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On the Third Hand: The missing sector

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It hit me while watching the latest State of the Union speech that the state of the union is, really, kind of blah.

We’re on track to have a federal budget deficit of about $900 billion.

If we were all emotionally and philosophically OK with the idea of raising taxes (and I know, let’s face it: a lot of the readers here are absolutely not), there’s still the matter that it’s hard to squeeze blood from a broke turnip.

Maybe, say, we could take a deep breath and (gasp!) raises taxes on the middle class. Maybe 50 million workers could pay $1,000 more in taxes per year without that causing the economy to implode. That would raise $50 billion in new revenue.

Maybe there are 100,000 pretty rich people that could chip in, say, $1 million each, and add another $100 billion, plus 100 super-rich people who could contribute $100 million each and add $10 billion.

Maybe corporations could scrape up $50 billion. So, that would be a total of $210 billion in new revenue.

Maybe we could ignore the screams of outrage and hack $75 billion each out of Defense, Medicare and Medicaid. 

I think all of that would narrow the deficit to … about $465 billion. Which is, still, a pretty big number.

Say we simply returned to fairly normal economic growth. Maybe that could cut the deficit another $100 billion, to, maybe $365 billion. 

How do we close that remaining giant gap? What’s missing?

I think the answer is that the country has to give birth to a whole new major sector of the economy. 

In the 1990s, the budget deficit narrowed partly because the end of the Cold War helped the United States slash military spending and partly because the rise of the Internet created a giant new source of jobs and economic vitality.

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Kids coming out of college knew exactly what they could do to get work: Go to New York and pretend to know HTML.

Now, there is no obvious generator of vitality. The closest thing is Patient Protection and Affordable Care Act (PPACA) compliance jobs, but, if PPACA works at all, a lot of the compliance jobs will be short-lived, and PPACA probably will lead to a fair number of job cuts in health care and related fields.

On the one hand, lobbying groups with subtle axes to grind and carefully concealed client sponsors’ names to protect seem to have just gone through a round of saying that the, “Government shouldn’t try to pick winners!”

Well, on the other hand: Governments have always tried to pick the next big thing to do. Government funding helped encourage people to colonize the New World, build the giant systems of canals that served as the early interstate highways in Europe and the Northeastern United States, and create the U.S. aerospace and electronics industries.

Specific government investments didn’t necessarily pay off (met any limited partners in the Massachusetts Bay Colony company lately?), and it might be hard to figure out how much government intervention helped and hindered what private organizations were doing, anyway. But it is hard to sort through the effects; it seems reasonable to think that government intervention might have helped.

On the third hand: The old governments ran countries that didn’t have, and Private enterprise ought to be much more effective at “crowd sector-forming” than it would have been long ago, if only it has a chance to try doing that sort of thing.

Once upon a time, the investment arms of insurance companies would have been the leaders in efforts to back bold new ventures.

Today, world financial regulators have made the idea of assuming investment risk seem like a terrible thing.

Private health insurers still  have some enterprising spirit. Because of their obvious business need for new technology systems and new ways to deliver health care, they’ve been active investors in health IT companies, accountable care organization pilots and other ventures.

Maybe part of closing the deficit will have to involve efforts to bring back the idea that assuming a little risk off failure can be a good, prudent thing for any company, including an insurer, to do.

Maybe there should be an understanding that it’s OK for insurers to invest a little general account money in projects that involve creating entirely new, innovative, hard-to-imagine sectors of the future economy, not lock them into investing solely in government housing programs and in notes issued by giant, mature companies that are coasting on the prosperity created by past innovation.

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