Economic Security vs. Growth

21 May

Mark Thoma has smart things to say about the assumed tradeoff between a more dynamic economy and a more secure one:

After the Great Depression, and also after World War II, we had significant changes in the level of economic security (and there were more changes in the 1960s with the Great Society programs), but we didn’t seem to sacrifice anything in terms of economic growth, at least not as measured against other countries in the world. Now that security has eroded over the last several decades, it’s hard to see how returning to previous levels will somehow destroy our flexibility and competitiveness, and it’s not at all clear that modest steps beyond previous levels of security would have any significant impact either, particularly steps like universal health care (which could help businesses as well as their employees). So maybe the contradiction isn’t so vexing after all.

I’ve always wondered why greater economic security couldn’t, to some extent, reinforce economic growth by cutting down on the resources firms used to manage risk (like struggle with labor unions who want to keep their benefits).  One would think lowering the risk burden would lead to a more efficient allocation of capital.

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