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innovation economics

What Steph Curry and LeBron James Can Teach Us About Innovation

“You have to see this kid from Davidson,” said my friends who had brought me to a small college gym in Spartanburg, South Carolina, in 2008, as I watched a midseason college basketball game of little importance. And sure enough, just a few minutes in, this painfully skinny sophomore comes flying off a screen several feet behind the three-point line, still dogged by a defender, and then somehow sets his feet and still moving laterally lets an improbable shot fly. Only it wasn’t improbable. Swish. My jaw dropped. A huge basketball fan, I had never seen anything like it. I had just seen Stephen Curry for the first time.

A few months later, as Curry led his underdog Davidson team deep into the NCAA tournament, newly-minted NBA MVP LeBron James watched Curry play. “I saw a kid who didn’t care how big someone was, how fast someone else was, how strong someone else was,” said James afterwards.

James is a dominant player in the NBA precisely because he is, indeed, bigger, faster, and stronger than people he is playing against. However, LeBron James and Steph Curry today sit atop the

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How the Black and White Debate on Trade Hurts the United States

Nowhere is today’s highly polarized political climate more visible than in the debate on trade, which has been dominated by two polar opposite viewpoints. The first sees trade as a white knight capable of fixing all our woes, no matter the circumstances, and the second sees it as an evil tyrant that strips people of their wealth. Championed by supply-side economists and fearmongering protectionists, respectively, these rigid articles of faith have crowded out more rational and nuanced analyses. This is unfortunate, because both extremes are wrong, albeit in different ways, and the focus on absolutes makes it almost impossible to seriously discuss or address loss of American manufacturing strength.

Consider, for example, the claims of commentators such as Scott Lincicome and Michael Hicks, who echo the unabashedly pro-free-trade logic of conservative economists like Milton Friedman when they argue that all of our job losses have been lost because of productivity. Hicks writes, “Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.”

This assertion relies on a rigid, supply-side economic model that

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Innovation Fact of the Week: Commercial Value of Illegally Installed PC Software Totaled Nearly $63B Globally in 2013

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

The global market for PC software is huge, but 43 percent of all PC programs that individuals and businesses installed in 2013 were not properly licensed, according to the BSA Global Software Survey. The commercial value of those illegal installations was $62.7 billion that year, up from $47.8 billion in 2007 when the illegal rate was 38 percent.

The United States has the world’s lowest rate of unlicensed software use (18 percent in 2013), but it is such a large market that the commercial value of those illegal installations is the world’s highest at $9.7 billion. In China, by contrast, 77 percent of all PC software installations were illegal in 2013, with a commercial value of $8.9 billion, the world’s second-highest total.

By region, the average rate of unlicensed software use was 59 percent or higher in Latin America, Central and Eastern Europe, the Middle East and Africa, and the Asia-Pacific region. That compared to 19 percent in North America and 29 percent

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Beyond Demand: The Supply-side Benefits of Military Spending

World War II gets credit for dragging the United States out of the Great Depression. Despite all the clear negatives of having to become embroiled in such a conflict, the demand created during the war resuscitated an economy that had been dormant since the crash of 1929.

Today, the military continues to demand high levels of labor, investment, goods, and services. And this demand still plays a role in supporting the U.S. economy. Military spending provides its personnel and suppliers with the resources to purchase additional goods and services from others, and so on.

However, according to former Federal Reserve Chairman Ben Bernanke, it is the supply side, not the demand side, through which U.S. military spending creates benefits for the U.S. economy.

These supply-side benefits are primarily created not by spending on current strength of arms, but by investing in capabilities for the future. Chiefly, this comes through defense R&D. Not all the benefits of new technology developed by the military are constrained to the defense sector. Instead, they “spill over” to the private sector. At a recent event hosted by the Brookings Institute focused on defense spending

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High-Growth Entrepreneurship for Development: Report of a Roundtable with Michael Dell

Policymakers around the world have increasingly come to realize that entrepreneurship, particularly high-growth entrepreneurship (HGE), is critical for economic development in nations at all levels of development. That is one reason the United Nations Foundation asked Michael Dell, founder and CEO of Dell Inc., to be the Global Advocate for Entrepreneurship and to work closely with the Foundation and its Global Entrepreneurs Council to help shape and advance a global entrepreneurship agenda.

To inform the Council’s thinking, Michael Dell led a meeting in Washington, DC, on December 2, 2014, hosted by 1776, a cutting-edge “accelerator” to help technology-based entrepreneurs translate their ideas into growing businesses. The meeting participants included tech-based entrepreneurs and policymakers, and I was asked to participate and serve as rapporteur.

Michael Dell opened up the roundtable with a discussion of proposed policy mechanisms to spur high growth entrepreneurship, including ensuring access to capital, technology, talent, and markets. The following is a summary of the themes and recommendations from the discussion.

The Nature of Technology-Enabled Entrepreneurship Opportunities

Policymakers around the world are interested in HGE because they understand that technology opportunities driving this type of entrepreneurship have exploded.

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STEM Immigrants Help Raise Local Wages

The H-1B visa program, which allows a limited number of high-skilled workers to work in the United States temporarily, is controversial because some claim that it lowers wages for high-skilled workers. However, a new paper by Peri, Shih, and Sparber of UC Davis and Colgate University shows just the opposite—that additional H-1B visa recipients raise wages in cities where they come to work.

The authors’ interest in immigration is a side effect of their interest in a more general labor market question: they use fluctuations in high-skill immigration due to the H-1B visa program as an instrument to examine whether the supply of STEM workers affects productivity growth. In essence the question is, what happens when you increase the amount of high-skill STEM workers: do wages fall as one would assume in a standard supply/demand framework? Or do they increase because of the effect that the high-skill workers have on productivity, demand for innovative workers, and economic growth?

To answer this question you can’t simply look at the amount of STEM workers in a city and average wages for those workers, because you can’t tell which way causality is going.

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Robert Gordon’s Cassandra World

The Federal Trade Commission has rules about unfair and deceptive advertising.   Too bad they don’t apply to academic papers, because if they did Robert Gordon would be facing an FTC inquiry.   His new Cassandra-like paper, “The Demise of U.S. Economic Growth”, has little to do with U.S. economic growth.   Rather it is focused on other factors like transfer payments, taxes, and income inequality.  He should have titled his missive “The Demise of Robust After-Tax Income Growth for Low and Moderate Income U.S. Workers.”   But that’s nowhere near as catchy as his chosen title.

Gordon’s new NBER paper restates his slow-growth forecasts from two years ago, which come in turn from his long tradition of dismissing the potential of technology to drive productivity. This time he is careful to label his more controversial “growth headwinds” (slower innovation and continued globalization) as “speculative”.  Still, he fails to make a more convincing argument for an overall growth slowdown. This is partly due to his reliance on assumptions about education, inequality, and globalization, coupled with a fundamental lack of understanding of the nature of 21st century innovation. But it also

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Snow_White_Disney2

Why America Gets Copyright Correct and (Some) Libertarians Do Not

It’s an interesting phenomenon—issues we thought were long settled in American politics are being re-litigated, including tax policy, food stamps, and even the role of the federal government in general.  Therefore it’s perhaps not surprising that the issue of copyright has come under question. Historically, conservatives have been supporters of strong copyright protection because for them a key function of government was the protection of property rights.  These conservatives have long accepted and even embraced the role of the state to grant and enforce copyright status.

However, there is one strain of conservative thinking that actually favors limited or even no copyright enforcement. With their overarching focus on freedom, some libertarians now argue that copyright, as the grant of monopoly by government, impinges on the freedom of individuals.  Because for these libertarians, liberty trumps property rights, individuals should be free to use digital content in ways they want and content holders, not others such as digital intermediaries or governments, should be responsible for policing its use.

We see this in the recent writings of libertarians such as Simon Lester, a prominent trade policy analyst for the Cato Institute, economists Michele

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Kenneth Parcell

A Television Addict’s Validation

Television and film fanatics around the United States: rejoice. Yesterday, the Department of Commerce’s (DOC) Bureau of Economic Analysis (BEA) stated it was changing the method it uses to calculate Gross Domestic Product (GDP), in order to better reflect the economic contributions that come from the creation of copyrighted works, like films and television. In other words, GDP now encompasses the economic activity of the culture-aholic’s favorite sector (spoiler alert: the creative one!).

Prior to this change, the economic contributions of the film and television industry were treated as current expenses — or costs of business. GDP only captured the film and television industry downstream, based on the revenue generated by Hollywood’s tangible products. It did not include the impact on the economy based on investment in film and television. The change reflects that in economic terms, films and television works are an intangible asset. Long after they’re first developed, these creations continue to retain their value and deliver residual benefits; films and TV shows are licensed and sold to different markets for years after their original release so that nerds all over the world can enjoy Game of Thrones

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Photo of Sandy Levin

Levin Details Important Challenges Ahead for International Trade

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

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