Economist, venture capitalist, and co-founder of the Institute for New Economic Thinking Dr. William Janeway stopped by ITIF this week for a discussion about his new book, Doing Capitalism in an Innovation Economy. Dr. Janeway presented a compelling view of the economy and touched on a number of important issues along the way.
Janeway explained that the government plays a critical role in innovation by providing research funding through institutions such as DARPA and the NIH, by leveraging the buying power of the federal coffers, and by creating policies that encourage business investment in R&D. Economists have long understood that private markets fail to allocate adequate resources to innovation and research: the benefits are too hard for individual corporations to capture. For this reason, policies like the R&D tax credit and public investment in basic research have long been uncontroversial.
Contrary to what recent high-profile failures like Solyndra might lead people to believe, government policies to spur innovation in the United States have had great success. This is apparent in the vast amount of money the private sector has poured into IT and Biotech businesses based on initial … Read the rest
Last week, Senate Finance Committee Chairman Max Baucus (D-MT) stated that he is close to reaching an agreement on renewing Trade Promotion Authority (TPA) with House Ways and Means Committee Chairman Dave Camp (R-MI). This progress comes at a crucial time given that the Obama Administration is in the middle of negotiations for two different trade agreements — the Transatlantic Trade and Investment Partnership (T-TIP) and the Transpacific Partnership (TPP).
TPA allows the President to “fast-track” trade agreements for approval or disapproval by Congress by removing the option for filibuster. Essentially, the TPA forces the House and Senate to accept or reject a trade agreement, without amendment, within 90 days of its submission to Congress by the President. The process enables the United States to negotiate more beneficial trade policies with other countries, because of the reduction in approval time compared to other legislation and because it incentivizes countries to trade concessions with the United States, because they know that Congress cannot rewrite the deal.
With the final ministerial meetings of the TPP set to begin the first week of December, and the third round of T-TIP negotiations two weeks … Read the rest
With the government shutdown now in its second week, its effect is now being felt across much of the broader U.S. economy, especially in trade. The Department of Commerce (DOC) says nearly 10 million American jobs are supported by exports. Last year, U.S. exports rose 4.4 percent to $2.196 trillion and imports grew 2.7 percent to $2.736 trillion.
Unfortunately, the shutdown is destroying much of this daily commerce. Several government agencies—including DOC, the Environmental Protection Agency (EPA) and the Department of Agriculture (DOA)—are involved in trade shipments. While Customs and Border Protection (CBP) is still staffed throughout the shutdown, most of these agencies have the authority to “release and hold” imports and exports before CBP even enters the process, meaning that many imports and exports are stranded and unable to enter/exit the United States.
For example, the EPA halted all pesticide imports to the United States, because, with more than 90 percent of its staff furloughed, it cannot approve them. Steel imports are stranded at customs-clearance warehouses awaiting paperwork. And many U.S. technology companies are slowing down or stopping overseas orders because they cannot obtain DOC authorization to export. The … Read the rest
Today, House Ways and Means Committee Ranking Member Sandy Levin (D-MI) gave an impressive speech highlighting the past, present and future challenges in the international trade arena at the Peterson Institute. Focusing specifically on issues relating to the American automotive industry in the Transpacific Partnership (TPP), he also touched on the Transatlantic Trade and Investment Partnership (T-TIP) as well as the Trade Promotion Authority (TPA). However, his best points were those that emphasized the need for “free and fair trade,” not just “fair trade.”
In sharp contrast to much of the neoclassical literature on free trade, Representative Levin noted that markets are not, in fact, always self-correcting and that distortions from foreign mercantilist trade policies need to be addressed in free trade agreements going forward. As innovation economists, ITIF also holds this belief; global free trade is beneficial, but only when countries eschew mercantilist policies (e.g., tariffs, unfair taxes, currency manipulation, discriminatory standards, IP theft, etc.) that manipulate the system. Not only do mercantilist policies restrain productivity and innovation, but they also potentially lead to lower levels of global growth as private companies make investments in countries and in types … Read the rest
A new policy research working paper from the World Bank has combed through recent evidence on government funding for Research and Development, and finds that government funding significantly increases R&D investment. Paulo Correa, Luis Andres, and Christian Borja-Vega’s paper, “The Impact of Government Support on Firm R&D Investments: A Meta-Analysis” analyzes nearly 40 papers published worldwide from 2004-2011.
Although there is a large variation in the type of R&D funding examined, the study methodologies, and location of the studies, the results are clear: government funding boosts R&D spending. The paper tackles another important question as well—whether government spending “crowds out” private sector spending. (Crowding out is the idea that private companies will not invest if the government is doing it for them.) The paper finds evidence of the opposite, however, with data that shows public funding actually incentivizes firms to invest more in R&D.
On Friday, 35 of the 36 freshmen House Republicans signed a letter to new USTR Michael Froman indicating their strong support for President Obama’s free and fair trade agenda. Stating, “We write to you as new members of the House of Representatives who strongly believe that expanding trade will increase economic growth and expand jobs across the United States,” the letter went on to describe their readiness to work on negotiations for the Transatlantic Trade and Investment Partnership (T-TIP), the Transpacific Partnership (TPP) and the Trade in Services Agreement (TISA).
The Republican letter comes at a crucial time during trade negotiations for the United States. With the first round of T-TIP negotiations set to begin next week, and the 18th round of the TPP negotiations the week after, Congressional support is key to moving forward. However, the 2007 expiration of Trade Promotion Authority (TPA) threatens to erode much of the potential for forward movement. TPA, which allows the President to “fast-track” trade agreements for approval or disapproval by Congress by removing the option for filibuster, is currently being considered for renewal. Essentially, the TPA forces the House and Senate … Read the rest
Noted conservative economist and former Romney advisor Greg Mankiw has just written an article with the unabashedly conservative title “In Defense of the One Percent”. The pile-on has already begun, with an excellent takedown at the Economist American Politics blog, and good pieces as well at the left-leaning CEPR and Unlearning Economics.
Mankiw defends the rich because he believes they have brought us value commensurate with their wealth. This is the essence of conservative neoclassical economics: markets allocate value the way that value should be allocated. There are theoretical exceptions to this rule, of course, like rent seeking or other market failures, but real conservatives remain “unconvinced” that such exceptions are to be found in the real world.
Mankiw prefers the idea that markets can still work as intended (optimally allocating resources) without being entirely “fair”: insufficient high-skill workers and “superstar” gains can drive inequality even in perfect labor markets. Mankiw is sympathetic to these arguments because they allow him to claim that everything is working as intended: there’s nothing to see here, the markets are working, please move along.
But wait a minute.
What Mankiw would have … Read the rest
MIT physics professor Dr. Ernest Moniz has yet to receive Senate confirmation to serve as the nation’s next Energy Secretary, let alone begin his tenure. This hasn’t stopped speculation about what a Moniz-led Department of Energy (DOE) might look like. National Journal quotes one Brookings Institution scholar as saying “I think it will be a very different agency than it was in the first term. Ernie knows climate change, but also unconventional oil and gas and coal and nuclear. He will push the president towards a more balanced policy.” But if Dr. Moniz’ comments during his confirmation hearing yesterday are any indication of what would come from a department under his leadership, clean energy innovation has a good chance of remaining a top priority for the DOE.
Although the hearing covered a host of topics, ranging from cybersecurity to nuclear waste cleanup, the importance of public investment in research and development emerged as a topic of discussion at several points. Moniz’ opening statement actually started with a strong defense of a continued DOE role in research: “More than a hundred Nobel Prizes have resulted from DOE-associated research. DOE operates an … Read the rest
Last week, the Australian government announced the merger of two cabinet-level departments, the Department of Climate Change and Energy Efficiency and the Department of Industry, Innovation, Science, Research and Tertiary Education. Unfortunately, moving the stand-alone department on climate change has raised concerns that Australia is taking the climate change challenge less seriously. But the merger is actually a welcome sign of growing international recognition that innovation policy and climate change mitigation are inescapably linked and it should further mitigation efforts, not hinder them.
On the one hand, Australian Prime Minister Julia Gillard describes the creation of the new Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education as “inevitable, natural, logical.” On the other hand, the leader of the Australian Greens, an opposition party, criticizes the move as a “retreat on addressing global warming.” But the Gillard government has already demonstrated a firm commitment to combating climate change with the recent creation of entities like the Climate Commission, an independent source of information about the science of climate change, and the Climate Change Authority, which provides expert advice to the Australian government on climate change mitigation … Read the rest