Is Productivity Growth Becoming Irrelevant?
From the article:<p><i>The growth of “zero-sum” activities may, however, be even more important. Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons; cybercrime and the army of experts defending organizations against it; financial regulators trying to stop mis-selling and the growing ranks of compliance officers employed in response; the huge resources devoted to US election campaigns; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.</i><p><i>Much design, branding, and advertising activity is also essentially zero-sum. ...</i><p><i>Such zero-sum activities have always been significant. But they grow in importance as we approach satiation in many basic goods and services. In the US, “financial and business services” now account for 18% of employment, up from 13.2% in 1992.</i><p>What&#x27;s interesting is that it&#x27;s the UK&#x27;s former top financial regulator saying this.  It&#x27;s not a new idea, but it used to be the sort of thing you saw in Mother Jones, and occasionally heard from Warren Buffett.  This is a concept that needs to become mainstream and start influencing tax policy.<p>There&#x27;s a lot that could be done through tax policy to push capital in more productive directions. The elephant in the room is zero-sum financial activity.  Buffett used to say that short-term capital gains should be taxed at 100%.  Taxing them at top-bracket personal income tax rates might not be a bad idea.  It&#x27;s a start.<p>Hedge funds get a completely unnecessary tax break which has a small but powerful lobby.<p>All the ways that businesses pay for capital should be taxed at the same rate. This includes dividends, interest paid, and stock buybacks.  There&#x27;s a bias towards borrowing rather than dividends, which generates unnecessary banking activity.  It&#x27;s the relative tax rates that matter, not the absolute ones, because they drive business decisions.<p>Maybe advertising should not be a tax-deductible business expense.  US consumer advertising just moves demand around.  It doesn&#x27;t add demand because US consumers are spent out, as the CEO of WalMart says.<p>Politically, the key to doing this is to do it all at once, with the overall corporate tax rate adjusted to make it revenue-neutral. There will be losers, and they will have lobbyists lined up halfway down the Mall to get into the Capitol. But there will be winners, too, mostly in industries that actually do something.  It&#x27;s politically possible.