Public investment, innovation, and quality of life

The Hamilton Project of the Brookings Institution has released an important new report on Innovation — how innovation happens, and its consequences for society.

The Report includes documentation and discussion of the following findings (For more information, click on each of the facts below or download the full policy memo (PDF) »):

One aspect of this work is especially significant right now, as the U.S. Congress is slashing the national investment in education, research, and development, is the point elaborated here by the report’s co-author Michael Greenstone, interviewed by Ezra Klein (substituting for Martin Bashir on MSNBC):

Ezra Klein: Joining me now is M.I.T. economist Michael Greenstone director of the Hamilton Project and one of the authors of the report. Michael, thank you for being here.

Sergey Brin

Michael Greenstone:Thanks, Ezra.

Klein: The first question, I guess, is the obvious one. What happened? Did we get dumber? Where did our innovation go?

Greenstone: You know, innovation as you’re saying is a tricky thing. There’s not a magic formula, but rather it kind of comes out of an ecosystem or a series of small choices that add up to something big. And I think what happened is that beginning sometime in the 1970s, we stopped being as aggressive in making those investments and kind of putting together the lattice work that leads to innovation and ultimately determines our living standards.

Klein: So you talk about that lattice work. I think the stereotype of innovation is that it is a lone genius in his attic – the Sergey Brin and Larry Page in a garage inventing Google. And that implies a sort of no role for society much less the government. We just sort of wait there and hope these guys think their great thoughts. Is that the way it goes or am I missing something?

Greenstone: No. Actually, you know the Google example is really perfect. So if you just trace out the history of Google. Sergey Brin immigrated to the United States with his parents when he was 6 years old. So that reflects our immigration policy. He then went to schools in America. He went to an excellent public university, the University of Maryland, did very well there, then was awarded a National Science Foundation fellowship that allowed him to go to Stanford. At Stanford he met Larry Page. Together they came up with this idea for Google and you know, then they found themselves in this area where there were lots of high-tech workers. Their ideas could be protected because we have good protection for intellectual property and, there was you know, very fertile capital markets. And so, all of those things are small, taken at a piece. You take the National Science Foundation fellowship, you take that he went to a public university, but when you put it all together, it created the conditions that allowed his brilliant idea to turn into Google, and now, you know, Google has 20,000 employees, and I think 13,000 employees in the United States alone.

Related to this point is an important book by Gar Alperovitz and Lew Daly: Unjust deserts: how the rich are taking our common inheritance (2008). Here’s from the book’s blurb at amazon.com:

Unjust Deserts offers an entirely new approach to the wealth question. In a lively synthesis of modern economic, technological, and cultural research, Gar Alperovitz and Lew Daly demonstrate that up to 90 percent (and perhaps more) of current economic output derives not from individual ingenuity, effort, or investment but from our collective inheritance of scientific and technological knowledge: an inheritance we all receive as a “free lunch.”

And, at http://www.unjustdeserts.com/:

At the center of their rich and persuasive argument is the economic impact of socially-created knowledge. As people have solved numerous problems that bewildered and plagued those before us, we have accumulated an immense “stock of knowledge” which now plays a central role in economic growth, and is largely responsible for the real income gains that separated the twentieth century from all that came before.

This “stock of knowledge” is a social inheritance, nurtured by governments, institutions, and culture, and created by many generations of people. And yet even as our economic growth has become so highly socialized through the impact of expanding knowledge, the fruits of knowledge–the wealth being generated by knowledge-based growth–flows increasingly to the top.

While this book does concern itself with what’s “just” and “unjust,” and with “deserving” and “undeserving” (as in ‘the undeserving super-rich’), those are not the kinds of concerns that I want to focus on right now. Instead of those kinds of moral issues, I want to focus here on the cessation of public investment in the accumulation of intellectual and cultural capital, and what that will mean for such things as employment rates, household incomes, and quality of life in the United States, as document in the Hamilton report.

Although I might want to focus on the policy concerns without being distracted by those moral questions of desert, however, we need to face the fact that there is now a growing faction in the U.S. that is embracing the position that taxation, as such, is something evil — an evil that’s explicitly condemned by God in the Holy Bible, as they read it. Consider this from David Barton, who played a leading role in the revision of Texas social studies standards in 2010:

On a conference call with pastors in the wake of the November 2010 elections, Barton asserted that the Bible “absolutely” condemns the estate tax as “most immoral,” and said Jesus taught against the capital gains tax and opposed the minimum wage. Barton went even further, declaring that taxation is theft and in particular that the Bible condemns progressive taxation, which he insists is “inherently un-biblical and unfair.” He echoed those themes during a three-part broadcast on limited government in January 2011, saying “Money does not belong to the government, it belongs to individuals, and to steal money from individuals through whatever government spending program is taking private property and you’re not supposed to do that.”*

* People For the American Way. 2011, April 18. Barton’s Bunk: Hack ‘Historian’ Hits the Big Time in Tea Party America, p. 7. (For Barton’s role in the Texas social studies revisions, see my forthcoming (2011) article in the International Journal of Social Education.)

This idea of accumulated wealth as a kind of private property that belongs to wealthy individuals because they are the ones who created it, by their own individual toil and wit, and deserve therefor to keep it, is an obviously self-serving myth, as recognized by Warren Buffett, for example, in this quotation on the amazon.com page for Unjust Deserts:

Warren Buffett is worth nearly $50 billion. Does he “deserve” all this money? Buffett himself will tell you that “society is responsible for a very significant percentage of what I’ve earned.”

Tamir Ardon's DeLorean (from his website, where I retrieved the Inc. article)

The kinds of accumulated social capital that makes it possible for Sergey Brin and Warren Buffett to play their roles in wealth creation result largely from investments from the public sector. Brin’s story illustrates why this must be the case. There is no business model for a private company to make a profit from the broad cultural and social investments that made Brin’s career a possibility.

Buffett’s testimony suggests that the kinds of accumulated social capital that went into the production of his wealth may include not only public, but also private-sector resources. But this, too, is forgotten in the fog of thinking that an individual’s achievement is completely his own doing. As illustrated by the case of John DeLorean (creator of the automobile perhaps best known by many for its use in the movie Back to the Future):

DeLorean’s actions as chief executive officer of his own company show that he had no appreciation of the role GM had played in his successes during his 17 years there, no understanding of his limitations, and no comprehension of the finite nature of capital and other resources. He was, in short, an entrepreneur destined to fail. (Waters, Craig R. 1983, April. John DeLorean and the Icarus Factor. Inc., April, 35-6, 38, 40, 42, p. 35)

Ths myth of private individual wealth as individually created property, to which the individual has an absolute moral right, so that progressive taxation becomes viewed as outright theft, becomes a matter of more urgent concern when it is embraced by politicians as a basis for uncompromising policy positions threatening the national economy, as with Michele Bachmann and others in the recent conflict over raising the debt ceiling. Again, as much as I would like to focus on the economic and social merit of investment in the common wealth, the nature of opposition to such investment compels attention to the moral — even the religious — arguments.

In “Because the Bible Tells Me So: Why Bachmann and Tea Party Christians Opposed Raising the Debt Ceiling, ” Adele Stan traces the condemnation of progressive taxation as a form of theft to the Christian Reconstructionist writer Rousas John Rushdoony, the author of Larceny in the heart: the economics of Satan and the inflationary state (2002), as well as his foundational text Institutes of Biblical law (1973) where, in Chapter 8 “Thou Shalt not Steal,” he stakes the biblical case against progressive taxation on the passage from Exodus (30:15) in which we read that among the ancient Israelites “The same tax was assessed on all men: The rich shall not give more, and the poor shall not give less.”

In the same chapter, Rushdoony writes that a tyrannical state “always limits a man’s use of his property, taxes it, or confiscates that property as an effective means of enslaving a man without necessarily touching his person.” Again, we see this kind of rhetoric resonating in the Bachmann campaign’s insistent comparison of “economic enslavement” with race-based chattel slavery, and Bachmann’s claim, with reference to the Affordable Care Act of 2010, that “This is slavery … It’s nothing more than slavery.”

It resonates, as well, in the rhetoric of 2012 GOP Presidential contender Rick Perry when he says such things as this:

I think in America from time to time we have to go through some difficult times — and I think we’re going through those difficult economic times for a purpose, to bring us back to those Biblical principles of you know, you don’t spend all the money. You work hard for those six years and you put up that seventh year in the warehouse to take you through the hard times. And not spending all of our money. Not asking for Pharaoh to give everything to everybody and to take care of folks because at the end of the day, it’s slavery. We become slaves to government.

Of course, there’s plenty that could be said in response to this rhetoric, and what it suggests about the role of revealed religion as authority for public policy. But the particular point of this particular post is to focus attention on the potentially disastrous idea that wealth is created independently by individuals, with no need for socially created conditions and resources.

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