The study is telling us how hard improving safety really is. Process changes, like a new computer system or the use of a checklist, may help a bit, but if they are not embedded in a system in which the providers are engaged in safety efforts, educated about how to identify safety hazards and fix them, and have a culture of strong communication and teamwork, progress may be painfully slow.”

Earlier in the article however:

“A third of the errors in the intensive care unit disappear when residents work 16 hours or less,” Dr. Landrigan said, but noted that senior residents are still allowed to work longer.

Not having people work 16 hour days isn't hard, it's common sense.  Of course there will be a few situations where it's beneficial but this is an instance where I see a cult of hard work having significant negative effects in the real world.  I am certain it's not the only one.  We need to stop talking about the hard work that goes into a 16 hour day as a good thing and start condemning it as reckless behavior.  While the ill effects are clearest in medicine this is simply forcing people to do things we're not built to do.  We need to build systems that work with people as they actually are, not as we wish them to be and to stop treating reckless behavior as something that should be honored.  It reminds me of the bankers justifying their salaries through the long hours they work.  My first reaction was that perhaps the system wouldn't have crashed if the lot of them had been getting enough sleep and weren't making stupid errors due to fatigue.

Education: The Low Hanging Fruit

I'll eventually get into some more complicated issues but as a first step I'd like to list what I consider some common sense educational reforms.  By common sense I don't mean easy to put in place, instead, while there are few that would argue these reforms wouldn't help our education system, these are very difficult to pass reforms for social or political reasons.  Since I'm putting an emphasis on the labor force at the heart of my take of rethinking ideology I'm going to ignore the political difficulties since if you can't successfully argue for the core of your thesis despite obstacles there is little reason to even attempt the approach.

Also, I'd like to note that the vast bulk of what I know about the education comes from newspapers and does not come from any particular expertise (other than a lot of time spent in school).  While I've tracked back information to a journal article here and there I'm communicating primarily based upon what I see the current consensus is rather than on any particular expertise.

1.  Start the school day later.  There has been a lot of research that younger people simply aren't wired to get up as early as older people.  While I have no idea what the magnitude of the effect would be, simply making the school day start later would help to increase the amount of learning that goes on in classrooms.  I would also guess it would reduce problem behaviors.  There are obviously a number of social and political reasons why instituting this reform would be difficult.  Incidentally, this is also one of those traits our meritocratic society selects for that has nothing to do with merit.  Those that are naturally early risers have an advantage over those that are late risers that sets in quite early.  While this certainly impacts your lifetime ability to contribute this has nothing to do with any individual merit you possess, it's solely an artifact of our institutions.

2. Make the school year longer.  Our school year has become shorter than that of many of our competitors and this is likely associated with less overall learning.

3. Shorten summer break and break up the school year more.  I've heard in a few places that lower performing students in particular have their skills deteriorate over long breaks.  Since these are the students I am most concerned about doing what will help them learn best is necessary.

4. Look at making the school day longer.  I have no idea if this is actually something that would help since I'm unsure if kids do a good job paying attention over long periods of time.  If this is a major problem, a longer school day with a few breaks for more fun activities may be in order.

5. More guidance, and in particular resources, for self-study.  While this may benefit all kids, this suggestion is more for those at the upper half of the distribution.  A frequent frustration of mine as a younger kid was that I wanted to learn all kinds of new things but had no idea where to start.  This led me to read a lot of Greek philosophy, or other subjects where I happened to have stumbled across author names or titles, which looking back on it was a waste of time because I didn't really have the background to understand it, particularly how different the culture was, till later.  A listing of progressively more difficult resources, not just age-level appropriate which may not be challenging enough for every student, would be helpful.  Combining this with an online library for accessing these texts would also be helpful.  Some sort of rewards system would also be necessary to get the full benefit, whether some kind of accelerated coursework or some form of more material reward.

6.  Explore more incentive systems for classroom work, especially for low income students.  I've heard the idea but haven't read much.  I see no particular reason to oppose it, except for spending.  Targeting this to lower income students may be ideal, wealthier parents tend to set up incentive systems for their kids already anyway.  It's those whose parents aren't doing this that could use a break.

Much of this could be achieved simply with more federal funding.  In general, I don't believe current levels of taxation are high enough to sustain our investment in either our labor force or our physical infrastructure so I'll simply be assuming taxes will eventually go up to pay for this, though I'll likely be doing another spot on taxation since I'm still thinking through some issues with it.  Also, I assume a better education system will involve more centralized control, though I see some options with this, issues that I'll be getting into in later posts

Some Thoughts on Long Range Economic Development

Over the next few posts I intend to start going into some of the domestic factors that I believe are holding the US back.  This will all be very speculative and based on a rather general observation of mine that I admittedly haven't researched enough to have 100% confidence in.  That is that I believe that over longer periods of time the key thing holding back societies is their inability to maximize the potential of their labor supply and that an emphasis on capital rather than labor leads to the misallocation of resources.  I believe the key thing to long run development is to balance development of all of a nation's resources.  In the modern USA I believe we have enough capital sloshing around that capital is unlikely to be the limiting factor.  Growing our supply of capital will do us little benefit, though it will shift incomes around, if it is instead the quality of labor where our society is lacking.  This is sharply different from the 18th, 19th, and the first half of the 20th century where we remained under-capitalized.  This is no longer the case here, though investment is likely to be the limiting conditions in less developed nations.

This is a slight shift in emphasis from what I generally see as the main thrust of mainstream social science and is rooted in a basic criticism I have towards the field that we place too much emphasis on 18th, 19th century and early 20th century thinkers (this does not apply equally to all subfields, some of which are much more modern).  The major emphasis in both political science and economics has been in explaining industrialization.  While I agree this was a major event, I also think it was a unique one and the lessons learned from it are not truly generalizable.  I believe there were elements of this transition that stood out so strongly that other threads of development were left completely obscured by the key role that capital development played in the transition to industrialization.  Focusing on capital formation distracts us from deeper issues that are playing a greater role today as we move more completely out of the initial transition to an industrial society and into whatever is coming next.  This is rooted in a few observations, such as the lack of success of slashing taxes to encourage capital formation towards creating broad based growth and the ability to sustain growth and production in countries that focus more on encouraging a highly skilled labor supply, but I will admit it is very preliminary.

Based on what may be a faulty starting assumption however, I will be suggesting that a focus on taking an approach that seeks to maximize the quality and efficient allocation of our existing labor supply is the proper foundation to build a new approach to American politics and government on.  While education will be a significant part of this I intend to make the approach much broader.  I wish to examine how various policies, such as our prison system and discrimination against ex-cons or the difficulty of gaining a university degree or advanced technical training later in life, are leaving significant portions of our population in a condition where they can be nothing but under-utilized.  I will also be looking at how existing policies make labor mobility more difficult and policies that are blocking the kind of organizational flexibility that would be necessary to get every American working at their full potential.

My vision of society may not be widely shared but at its heart it's one that we give people as many chances as they need to get their act together so they can contribute and that breaks down any barrier that provides someone with an excuse not to put in the effort to better themselves.  I think our focus on trying to spur private investment and the focus on incentives does little to spur those people that have more awareness of the possibilities for failure than they do of the possibilities for success.  American society already has everything it needs to make the best and brightest do their thing, doing more to encourage this has little to no pay off.  Getting those who aren't the best and brightest to pull their weight and contribute everything they can is the real challenge we need to meet if we're going to compete with nation's having a multiple of our population in the 21st century.  They can afford to chew people up and spit them out if they don't meet their standards.  We used to do this, and still do, but it's no longer a luxury we can afford.

[Update:  After looking over this I think my brief digression into half thought out theory may have been unclear.  I'm not proposing anything terribly new or anything terribly different, just a shift in emphasis.  What I have in mind is that:
1. Growth is limited by a number of limiting conditions such as capital, labor, technology, or organizational sophistication.
2.  We tend to overemphasize capital as a limiting condition because the foundation of much of our social sciences comes from the 18th, 19th, and first half of the 20th century when our society was not yet fully industrialized so lack of capital was generally the limiting condition.  Also, capital formation is easily amenable to economic methods while the labor issues and technology I am pointing out falls into the less mathematically amenable realm of political economy as social forces and political concerns dominate over the actions of the private sector and the relatively easily tracked cash flows necessary for capital investment.
3.  While we certainly will continue to need more emphasis on capital formation than earlier societies did, our challenges are more likely to be in the form of trying to develop a sufficiently skilled labor force, though technology and science is also likely to be an issue.  This is because a society such as ours has an ample capital base and enough capital seems to be produced in its normal operation to meet our capital needs.  Additional capital has a decreasing rate of return because the amounts of skilled labor, technology, etc. are not available to give the full return on new capital spending.
4. The incentives to stay in school and get a good education are already enormous so lack of incentives is unlikely to be the reason our labor force is inadequate.
5. We need to look at why people are failing to develop skills that are rewarded in the modern economy.  Also, we need to think about how careers that can be very rewarding to society as a whole, such as scientific careers, are unable to capture their full social benefit.]

A Few Ways Our Society Advantages the Wealthy

Now that I've covered the big issue areas of the day, in regards to which I have relatively few unique suggestions, my focus over the next few weeks will be on areas where I think more significant changes are desirable and which are currently not at the top of the agenda.  Many of these suggestions involve trying to even the playing field between the wealthy and non-wealthy so that those without assets can more successfully compete in the economy against those better off.  The idea will be not to push transfer payments but rather to focus on making various forms of investment pay off better for those with few assets.

I often here a complaint leveled against progressive taxation and other policies that have disparate effects on rich and poor that it is unfair to tax the rich simply for being rich.  Those who argue this often go on to claim that the tax is even more unfair because public investments tend to be consumed by the poor and not the wealthy.

While I think most non-wealthy see these arguments as absurd, I think it's worth pointing out a few ways that the institutions of our society disproportionately advantage the wealthy.  There's a perfectly good reason why expecting the rich to bear a greater burden is a necessary part of the social contract, we live in a society where the institutions overwhelmingly favor those that already possess wealth.  While this is no excuse to simply expropriate the wealthy acknowledging these advantages upfront is necessary to think rationally about policy and the necessity of providing a set of advantages for those left well off to compete on a more even field.  Also, it should be noted I don't believe in trying to change society to eliminate these advantages.  Many of them are the results of institutions that are necessary for our society to compete globally and that have done much to grow the pie bigger for everyone.  I simply believe that there is a natural social contract that comes with these institutions to provide countervailing forces to help those without assets compete with those with preexisting wealth to become wealthy themselves.  This is by no means meant to be a comprehensive list, simply a number of the more obvious advantages that occur to me.

New Page Added

In order to organize my reading list and plan out my next book purchases I have been writing up a list of what I've read so far.  I have no idea why this would necessarily interest someone else but if you're curious about what I've read and what I haven't feel free to take a look.  It's woefully incomplete as of now but I will continue adding to it in the future.

Some Thoughts on Taxation

I was intending to take this up later when I was able to take the time to assemble some data but this post today on the Economist DiA blog meant I had to address it.

Dr. Robert Frank has an interesting proposal to to tax consumption instead of income by making savings deductible.  I largely like this but with some caveats.

First, it's not distortion free because this will favor whatever type of savings are allowed under the plan.  Small but still there and worth mentioning.  I think this would be most noticeable in the case of financial assets vs. other kinds of investments meant to increase personal productivity.   Probably surmountable, this would have to be done in regards to small businesses that pay on individual income taxes anyway (and ideally should include education as a form of savings), but this is going to make it more complex.

Second, it can be argued that this favors wealth inequality, which I agree is a significant problem.  I think there are a few ways to lessen this.  My views on inequality are slightly odd though so a brief aside on that first.

I'm not really worried about inequality if it is all money tied up in businesses rather than money that is being used to create a real perceived gap in lifestyle or is used in the exercise of power (donating to political campaigns should not be counted as savings).  I do worry about inequality if it is simply inflating asset values, particularly in goods that can't be produced (in reasonable amounts or at reasonable cost) such as land.  This is too big of a subject to take up here, I'll do so in a later post.

Inequality is also a problem because it shapes outcomes.  While many want to deny this, there are too many historical examples of how the powerful have been able to shape social outcomes, both through the use of the state and simply by private economic power.  This isn't wholly avoidable and the costs of trying to correct it are too high and too uncertain to be worth trying to eliminate these advantages entirely, though trying to do so in part is worth doing.

So, we need to do something to make the tax even more progressive to help those with low incomes compete against those with high incomes who have a number of natural advantages.  With the goal in mind of increasing competition and presenting established fortunes with a constant flow of new challengers.  The first advantage to those trying to move up the ladder would be a fairly high standard exemption.  The second would be a standard income tax but only on very high earners and then at fairly low rates.  This is meant to equalize the playing field a bit, not predetermine the outcome.  These rates would ultimately be subject to actual budget analysis as to what the trade offs would be between a high consumption tax and the portion of it left to an income tax.  To give an idea what I have in mind, a ballpark figure would be 1% at $250K, 3% at $1M, 5% at $10M, and 10% at incomes over $10M.  Nothing scientific about it, but frankly, I think we know enough to say that high incomes distort the playing field but we don't know enough to say by how much in a way that amounts to more than pulling complicated sounding numbers out our rear ends.

Something will also have to be done about corporate taxes but since there are no recent news articles on the subject I can leave this for when I've done some real research on the subject.  Also taxes will have to be diversified further, a single revenue stream is always less than optimal and there are a few areas where positive goods can be achieved through the tax system, I will take this up later.

Of course, vast change in government always seems unlikely.  However, our revenue policies are so bad, and so widely recognized as being so, that this is the one policy area that I think there is a decent chance of having a revenue system 10 years from now that is completely different from today's.

[Update:  While this article got me to thinking, after considering it a little longer I think I may prefer to encourage people to keep money invested simply by slashing the corporate tax rate and simply treat all income equally.  This way, if you want to build up your vast fortune you're best off simply keeping the money invested and never realizing the gains.  You still get to be an uber-billionaire but most of the effects of inequality would be muted.  I'll take this up a little more when I treat corporate taxes later on.]

Social Security

I wish I had more to add on this topic but the debate already seems to be hitting most of the sensible options.  All I've got to add is that I don't like the idea of raising the retirement age because average life expectancy hasn't increased much for lower income workers.  Also, increasing life expectancy at age 65 is the proper number for calculating social security, much of the increase in overall life expectancy is do to better treatment of conditions that killed before 65, such as cardiovascular disease, only part of it is do to increased life expectancy after 65.


My only suggestion to make the program better is to change the different benefit calculations for early and late retirement to include caps.  That way manual workers, who probably can't work later in life and are likely to have lower life expectancy, won't see their benefits cut if they have to retire earlier.  Workers that enjoy better wages and less physically demanding jobs would have to work longer if they want to receive their full benefit.  Given the complexity of Social Security calculations, it would probably be necessary to make benefit payments either the cap or the old calculation, whichever is lower.  After taking a brief look at the numbers, I realized calculating the changes would take far more time than its worth so I don't know precisely how close to solvency this would get us.  Still, by using gradually increasing benefit caps there would be at least some room to allow for those lower on the income scale to retire early with full benefits while being able to raise the retirement age for those better off while retaining the broad based nature of the program.  I have something in mind like capping benefits at age 62 to $6000 a year, increasing the cap gradually to $12000 at 67 and then the maximum benefit available somewhere around 70.

As an addition, Social Security should embark on a program to encourage gradual retirement so that workers are paying in longer.  I have doubts about the government's ability to effectively change culture so won't spend too much time on this but the program would certainly be more solvent if workers continued to pay in through their jobs past 65 by gradually transitioning to a partial work schedule.  There's only so much that can be done but shifting the cultural norm from an absolute shift from work to retirement to one of shifting from full to part time with a gradually declining work schedule would be beneficial to more than just Social Security.

Along similar lines, I have some issues with the decline in SSI/SSDI benefits with relatively low levels of income.  The numbers being simpler, but still enough that I need some time with them, I'll go into more details at a later date.

A Little More on Transactions

Just in case I ever decide to come back to the notion I figured I'd list a bit of a grab bag of the situations that I had in mind for my focus on transactions.

The first is the long run importance of powerful commercial groups in controlling distribution channels for long distance trade.  This goes back to the middle ages and the fair system etc. and the importance of a few key merchants who had access to particular goods or finances.  These merchants seemed to have an outsize impact on which fairs were successful and on how business was conducted.

The second was the importance of control of actual mediums of exchange or capital accumulation.  Mostly the importance of changes from early exchange systems (which could be very complex), to money, the introduction of bank notes, the importance of relationships between banking groups (and the ability to choose to introduce someone into these circles) before the state took over the role of banker, and various attempts at concentrating early capital, such as stock systems in Genoa or Venice or shared space on ships in Southeast Asia.

Another aspect is the off noticed tendency for certain sectors of the economy to have effects on the overall system that are far larger than their size.  This has been observed regarding the spice trade, the textile trade, steam engines and rail roads, and a few other sectors across history.  These fields have been pioneering ones using new forms of social organization and contract to get the resources they need (sometimes this takes place with labor,  sometimes with unusually large fixed capital, sometimes with new corporate organization).

Where this differs from economic history accounts is that I am downplaying the absolute size and instead focusing on which agents have the power to set the "menu" (for lack of a better word) of choices available to others.  This can be early merchants who formed fairly exclusive cliques who would trade amongst themselves balancing accounts at various fairs, the great mercantile companies which introduced new trading practices in Africa and Asia, early industrialists who were able to introduce new labor contracts to fill their factories, tensions between wage labor in agriculture and other forms of tenancy, states which could favor or disfavor various forms of economic activity through taxation and other policies, modern issues involving intellectual property rights or digital infrastructure, etc.

This is all of course to some extent covered within other perspectives.  What I'm mostly suggesting is that the power to shape social outcomes lies with whoever sets the menu.  Who gets to decide if family businesses will dominate or if more impersonal corporate structures (and what rules will govern them) will proliferate?  Can I trade my labor directly for goods or services or am I only allowed to use money?  Can I trade my raise for a constant salary with less hours?  Is production centralized as a matter of course, or is household production a possibility?  What are the standard contracts involving loans?  Simple things, like bundling of television channels so that I have no option to subscribe to Showtime to view the shows I want to watch online without owning a TV.

In this perspective, power lies with whoever makes these decisions (even if not consciously, this is a matter of socioeconomic change and small changes can lead to large effects and path dependency over time).  It is not necessarily the government, nor is it necessarily those that control wealth.  Rather it is whoever is able to influence how contracts are constructed or what the standard methods of exchange are.  Power can lie with a corporation if it is able to control the set of contracts available* or it can lie with the government if the state gets a say over contracts.  Power isn't necessarily purely a function of wealth, a marginal example would be subsistence populations with only limited contact with the market, they will frequently work for some wages in addition to their subsistence production but ultimately can impose their schedules on producers since production for the market is secondary.  Wealthy and profitable business interests with high levels of fixed cost and a reliance on a skilled labor force may loom large economically but be so dependent on current conditions that they have little scope to change any existing relationships (on the other hand, if the society lets wealth get translated into the political process this business will gain the ability to exercise power).  Alternately, a not so profitable industry with low fixed capital costs but many low wage, low skill jobs may have outsize power because it can shape behavior by making a credible threat to move, it's power to upset existing means of trading labor grant it power out of relation to its economic size.  Alternately, a high tech sector may have outsize socioeconomic impact by being able to pioneer new forms of conducting transactions (whether by moving things online or by allowing for a more decentralized labor system that could bring back household production).

Anyway, this is a grab bag of things for me to come back to later if I decide there's something to this that isn't adequately covered elsewhere.  I think there are some real gaps in economic development, especially the outsize impact on society of a small handful of sectors at various points in history or small shifts in government policy, but there may be good existing perspectives on this I'm as yet unaware of or this perspective may be too difficult to problematize to be truly effective.  After this post I intend to set it aside for some time and get back to reviewing the deficit commission proposals and moving on to social security.

*This is most obvious right now with intellectual property rights.  Patent holders can make innovation more difficult, or ease it.  Various types of content holders can control the means of distribution, despite consumer demand, through their market clout (I have the record companies, film distributers, publishers, and such in mind here, while other options exist you need to go through them to reach a mass audience.  Admittedly, there is a dimension of state support through regulatory capture but some of this is simply due to the nature of the industry).

[Update:  The more I think about this, the more I think this is just a slightly different way of defining power that avoids the common confusion of too much focus on state power and instead defines it as being distributed throughout multiple levels of society.  There are other conceptions of power that already do this so I'm unsure I'm adding anything.]

Democrat's the Party of No?

Ross Douthat has a column this morning on the deficit commission and the Democrat's rejection of it.  Here, he accuses the Democrats of being the party of no and blocking any solution and tries to imply that the Democrats must be in favor of all the distortions.  He also tries to argue that the deficit commission is not that in favor of Republicans.

This is nonsense.  The left in the US shows pretty strongly that its biggest concern is rising income inequality.  The Bowles-Simpson plan would substantially shift the tax burden away from the wealthiest Americans.  Sure, it would do this without cutting programs for the very poorest but it wouldn't make things better for the working poor or anyone on up to the highest income brackets.  This is why liberals and progressives are crying bloody murder over it.  I may not always be on the side of the Democrats, and I think inequality needs to be broken down more to be useful, but I can't support a plan that would slash the top income bracket to 23% either.  Where I differ from most Democrats is I'd like to see the corporate tax go much lower but income from corporate ownership get taxed when it becomes income for an individual (more on this when I take up tax policy as a whole).  But you can't say the Democrats are opposed to sensible solutions when the left's primary argument is that income inequality is making America less competitive and making it more unjust as well.  Few on the left seem opposed to most of the sensible measures, some are opposed to Social Security reform but they have a good critique about actual changes in life expectancy by income and there are ways around this (more on this later), what they can't stomach is a plan that functions primarily by making the existing tax structure favor the wealthiest even more.  This is a deal breaker for the left.  The commission could have lowered rates a bit, particularly if they added a few brackets closer to existing rates (why not additional brackets at $1 million, $10 million, and $100 million) this would have been far more palatable for the left.

What shocks me is that anyone would think this isn't highly favorable to the right.  No one is opposed to fixing government by ending its worst programs, many people are opposed to doing this solely to justify shrinking government as a whole and doing it in a way that primarily favors our wealthiest citizens.

[Update:  My first thought on what I bipartisan compromise would actually look like.  This plan comes close but to make it bipartisan it would need to put the spending cap higher, it's obvious we're going to have record levels of government spending when our demographics are the worst our country is likely to ever face, pretending otherwise is simply ignoring the obvious.  The alternative is politically impossible, reinstate the policy of open borders. 

The next compromise would be that an additional tax bracket for those making over $1 million would have to be added at 25%.  Then further tax cuts to every lower bracket, and a much higher initial exemption, would have to be added as well to be paid for with a pollution tax and a VAT.  This additional revenue would also pay for a new old age expansion of SSI for the elderly that would have formerly received social security but no longer can under new rules.  Ideally eligibility for this would be set at 60 and rules would be designed to favor those working at manual labor who are the most likely to have difficulty working when they are older and who have also not seen the sort of longevity increase that those better off have.  To throw the Republicans something corporate taxes could be lowered further if additional revenue is sufficent.  I think this would be enough to buy off the Democrats without compromising the rest of the plan.  I haven't gotten around to reading the full report yet, when I do I'll do a more complete review.]

[Update 2:  Actually, I think I let a couple of my priorities slip in with what I think the Democrat's priorities are.  I think if you added in an additional tax bracket on those making over $1 million and use it to pay for an SSI expansion aimed at the elderly working poor then you're all the way to something acceptable.  Throw in a pollution tax and an infrastructure fund and I'm sure that compromise is very possible.]

The Importance of the Means of Transaction

This is just a random thought that occurred to me that I want to keep a record of for revisiting later, and to ask my readers if they know of sources that have explored the idea in detail before.  Based on some reading I've been doing recently* it has occurred to me just how important control of the means of transaction (a clumsy formulation I'm using to distinguish this from the already taken term the means of exchange) has been for determining social, economic, and political outcomes.  I don't mean solely the traditional narrow definition of the means of exchange (money or commonly traded commodities such as grains or silk) but a more multidimensional way of using the concept that encompasses means of labor exchange (the medieval manor system, Chinese lineage groups, temple distribution of grain in Uruk, the modern corporation, etc.) and the control over the systems by which goods are exchanged (such as the organization of long distance trading networks, organization of local and regional markets, modern bundling of goods and services, taxation by the state for public goods, etc.).

I realize that a very common mistake committed in the social sciences is to mistake a range of disparate mostly unrelated facts for a pattern.  This strikes me as a possibility with my desire to link all of these aspects together into some form of broader causal system.  So this has to be understood as a germ of an idea than something I have a great deal of evidence for or that I would be willing to defend. 

All that said, I have often been critical of the importance given to material factors or to theories that emphasize the importance of the means of production and investment or the importance of economic classes.  By looking at the means of transaction I think there may be a better way to frame how material factors interact with social and ideational factors to lead to social, political, and economic outcomes.  The ability to control how goods are exchanged, how labor is exchanged, and how public goods are created seems to me to be a possible contender for a better way of conceiving of the interaction between material and social life than more commonly used conceptualizations.

While this is very preliminary, and possibly a waste of my time to think about and yours to read, what I'm suggesting is that rather than looking at the standard focus of economic theorizing on production and wealth or social theorizing that emphasizes class it may be more fruitful, and more applicable to wider time frames, to look for explanations of social outcomes and economic growth by focusing on the control exerted over how goods are exchanged.  Throughout history these powers have always been divided between a variety of actors.  The focus would be not on who owns what but instead on who is able to control how contracts are formed, how contributions are assessed to provide social goods (often the state, but private charities or religious organizations have in the past fulfilled aspects of this role), how labor exchange is organized (I'm trying to think of a term that would encompass modern companies organized for market production as well as both modern and older organizations that involve labor exchange for non-market activities, I see no compelling reason to make a distinction, especially since the division between market activities and non-market shifts and is part of what needs to be explained), how the medium of exchange is set, and other activities that emphasize organizing exchange over actual ownership.

A number of observations are behind my consideration of the importance of a change of focus.  First of all, I think too much emphasis has been placed on capital goods and the means of production as a result of the industrial revolution and the surge in capital accumulation required.  While this focus is important for early industrialization, I think a focus on it has obscured trends of longer duration and importance that underlie this transformation and that of earlier periods and that are of more importance to future change in economic, social, and political structures.  I think that the means of conducting transactions, which transactions involve the government vs. which transactions are private or through other designated organizations, how different forms of institutions are formed to conduct activities, and the simple control over expectations of how people will act in different sets of interactions (things as simple as knowing what to expect when dealing with a merchant to something as complex as organizing a large enterprise, whether a modern corporation or a Roman colony, in a foreign territory) are more important to determining social outcomes than standard economic explanations are.  While there is significant overlap, wealth or state power can certainly help to establish the means by which transactions are conducted, this perspective (if anything other than nonsense constructed from far too few data points) would explain the unusual importance of new sectors of activity (such as the importance of early industrializers or other innovators) as well as the outsize importance of control over finance.  It would also provide a strong perspective for explaining how private economic actors can exert outsize control over society when they are in positions essential to distribution, which seems to be a common historical theme.

That's enough on this for now.  My above description is incomplete, the primary purpose of this however is to get something on record for me to possibly revisit later if I find the time and continue to see evidence that this is an important frame.  I also believe that to properly explain it I would have to spend rather more time on specific historical examples and contrasting it with standard economic interpretations of development (such as North's), Marxist interpretations, and more sociological explanations (such as Moore's class based explanations).  If any readers have come across similar attempts to focus on transactions over production, the state, or class as socioeconomic explanatory frames I'd appreciate the reference.  I'd also appreciate any critiques, both to think through these ideas more and to know if this is so far off base that I shouldn't be wasting my time on it any further.

* Recently, I've been reading Moore's Social Origins of Dictatorship and Democracy, Ibn Khaldun's Muqaddimah, Belknap Press's History of Imperial China series, Skocpol's Democracy, Revolution, and History, Wolpert's A New History of India, Mokyr's The Lever of Riches, North's The Rise of the Western World, lots and lots of papers on Chinese trade and currency, and Mieroop's A History  of the Ancient Near East.  I have no doubt that many, or all, of these have contributed to  my recent thinking along these lines, in particular Mieroop's book which got me to thinking of just how vastly the means of conducting transactions has changed over time.  The modern methods of market exchange simply don't look like something that is based upon any sort of fundamental human characteristics, rather they seem to be the product of particular social circumstances.

So What Should We Do About Health Care?

The last few posts left it unclear exactly where I think we should go with health care.  The honest answer is that I don't think it matters that much as long as we get universal coverage.  Once that is in place I think the various actors in the debate will have their incentives lined up in a way that will over time lead to cost controls.  The problem is essentially structural in that it has to do with the power, and diversity, of the various groups involved far more than it has to do with the technical aspects of providing care.

That said, I think there are some clear areas where there are real possibilities for reform that would save costs.  The first of these is to debate whether we want to move to fairly comprehensive health care as the norm, or if we want more limited access.  In either model, catastrophic coverage must be given, and have it clear who is providing it (having the government as a backstop for insurers is the problem, this exists today) for the system to work.  Beyond this, we can have a reasonable debate about how much we are willing to pay to increase access.  Given the disparity between low and high cost patients it is also essential to understand that expanding access is unlikely to do much to increase costs, between Medicare and Medicaid we are already paying for the most expensive conditions.  But there is a real debate to be had over whether we should be paying for routine payments out of pocket, or through individually purchased health care, or if the advantages of early detection and consistent follow up for more cost sensitive patients are worth the additional costs to the system

The second major issue is what limits we wish to impose on care provided from universal insurers.  Right now, it seems pretty easy to continue to get treatment well after the possibilities of success are low.  Should people really have the option of having the government pay for 2nd and 3rd line cancer treatment or is it reasonable to limit the publicly provided funds to the treatment with the highest chance of success, to give one example.  At some point a line will have to be drawn, the question is where.  My take is that everyone deserves at least one shot at treatment, after that I don't think there is a public responsibility to continue to provide public treatment for the same condition (I'd also hedge this with numerous exceptions, such as cost benefit analysis.  If a second treatment isn't expensive no reason to stop it.  Also if its a chronic condition and there is a high long run payoff to successful treatment it should also be paid for; some form of expert panel to weigh these issues, with feedback from the public, is necessary.).  Though a responsibility for hospice remains.

The third question regards supplementary insurance.  This being America, I think the answer is easy.  Whatever the minimum level of insurance required we should always have the option of purchasing more.  This should not bar us from getting the public version as well to prevent perverse incentives.  This should be a less regulated market but if we're not going to cover 2nd and 3rd line cancer treatments, or cover routine doctors visits from the other side, we certainly should allow a market in supplementary benefits.  Those that favor high degrees of equality are not infrequently against this, I ran into it often enough in Canada, but here I think there is a very strong argument that whatever the government offers those that want a Cadillac plan should be able to buy it.  I certainly don't think this should be subsidized, however.

At the end of this, I will admit that I simply don't know enough about the system to make specific recommendations.  I do think there are compelling reasons to approach the problem from a more systemic approach of how health care needs to look in the long run to fulfill its purpose.  Without doing this as well as looking at specific reforms that are possible today I don't think its possible to carry the public along with reform proposals or to deal with the perverse incentives that got us to where we are today.  Its not just a matter of specific flaws in the current system, it's also about fundamental problems with the system itself.

The Essential Problem with Health Care

I tend to believe that the primary systemic issue driving US health care costs is the interaction between the very concentrated nature of health care needs and the very fractured system of paying for it.  This gives every individual payer a massive incentive to attempt to pass on those with high health care needs to another payer rather than to seek ways to reduce costs for those people with high needs.  I'm not saying that fixing this problem will do anything on its own to reduce health care costs.  What I am suggesting is that this problem creates incentives that prevent fixes from being made.  Unless these incentives can be fixed health care reform to lower costs will be impossible. 

The only tested way to fix this problem is universal health care.  Reform proposals that avoid this don't appear to me to address this structural issue.  The essential reason for this is that without universal health care uncertainty as to whether a procedure will be payed for enters the system.  If there was a reasonable certainty that those without coverage that need treatment wouldn't be treated than it would be reasonable to expect that a non-universal system could work.  But as long as needed treatment can still be expected to be received whether or not someone can pay it is reasonable to expect that there is no real possibility of a proper market ever functioning in a way that will control costs (though it can function to raise capital and expand the system, the only part that seems to be malfunctioning is cost control, which seems to me predictable as a result of needed treatments being covered anyway).

With the payment system how it is, any individual entity can best achieve cost control by maximizing its responsibility for the 50% of people with low costs and minimizing its coverage of the 5% responsible for almost half the costs.  This is simply a much bigger reduction in costs than trying to deliver care most efficiently for a given mix of patients would be.  This problem has led to a vast array of ad hoc laws seeking to plug various gaps in the system.  I know that in New York one passed over the past year that would prevent health insurers from canceling entire insurance policies to avoid covering individuals with very high costs.  Laws such as this exist in every state and massively increase the complexity of regulation (and in my opinion, the size of the state) and thus the inefficiency of our health care system.

Public opinion on these issues unsurprisingly displays a high degree of cognitive dissonance.  We get extremely upset over individual instances of insurance company abuse, such as rescinding entire policies to deny one person coverage, yet get very upset over the high cost of insurance due to covering people that actually cost significant amounts of money to treat, like the kid whose insurance coverage got rescinded by the insurer.  At the same time, we expect to be covered ourselves if something ever goes horribly wrong.  The costs we face day to day in health care are just so disconnected from the high costs of treating serious conditions that it is difficult to keep the message focused on paying for complex medical needs rather than how much it costs to get a bottle of penicillin.  Which provides those that profit from expensive health care plenty of room to muddy the debate by taking the focus off the high cost sections of the system to instead focus on the low cost sections we experience day to day that are the source of all their profits.

Concentration of Health Care Expenses in the US

It took me a little longer to get to this post than I expected, it's been a busy week.

I was looking for a report covering the issue in some detail that was not behind a pay wall.  The High Concentration of U.S. Health Care Expenditures by MW Stanton* fits the bill nicely.  I've seen this data in various places and it is all fairly similar, all the facts below will be taken from this report.  I believe the essential problem driving US health care problems, and really problems throughout the western world, is that health care costs are so concentrated that there is a serious disconnect between people's experiences and the actual costs of the system.  There is a basic distrust rooted in the fact that we don't see where the dollars are going to in our own lives.  This disparity comes clearly in the statistics.

• 5% of the population accounts for 49% of expenses (2002)
• 34% of those in the top 5% of spenders in 2002 where also in the top 5% for 2003 
• Those over 65 were 43% of the top 5% of spenders, this isn't a solely age related phenomenon
• The 15 most expensive conditions account for 44% of expenses
• The lower 50% of spenders account for only 3% of expenditures

While this data doesn't lead us to particulars about how to fix our current system it does tell us what some of the systemic issues are.  Mostly, it tells us that what people need insurance against is becoming part of the top 5% (or top 10% which isn't much better).  It also tells us that insurance needs to cover us for several years in the top part of the distribution. Further, for an individual insurer costs are always controlled most effectively by seeking to insure the lower 50% of spenders which still represent a very large pool.  For the insured however, we never know if we're going to be part of that 5% tomorrow, which is what we're trying to insure against.

It should also be noted that with costs so disparate there are differences in what each of us needs the health care system to do for us.  A system that is most efficient for paying the health care expenses of the 50% of the population that only spends 3% of the health care dollars isn't going to be the same as that which pools the resources of the other 95% to pay for the unlucky 5%.  For most of us, the most efficient system is likely no system at all, or health savings accounts or other mechanisms that can be used to pay the low day to day expenses.  However, if something goes wrong than we will quickly become very worried about how the system works for the upper 5%.

This does of course leave open the possibility that separate systems for basic and costly care could be constructed, perhaps with the government, or government regulated insurers, providing mandatory catastrophic coverage with an lightly regulated system for the rest of our health expenditures.  I haven't heard this proposed though so won't spend time on it.  I'll take up some more issues related to this in the next post.

*Stanton MW. The High Concentration of U.S. Health Care Expenditures. Research in Action, Issue 19. AHRQ Publication No. 06-0060, June 2006. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/research/ria19/expendria.htm

A Necessary Correction to Slow Legal Decisions on Housing

The NY Times has an interesting article on adverse possession.  This is where someone occupies long abandoned property for a long period of time and gains ownership.  There are obviously all kinds of problems with this and a few upsides.  My take on it though is that if the legal system is so screwed up that these properties are sitting empty for this long these laws represent a necessary correction.  This wouldn't be happening if the system were working.  Since it's not, at least there's an alternative.  So Florida should either fix how it handles foreclosures or learn to put up with this sort of thing.

Health Care vs. the Health Care System

I think it can be conceptually useful when discussing the problems that we have with health care in the US to distinguish between health care and the health care system.

Health care has been around as long as recorded human history and likely far longer.  No particular system was required for health care for most of our history, the market or other naturally occurring institutions were sufficient for providing most primitive health services.  The small exceptions would be the simple hospice care provided by early hospitals or institutions such as leper colonies.  But for the most part, little was required beyond the skill of the individual physician and some participation from the local community.

A great deal of modern health care is similar.  Delivering primary care and many health services, such as hospice and a range of simple surgical procedures, probably could be delivered effectively outside of a broader health system.  There are of course advantages to embedding these services in a broader system, and drawbacks, but for this rather broad (and here ill-defined) range of services there is no need for some overall health care system.

However, modern medicine has also developed a number of interventions that are very resource intensive and require some kind of dedicated system to keep running.  I don't have the knowledge to give an exhaustive list of these interventions but it is difficult for me to see how medical issues such as emergency care, especially when emergency treatment leads to a need for intensive care, could possibly function without a system in place to make sure that the hospital can almost always recoup its expenses without necessarily knowing if a given patient will in fact be able to pay.  While this system doesn't (theoretically) necessarily require government intervention, in practice existing systems have always involved the state. 

I believe this distinction is necessary to make because of how it effects the political discussion.  Most of our interaction with the health care system is with the parts of the system that don't really require a system at all.  This gives a massive political advantage to those that want to keep the system as weak as possible.  It isn't hard to think of reforms that can improve access and there is a quite wide array of ways to make it easier for someone to see a doctor and to easily pay for something simple like antibiotics, setting a broken bone, child birth, or simple outpatient surgeries.  These areas can no doubt be improved by reforms such as improved access or could be easily paid for by greater use of health savings accounts or other free market oriented reforms.

The hard choices all lie in the areas where a health care system is required that most of us have little to no interaction with through most of our lives.  How do we build a system that can pay for treating autism?  How can we pay for cancer treatment or organ transplants?  How can our system create the right mix of specialists and general physicians when years of education can be a decade or more?  This is where we need to focus our attention if we want to build a working system.  People are afraid of the possibility that a medical condition may bankrupt them or that they can't provide a newborn child with the care it needs.  However, dealing with this is difficult because they are angry about the day to day costs of the medical system and the frustrations and delays they run into with the general health care needs that are part of their daily lives.  Solving this requires acknowledging that people's fear and anger are pulling in different directions and that all the hard choices have to be made regarding the systemic issues that are the source of their fears.  Going after the little stuff that causes anger just derails the conversation and prevents us from moving forward.

I'll expand on this idea a bit more tomorrow with some numbers to back it up.

Health Care: Some Background Reading

I was intending to do a post on health care today but no longer seem to have the time.  I came across a great link on Free Exchange though so I thought I'd recommend a couple of posts from the Incidental Economist blog as background reading before I get into my own take on the issues.  The first series is on cost, the second on quality.  Both show the US doing poorly on most measures.

On the cost piece, I think underspending on home health care services is likely at least a partial contributor to higher costs elsewhere.  Overall, I found the administration, red herrings, and underspending sections most interesting but I'd certainly recommend reading them all.

Starting this weekend I'll begin with a few posts trying to untangle what the problems with how we look at health care are and at how to fix this.  I've been wanting to do some graph with longer run numbers but I'm not sure I've got the time to commit, these may or may not appear.  I'd like something stretching back to before US health care costs diverge, which was before the 90s.  If someone knows of an existing blog, or other data source that already does this I'd love to hear about it.

The Scylla and Charybdis of Human Societies

I was meaning to post this as a preliminary to getting into specific issues but it somehow got lost.

I think among other ways, there is a basic unresolvable trade off that has the potential to destroy any human society.  That is the trade off of control by the powerful and control by the weak.

It's not a terribly unique proposition but I think often in today's rhetoric people seem to have forgotten just how destructive rule by the powerful can be (except if the powerful are narrowly defined as Wall Street and university professors).  Aristocratic societies frequently succeeded in exempting most of their interests from taxation by the government (pre-revolutionary France had the activities of its strongest members exempted from taxation, certain groups in Spain achieved similar concessions, late Roman estates were frequently free of taxation, etc.).  This didn't exactly lead to broad based economic prosperity.  A key sign of the health of society is that the wealthiest classes bear a burden proportional to their relative place in society.  If they bear a smaller burden they can wreck the ship of state within a few generations.  The advantages they gain from low taxation, and the relatively larger burden of taxation felt by those who must bear the taxes not imposed on the rich, lead to them being able to gain an ever greater share of the productive assets of society.  The narrowing of the tax base renders the state unable to fulfill its obligations and the relative advantages gained by the powerful make it extremely difficult for those not powerful to improve their position.  This both chokes out entrepreneurship except among the powerful and renders the state illegitimate and subject to revolt (this is the rather more common kind of stagnation.  Medieval Europe fits the bill, as does the Roman Empire, China for much of its history.  This kind of society tends to be static and in slow decline, convulsed occasionally by populist revolts)

On the other hand, a society that seeks to ruin the rich and redistribute wealth finds itself with no one able to organize many of the economic and social activities that are necessary but fall outside the scope of the state.  Without the strong there is too little scope for economic growth or for innovation.   Heavily state run economies have never been successful in the long run and policies meant to wreck the successful in society (whether Alcibiades, the Marian revolts, the French Revolution, the Bolsheviks, or others) have never been successful in the long run.  The disruption caused by these sort of populist revolts have also been incredibly destructive.

The solution is of course relatively simple, though extremely difficult for a society to institute over long periods of time.  That solution is to simply make sure that society is able to tax and regulate the powerful so that they stay within bounds without imposing burdens on them so heavy that they are brought down to the level of the weak.  This is difficult because the powerful have consistently been successful at promoting ideologies and concepts that argue that they should be left free of restrictions by society (whether medieval ideas of a divine order of society, ideas of meritocratic selection, or ideas about the outsize economic contributions of the rich).  Overcoming these ideologies is extremely difficult to do without falling into the kind of destructive populism that brought down Athens, the Roman Republic, the ancien regime in France, and the Russian Empire.  I think this difficulty is fairly widely recognized but too little talked about.  Reigning in the powerful so that their talents, and the structural benefits of their social position ( for instance bankers fill a needed role whether or not the individuals possessing the money actually have any merit as individuals, which isn't to say that many don't possess merit just that they'll still make huge profits simply by value of possessing capital whatever their merit as individuals), contribute to society without tipping over into socially destructive populism is the careful, and fragile, balance that all societies must make to remain successful.  I tend to believe the best way to do this is through something of a system of checks and balances by keeping revenue streams diverse and not favoring any specific type of income or specific areas of development and investment.  Also types of power need to be distributed and kept distinct, those with power through wealth should not have too much influence on politics and those with political power should face obstacles in transferring this power into wealth.  Regarding all power as essentially similar is a major danger sign and a red flag that society may be heading in a direction that will either weaken in its ability to curb the powerful or that it will impose restrictions that will ruin the powerful and eventually the state.

[To put this entire post in a much simpler and more concise saying; the powerful in any society will argue that they fulfill a role so essential to society that they should receive favorable treatment and the weak in any society will argue that the basic unfairness of their weakness means the powerful should be brought down and they should be granted the spoils.  Societies must tell both groups to go to hell if they wish to survive.  It's not enough but it's a minimal condition.]