Jump-start the economy with public investments in science – Jonathan Gruber and Simon Johnson

MIT Sloan Professor Simon Johnson

MIT Sloan Professor of Economics Jonathan Gruber

From The Hill

The American engine of progress and prosperity is in serious trouble. Innovation has stalled. The number of good, middle-class jobs is dwindling. Wealth and opportunity are increasingly concentrated in a few coastal megacities. And cultural divides are widening. How do we turn this tide?

The answer lies in science — specifically, government-funded science. Investment in science is the ultimate pro-growth policy: It leads to more invention, higher productivity and broad-based economic development.

According to our research, if the U.S. government were to boost funding by $100 billion per year with strategic, geographically dispersed investments and initiatives, the result would be roughly 4 million new jobs.

Recent American history offers an illustrative case. Before the Second World War, the U.S. invested only a trivial amount in science. But in the spring of 1940, as Nazi forces began their blitzkrieg campaign across Western Europe, American leaders came to an important realization: Defeating Germany required new levels of scientific and technological expertise.

By 1944, the government was spending nearly 0.5 percent of national income on science. The effects of this unprecedented surge were incredible and, for America’s enemies, devastating.

Government support for research and development (R&D) rose steadily from that time through the mid-1960s. At its peak, this funding amounted to roughly 2 percent of the nation’s annual total gross domestic product, or about $400 billion a year in today’s money.

The impact of the investment not only allowed for many important breakthroughs — including advancements such as radar, digital computers, satellites, jet engines, vaccines and eventually the internet — it also helped expand the middle class. Median family income doubled from 1947 to 1970. And GDP grew nearly 4 percent per year through the early 1970s.

Things are different today. Federal spending on R&D stands at 0.7 percent of GDP, or the equivalent of about $240 billion per year less than its peak. Since the 1970s, median family income has risen only 20 percent, and the bulk of that growth has been concentrated in big cities.

Improving the performance of the American economy — and lifting incomes across the board — requires investment in the underlying science of computing, human health, clean energy and more. This will require the same type of push for science and science education that helped power the post-war boom.

To make this push economically sensible and politically feasible, we need to distribute the benefits of growth more broadly. How do we do this?

First, we must ensure that the new high-tech jobs do not follow the pattern of the past 40 years and fall into a narrow set of superstar cities on the East and West Coasts.

There are dozens of cities in the U.S. that have the preconditions for success: a large pool of educated workers, high-quality universities and a low cost of living. But they are losing out today because they lack the scientific infrastructure to become new centers of innovation and because the private sector is ignoring them.

We propose that the government select the best places through an Amazon HQ2-style competition. This competition should serve the interest of the nation. Places would compete not on the basis of tax breaks but on the basis of their qualifications.

Read the full post at The Hill.

Dr. Jonathan Gruber is the Ford Professor of Economics at the Massachusetts Institute of Technology, where he has taught since 1992.

Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management, where he is also head of the Global Economics and Management group and chair of the Sloan Fellows MBA Program Committee.

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