Have U.S. R & D expenditures declined?

My just-finished, month-long marathon speaking tour -- talking to many groups and audiences about creative problem solving -- ended with NASA's Innovative and Advanced Concepts Symposium in Seattle. (More on the trip, including my skype encounter with Edward Snowden, soon.)  But my number one takeaway is how eager so many folks are, in our civilization, to enhance our greatest advantage -- the trait of openness and exploration of new ideas, new solutions, new ways of getting things done. You see this, for example, in the runaway popularity of the hit film The Martian, and its central theme of innovative competence.

Very few issues are more reflective of attitudes toward the future than where politicians and pundits  and ordinary people come down toward Research and Development, or R&D.  

According to sage estimates, we owe half of the value of our economy... plus most of our increased health and lifespan... to technological advancements wrought by past investment.  And very likely the liberty to enjoy them and to argue freely across miracles like the one you are staring at, right now. 

Has our rate of R&D declined?  Certainly climate-related research has been axed, every time the GOP gets a chance... though it has grown increasingly clear that the hostility is aimed at science, in general. 

Some claim that declines in federally-funded pure research are made up for by increases in pragmatic, short-term, product-oriented development in many industries.  Let's dive into that for a few, nerdy paragraphs:

"Economists often use the ratio of Research and Development expenditures to GDP to examine R&D in the context of a nation's overall economy. This ratio reflects the intensity of R&D activity in relation to other economic activity and is often interpreted as a relative measure of a nation's commitment to R&D.

 Since 1953, the first year for which national R&D data are available, U.S. R&D expenditures as a percentage of GDP have ranged from a minimum of 1.36 percent (in 1953) to a maximum of 2.87 percent (in 1964).

"From 1994 to 2001, R&D outpaced growth of the general economy and the R&D/GDP ratio rose close to its historic high. It is estimated that the amount of R&D performed in the United States equaled 2.71 percent of the United States GDP in 2001 and 2.64 percent in 2002.[8]

Most of the growth over time in the R&D/GDP ratio can be attributed to steady increases in non-Federal R&D spending.

"Non-federally financed R&D, the majority of which is company financed, increased from 0.63 percent of GDP in 1953 to an estimated 1.90 percent of GDP in 2002 (down from a high of 2.02 percent of GDP in 2000). The increase in nonfederally financed R&D as a percentage of GDP illustrated in figure 4-5 figure corresponds to an upward trend in R&D and technology intensive activities in the U.S. economy.

Historically, most of the peaks and valleys in the R&D/GDP ratio can be attributed to changing priorities in Federal R&D spending. The initial drop in the R&D/GDP ratio from its peak in 1964 largely reflects Federal cutbacks in defense and space R&D programs. Gains in energy R&D activities between 1975 and 1979 resulted in a relative stabilization of the ratio. Beginning in the late 1980s, cuts in defense-related R&D kept Federal R&D spending from keeping pace with GDP growth, whereas growth in non-Federal sources of R&D spending generally kept pace with or exceeded GDP growth."

{Source: U.S. and International Research and Development: Funds and Technology Linkages}

== Okay, that's one perspective. ==

 But the rise of corporate R&D -- 

(1) is very near-term and product focused. It does not create seed corn, as farther-horizon federally funded research does, and…

…(2) Rising corporate R and D masks a deeper problem that we'll get to, in a future posting -- that this corporate research funding is not being matched by equivalent investment in actual productive capacity aimed at longer range returns.  Instead, the "financialization of capitalism" has lead to companies selling off not fat, but muscle, bone, sinew and brains, all in order for CEOs to meet quarterly dividend and stock price targets.

... (3) Ironically, this proves that Karl Marx, while a bright observer, was also really dumb at times.  His entire scenario of eventually being able to do without the services of bourgeois capitalists depends upon the assumption that society must build a certain level of capital stock, infrastructure, factories by capitalists stealing and investing labor value from workers.  Once they have “completed capital formation,” there’s no further need for capitalists.  The Prols take over and no one’s labor value gets stolen any more to invest in factories and such.

We now know this to be insane.  In a modern society, productive capital must be retooled at an ever-faster pace!  Hence, there is no end to the need for an entrepreneurial caste… though it can be tamed, kept honest and regulated for fairness to workers and the environment and to keep market competition flat-open-fair. 

In fact, the current Chinese “communist” party openly admits that Lenin’s Great Error was not keeping to his original plan of allowing Russian capitalists a role in the early Soviet economy, according to Marxist theory, but instead deciding to kill them all, hoping capital formation could be done by State Committee.  That proved disastrous and the Chinese now rationalize that they are bypassing that mistake! By fully unleashing their capitalists to perform their historical-economic role.  Indeed, they factor in the need for rapid re-tooling and allowing capitalists to be incentivized by wealth.

Alas, this rationalization fails on many levels.  First, most of the “privately owned” Chinese companies are in fact state enterprises which are subsidized and never have to earn a profit.  Second, so much of it is based upon predatory theft of IP from Inventing Nations. Some of this is to be expected — America was a major IP thief in the 19th century!  

But the rapaciously insatiable approach that is now the entire basis of their inflated system risks -

 (a) killing the goose that lays golden eggs, 

 (b) eats away at your moral underpinnings, and

 (c) devastates any chance of creating an autonomously fecund local inventing caste.

In other words, bypassing Lenin's Great Mistake does not protect you from making the next one... the assumption that you can maintain a repressive society that quashes individual creativity, by stealing creative elements forever from nations who you deem to be "cattle."

The presumption does not work.  It cannot. There are other, braver approaches, with better prospects.

== The crux? You're all nuts! ==

Seriously.  Every dichotomy that's zero-sum should be treated with suspicion.  Those screaming at sinful-greedy "capitalism" are actually denouncing what Adam Smith called the number one enemy of truly functional, flat-open-fair-creative enterprise -- the rent-seeking and parasitical conniving of oligarchs.  The devastating form of cheating that manifested in 99% of societies that ever had agriculture, across 6000 years.

It was the underlying reason for our revolution and new enlightenment.  Lest we forget.  And neither today's insipid, ill-educated right, nor the reflexive and passionately simple-minded left have even a clue.

Moving forward is going to take a wide stance, utilizing (though never trusting) government for what it does well... and breaking up undue concentrations of cheating power in the world of commerce, so that it will function as well. 

 Above all, we must want to solve problems.  That means investing in tomorrow.  It truly is that simple.

Economic falsehoods...

For this posting, I am simply handing the stage over to my friend, Russ Daggatt, who has compiled more "ostrich ammo"... or irrefutable evidence to push (relentlessly) into the faces of every "decent conservative" you can find. NOT evidence that Bush et al have betrayed America, or decency or honesty or the Enlightenment...

...but evidence that they have betrayed conservatism... dragging it down paths of utter lunacy and irresponsibility that can no longer even remotely be called conservative, by any previous or sane standard.

This should be one of the Democrats' main thrusts. They should assign oe of their convention speakers to stand there and address the decent conservatives of America. It would take a solid hour to finish just a summary list of why decent, life-long republicans should finally stand up and say enough, making temporary alliance with decent moderates and liberals to end this great klepto raid...

...so that we can all get back to arguing in goodwill, among honest folk, HOW to make a better country and civilization and world.

On to Russ:

Let's leave aside for the moment the Iraq war, and the "War on Terror," and illegal warrantless wiretapping, and torture, and the US attorneys purge, and all of the other topics dominating the current list of Bush crimes. Let's go back to the "pre-9/11" Bush administration. Bush's first big initiative was his tax cuts.

Polls at the time, in 2001, showed that the public was not clamoring for tax cuts. If you asked them, yes or no, would you like to have your taxes cut, they said yes. But if you asked them whether you would rather have their taxes cut or ... almost any major spending priority -- balancing the budget, fixing Social Security, etc. -- they strongly favored the alternative to a tax cut. But Bush managed to threaten and cajole ... and lie ... to get his big tax cuts.

Among other things, Bush and his cronies insisted that the tax cuts would not turn the budget surpluses they inherited from Clinton into budget deficits. Remember, the rationale for the tax cuts at the time Bush proposed them was that he was only "returning a quarter of the projected budget surpluses to the American people" -- leaving three-quarters of the surpluses intact.
Almost immediately (a couple of weeks) after Bush forced his tax cuts through a reluctant Congress, the Bush White House changed its forecasts to show ... surprise! ... deficits. Then the rationale changed from "returning a quarter of the surplus" to "the tax cuts will generate so much economic activity that they will pay for themselves in the long run" (the theory that his dad twenty years earlier labeled "Voodoo Economics"). (This practice of changing the rationale for their policies when they fail instead of changing the policies themselves was later perfected with respect to the Iraq War.)

Now Bush and his apologists and enablers claim that his tax cuts “worked” (just like the “surge” in Iraq is “working”). So let’s look at the forecasts in Bush’s FY2002 budget and compare those with what actually happened (Bush reduced the duration of these forecasts from the 10 years that had previously been the case to only five years, so the FY2002 numbers only go out through 2006):

(Note, formatting may not be very good, posting to blogger.)


George W. Bush’s surplus/(deficit)
year . projected . Actual . Difference

2002 . . $231 . ($158) . ($389)
2003 . . $242 . ($378) . ($620)
2004 . . $262 . ($413) . ($675)
2005 . . $269 . ($318) . ($587)
2006 . . $303 . ($248) . ($551)

Total . $1,307 . ($1,515) . ($2822)

[Source: White House Office of Management and Budget]

By their own measure, they were over $2.8 TRILLION dollars off in their budget forecasts (for just five years). Yet they claim their tax cuts "worked" as planned. Are they lying or merely delusional? It's not a factual question. The numbers aren’t in dispute. Their tax cuts were supposed to stimulate so much economic activity that they would pay for themselves. Clearly, that didn’t happen. But that apparently doesn’t have any effect on their narrative.

[I should note that the deficit has been greatly understated in recent years by netting out the Social Security surplus against the federal government's operational budget. It was less of a problem in past years because the SS surplus wasn't that big. But with baby boomers in their peak earning years, it has increased to where it is quite large relative to the operational budget. The surplus in Social Security and other federal government retirement accounts is currently running around $180 billion/year and is projected to rise to ~ $260 billion by 2011 before starting to head back down. Which means the federal budget deficit should really be increased by that amount. All the more reason it is inexcusable to be running long-term structural deficits six years into an economic expansion after the mildest recession in modern American history and when the baby boomers are in their peak earnings years.]

So, then, did Bush’s tax cuts at least stimulate economic growth? Of course, our economy isn’t a controlled experiment, so you can’t really separate out Bush’s tax cuts and measure their impact on the economy. But you can compare real GDP growth following Bush’s 2001 tax cuts with GDP growth following Clinton’s 1993 tax increases: 

1994 4.0
1995 2.5
1996 3.7
1997 4.5
1998 4.2
1999 4.5
2000 3.7
2001 0.8
2002 1.6
2003 2.5
2004 3.6
2005 3.1
2006 2.9

Real GDP growth averaged 3.3% annually during Clinton’s eight years. By contrast, real GDP growth has averaged only 2.8% during Bush’s first five years. [In an over-abundance of intellectual fairness to Bush -- not a practice the right generally reciprocates -- I stuck Clinton with FY 2001 (which included the last recession) even though Bush was president during most of that year. If I take 2001 away from Clinton and give it to Bush, and give Clinton 1993, the numbers are even better for Clinton: 4.2% annual GDP growth vs. 2.5% for Bush.]

Obviously, this doesn’t prove that Clinton’s fiscal responsibility helped the economy or that Bush’s fiscal irresponsibility hurt the economy. But it sure as heck refutes the notion that because the economy has grown under Bush that is proof that his tax cuts deserve the credit.

Oh, and federal spending as a percentage of GDP was 21.4% when Clinton took office and 18.5% when he left, but is now back up to 20.8%. So it is not the case, as the right wing claims, that “if you send the money to Washington they will just spend it” – Clinton raised taxes and reduced the size of government. Nor is it the case that cutting taxes will “starve the beast” and reduce spending – Bush cut taxes and increased the size of government.

How about recent stock market highs? Don't they prove Bush's tax cuts are "working"? The Dow Jones Industrial Average was 3253 when Clinton took office and 10,587 when he left -- for an increase of 325% during the Clinton years. By contrast, the Dow Jones closed yesterday at 13,468 -- for an increase of 27% during the Bush years. Taking a broader measure of the market -- the S&P 500 -- it was 435 when Clinton took office and 1342 when he left -- for an increase of 309%. It closed yesterday at 1468 -- for an increase of 9.4% under Bush.

So, then, what is the factual basis for the assertion that Bush’s tax cuts “worked”? The budget deficit got worse, government got bigger and growth was slower than in preceding periods.

Leaving us with the question that started this discussion: Is Bush (and his apologists and enablers) lying or just delusional? Which is worse? (And is there any discernable pattern that transcends individual issues.)

Meanwhile, what is currently the greatest threat to the economy? An ongoing "credit squeeze." In classical economic theory, federal borrowing results in the "crowding out" of private borrowing. Under Bush, the federal debt has increased by over $3 TRILLION. According to every objective economic analysis I've read, the "crowding out" effect of increased federal borrowing more than offsets any alleged "incentive" effects of the Bush tax cuts, resulting in a net economic loss. We're six years into an economic expansion -- when is this stimulative effect supposed to kick in and eliminate the deficit? But don't worry. According to Dick Cheney, "Reagan proved deficits don't matter." And I suppose the deficits are in their "last throes."
-----

Oh, what has happened to conservatism?

Who are today's wastrels, living for the moment and spending their grandchildren into poverty?

And who are the new puritans, wagging their fingers at us to "waste not" and to save a "stitch in time"? Preaching what used to be old standard values like "let's try to crap less in our own house?"

While proclaiming "family values" which party is rife with candidates who disposed of marriages like tissue paper, amid betrayal and spite? And which - despite expanding their tolerance of different ways - shows a panoply of leaders who are mostly monogamous-hetero-committed-boring?

Which party now relies on "gut" instinct for just about everything, while bullying or harrassing every professional who dares to disagree... and which one calls for a return to relying upon the advice of apolitical and knowledgeable experts? And which of these images would you have guessed to be "conservative"?

Will no one else notice that roles have reversed utterly, with liberals now the prune-faced, penny-pinching, chiding, earnest believers in most of the old puritan virtues (without the intolerance), while neoconservatives seem to feel that momentary spasms of utter self-indulgence are the way to deal with a world on onrushing change?

Is there ANYBODY out there willing to confront the American people with a little bit of good, old-fashioned irony?