30 October 2012

Does Federal R&D Drive Economic Growth?


Writing in the NYT earlier this week, Neal Lane, former science advisor to President Bill Clinton had this to say:
If our country is to remain strong and prosperous and a land of rewarding jobs, we need to understand this basic investment principle in America’s future: no science, no growth.
Even discounting for hyperbole, does the formula "no science, no growth" make sense? I have a new column up at The Breakthrough Institute on this exact subject, and I argue that such arguments actually make little sense.

Here is how my column begins:
It is a claim that you hear often in discussions of the role of research and development in the economy: “Federal investments in R&D have fueled half of the nation’s economic growth since World War II.” This particular claim appeared in a recent Washington Post op-ed co-authored by a member of the US Congress and the chief executive of the American Association for the Advancement of Science. It would be remarkable if true. Unfortunately, it is not.
To read the rest head over here, and please feel free to come back and tell me what you think.

9 comments:

  1. Roger,

    Good stuff. I am reminded of a teacher of mine years ago who claimed that the vast majority of technological advancements throughout history came as a result of war and the never-ending quest to find an edge in killing the enemy. I suspect that her 'analysis' might have a little more truth behind it than the half of all growth canard.

    Trying to estimate the opportunity cost of the resources seized by the govt to pay for basic research is another fun endeavor. I think that any estimates of the return on all this research spending will be dependent on so many different assumptions that they might as well be an effort to quantify one's favorite ice cream.

    One point, however, that tends to get lost in discussions such as these is that the return from the marginal dollar of proposed research is not the same as the first dollar spent. Even if one can argue that great strides were achieved because of spending to get to the moon, it doesn't follow that tomorrow's proposed R&D budget is a great idea.

    ReplyDelete
  2. Does Federal R and D drive economic growth?


    Ah, as a public choice theory collective action question: the answer is no. Too many rent seekers.

    As an economic question, no yet again: the public sector creates nothing that the private sector would have not created, absent tax.

    ReplyDelete
  3. I think it would be far easier to characterize Federal R&D spending as an enabler of growth than a driver.

    ReplyDelete
  4. Certainly, "no science, no growth" makes no sense.

    On the other hand, "no science, less growth" is probably true. So-called "basic science" has an important role to play in economic growth, albeit indirect.

    The key to economic growth, I think, is the pursuit of intelligent risk. That implies that most attempts at wealth creation are doomed to fail. But science (and improved knowledge more generally) can aid in identifying risks that are more likely to pay off and increase the rate of growth.

    I agree with your statement in the article that neither candidate has shown a clear understanding of how to create wealth. But part of that is due to the engine of wealth creation, intelligent risk, being politically unpopular. It sounds cooler to talk about "innovation." But make no mistake, one of the candidates understands very well that risk is the driver of economic growth--it's impossible to run a private equity firm and NOT understand it.

    ReplyDelete
  5. There is a large literature on innovation. Certainly there is no confusion in this body of knowledge that equates innovation to basic research. The concept is sued there in much the same way as the way Schumpeter describes "technical change" as quoted in the article referenced in the posting.

    ReplyDelete
  6. Roger,

    Reading this post, the Washington Post article and your TBI piece, it remains unclear to me whether your argument is that the Federal (or public) R&D does not contribute to growth, or that no R&D, either public or private, contributes to growth .

    A speculation related to pubic R&D is that the return on investment materializes on time scales longer than 50 years, and so does not show up in 'short term' statistics

    ReplyDelete
  7. -6-eduardo

    Thanks ... my view, we just don't know how economic growth happens. And it is time we did.

    ReplyDelete
  8. It begins with energy production and distribution, with resource recovery and processing, pioneers and entrepreneurs, and consumer demand, with an environment suitable to their development.

    We have no way to predict the way an individual mind will innovate. We have limited ability to predict the way individual minds will collaborate. We are in the infancy of comprehending group consciousness and in the conceptual stage of comprehending individual consciousness.

    R&D, whether centralized or distributed, collaborative or independent, can be likened to potential energy. It does not become useful or valuable until it is applied. Then the question is what determines use and value. Ideally, the criterion we employ, the motivation we consider, is the elevation of the human condition.

    Economic growth is motivated through individual motivations, collaboration, coordination, access to resources, including: material, energy, and human, and an environment which engenders its development.

    Incidentally, the cause of corruption and, in fact, our present crises, has been a dissociation of risk. Through artificial means and consequences of differentials which exist in the natural order and human society, more people have enjoyed a dissociation from the risk inherent to living in our world. We have intentionally, often with good intentions, sabotaged the feedback mechanism which enables us to assess and moderate risk, as well as keep the more ambitious among us from running amuck and engaging in involuntary and fraudulent exploitation, and devaluation of their fellow human beings.

    ReplyDelete
  9. Roger
    I wonder what you make of a recent speech by the UK science minister. He takes the R&D-is-basis-for-growth rhetoric for granted (appealing to the authority of Bernal !) but then identifies government over regulation as the problem.

    ReplyDelete