Tags: Harvard | Ferguson | Bureaucracy | Recovery

Harvard’s Ferguson: Excessive Bureaucracy Hampers Recovery as Much as Big Debts

Tuesday, 17 July 2012 09:53 AM

Excessive bureaucracy is hampering economic recovery as much as hefty debt burdens in the United States and elsewhere, said Harvard economic historian Niall Ferguson.

The economy isn't quickly emerging from the worst recession since the Great Depression as businesses and households slowly pay down debts, known as deleveraging in economist speak.

However, the United States and other nations need to streamline bloated bureaucracies if they want better times to return.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

History shows that countries that carry swollen bureaucracies stagnate, while nations that trim the fat are more likely to thrive

"Much of the developed world, including the United States, is stagnating. The founder of economics, Adam Smith, had a term for this. He called it 'the stationary state,'" Ferguson wrote in a Newsweek column.

China was a "stationary state" in Smith's day, which saw a widening gap between rich and poor.

"Smith blamed China’s unfavorable institutions — including its bureaucracy — for the stasis. He also noticed how the stationary state favored the super-rich and civil servants, leaving poor laborers to slide toward subsistence wages," Ferguson wrote.

"Now the boot is on the other foot. It is Westerners who are in the stationary state, while China is growing faster than any other major economy in the world. The World Bank expects the European economy to contract this year and the U.S. to grow by just 2 percent. China will grow as much as four times faster than that," Ferguson added.

While paying down debts deserves praise, trimming bureaucracy should take priority as well.

"Consider this: the U.S. economy has created 2.6 million jobs since June 2009. In the same period, 3.1 million workers have signed up for disability benefits," Ferguson wrote.

"Back in 1992 there was one person on disability benefits for every 36 people in employment. Now the ratio is 1 to 16. Unemployment is being concealed—and rendered permanent—in ways all too familiar to Europeans."

The United States continues to limp along its recovery from the worst downturn since the Great Depression.

Retail-sales data, monthly jobs reports and consumer-sentiment figures have disappointed, while the economy grew a lackluster 1.9 percent in the first quarter.

"Given how rapid the slowdown in job growth has been, it is hard to blame consumers for their increased caution,” said Capital Economics chief U.S. economist Paul Ashworth, according to CNBC.

Weak retail sales, which contracted 0.5 percent in June — way worse than market calls for 0.2 percent gain — show just how quickly the U.S. recovery has gone "from first-quarter hero to second-quarter zero," Ashworth said.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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Tuesday, 17 July 2012 09:53 AM
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