At Economic Summit, mood is upbeat on globalization, troubled on healthcare
Ben Bernanke, chairman of the Federal Reserve, and other leading experts presented a generally positive overview of globalization and the U.S. economy March 2, although they warned that the cost of healthcare presents a crisis that must be addressed before it spirals out of control.
About 400 Silicon Valley venture capitalists, business leaders, academics and students packed into Arrillaga Alumni Center for the fourth annual Economic Summit held by the Stanford Institute for Economic Policy Research (SIEPR). Speakers made few references to last week's stock market plunge, but they noted that financial markets are becoming increasingly interdependent in a global economy.
"Without doubt, ongoing global economic integration is a phenomenon of the greatest importance, one that will help shape the U.S. economy for decades," Bernanke said. "Globalization has not materially affected the ability of the Federal Reserve to influence financial conditions in the United States, nor has it led to significant changes in the process which determined the U.S. inflation rate. However, effective monetary policymaking now requires taking into account a diverse set of global influences, many of which are not yet fully understood."
In a discussion on long-run U.S. fiscal policy, Alice Rivlin, a senior fellow at the Brookings Institution, said the leading issue "is about healthcare." She noted that national entitlement programs—Social Security, Medicaid and Medicare—account for more than 40 percent of the federal budget and are growing rapidly. "We have made promises on these programs that can't be kept," she said. Social Security is not as large a part of the problem as federal healthcare programs that are projected to absorb almost all revenues by 2045. "If we stay on this track, we'll have to increase taxes or cut promises or both," she said. "As long as [the cost of] healthcare programs grows faster than the economy, it's going to be hard to fund them." Currently, 17 percent of the gross domestic product is being spent on healthcare, she said. "We're not spending [that] money wisely," she added. "We're not getting more health for what we spend." No silver bullet exists for solving the healthcare cost problem, Rivlin said. "This is a permanent public policy question."
In a separate presentation, Mark McClellan, former commissioner of the Food and Drug Administration, agreed. "Our healthcare costs too much and does too little," he said. Costly treatments are misused, he said, and medical professionals have been slow to integrate money-saving information technology into the healthcare system. "I think there is a tremendous opportunity to get more value" out of the system, he said. "We need to start now."
Michael Boskin, a senior fellow at SIEPR and the Hoover Institution and former chair of the Council of Economic Advisers, said good leadership is needed to mobilize public opinion to help consumers use healthcare more intelligently. "People said you can't reform welfare, but it's been a success," he said.
Elsewhere on the home front, Edward Lazear, chairman of President Bush's Council of Economic Advisers and a Hoover Institution senior fellow, said despite last year's housing slump, the economy grew by 3 percent. "The U.S. economy is so strong, so robust, so flexible," he said. Lazear compared the scope of today's shift from a manufacturing to a service economy to the changes America experienced in the 19th century as it moved from an agrarian to an industrial society. "The growth of the service sector is indicative of the strength, rather than the weakness, of the manufacturing sector because productivity has been so impressive," he said. Technological advances made U.S. manufacturing six times more productive in 2005 compared to 1950. The decline in manufacturing jobs is more attributable to this increased productivity than to overseas competition, he said.
Rahul Kanakia, a science-writing intern at the Stanford News Service, contributed to this story.