Popular Economics Weekly

Now that China has replaced 1980s Japan as the economy that might surpass us, can we find one brave policy maker, (including President Obama), that’s willing to sound the alarm? China now has a robot roaming the moon, and various predictors say it could surpass the U.S. as the world’s largest economy in a matter of years. China is even predicted to lead the world in technological innovation within 40 years.

Yet no one in Washington seems to be concerned. We would rather obsess over debt than the main reason the U.S. is falling behind—the huge cutback in government research and infrastructure spending that would keep us competitive in world markets, as well as remain the world’s most sustainable democracy. And sustaining our democracy is really the main job of government, which means protecting the welfare of its citizens at home should be at the top of the policy list.

Government cutbacks are also the main reason for our soaring inequality and social immobility, as domestic austerity policies have endangered the social safety net while conservative state governments inhibit collective bargaining, voters’ and women’s rights.

There is no question that government research and development is the main driver of technological innovation; from the moon landing to development of the Internet to genome discoveries, yet research spending has been declining for years. It’s a sad picture, highlighted by what was really a worldwide Great Recession. Because we sneezed, the rest of the world caught our cold.

Harvard economist Jeff Sachs is one of a small number of economists brave enough to sound the alarm, and pronounce ways to increase government’s role in bringing back sustainable economic growth in a recent New York Review of Books article:

“A majority of public opinion favors action on the issues I have outlined: more taxation of the very rich, and more spending on education, clean energy, and job training. The public wants a smaller military and less meddling overseas. The problem is not with public opinion but with the narrow self-interest and social outlook of powerful corporations, interest groups, financial lobbyists, and large investors.

He also excoriates President Obama for allowing those very same lobbyists and special interests to vitiate his own progressive goals of creating jobs and alleviating poverty.

“Rather than taking on the problem of inflated health care costs, he (Obama) brought in the health care industry to support the expansion of health coverage. Rather than taking on the egregious tax abuses of the corporate sector and the very rich, he settled in January 2013 for an almost symbolic rise in taxes for those with incomes above $400,000. Rather than reforming the budget, he pursued a deficit-financed two-year stimulus that provoked the Republicans, piled up public debt, and achieved next to nothing for the long term.”

One can say that Republicans would have been provoked, no matter what he proposed, but certainly maintaining a strong economy and more progressive taxation policies (that would have reduced the record inequality) wasn’t at the top of President Obama’s goal list until now. But the hope is it will become a center piece in his upcoming State of the Union speech on Tuesday.

An American University blog piece catalogues China’s growth in research spending. By 2011, China had already become the world’s second highest investor in R&D. Government research funding has been growing at an annual rate of more than 20 percent. At the end of 2012, for example, 7.28 billion yuan was spent on promoting life and medical sciences, nearly 10 times the 2004 level. Even more troubling (for the United States), in 2011, 21 percent of the applications were supported, and for young scientists, the application success rate was 24 percent, both of which were higher than the U.S. level. It was predicted that if the U.S. federal government R&D spending continues to languish, China may overtake the U.S. to be the global leader in R&D spending by 2023.”

Need we say more about the priorities that are not at all conflicting? Less income and wealth inequality leads to stronger economic growth, higher tax revenues, and lower budget deficits. It even led to 4 years of budget surpluses under President Clinton. And the paths to more opportunity are now well-known. So where are the brave policy leaders that will show the rest of U.S. how to get there?

Harlan Green © 2014

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