My last post reported on a new book by James Bessen, “Learning by Doing: the real connection between innovation, wages and wealth.”  It makes several recommendations for how the U.S. can better meet the challenges posed by the hollowing out of the middle class, as illustrated in the chart just below from the Dallas Federal Reserve.
 Mr. Bessen blames one primary culprit for this problem: the growing role of money in politics.  For example:

• The dramatic growth in occupational licensure from 70 occupations covering 5% of the workforce in the 1950s to over 800 occupations covering over 29% of the workforce in 2008. Such a major change can only be understood as the outcome of massive lobbying.
• Defense procurement. For example, in 2012 the defense industry spent $132 million on over 900 lobbyists. It is hardly surprising that defense procurement rules have favored established defense contractors at the expense of start-up technology firms.
• The best patent law money can buy. Patent trolls have continued to file more lawsuits, despite the America Invents Act of 2011. A new legislative effort for patent reform in 2013 passed the House by a margin by a margin of 325 to 91 but then was killed by the Senate in May 2014.
• Changes in trade secret law. The problem is that more uniform trade law, which sounds desirable, also broadens its scope which then limits employee mobility and the creation of spin-offs.
• Strong enforcement of non-compete agreements in Massachusetts protects established firms but hurts startups. This has given Silicon Valley companies a big advantage over the companies on Route 128 outside of Boston.

Mr. Bessen makes a very strong case for the harmful effects of lobbyists and their money in retarding economic growth.  But how can we possibly curtail the influence of lobbyists without limiting their freedom of speech?  Stay tuned for the next post!