Restructuring the Economy Through Investment in Innovation and Entrepreneurship

Innovation and the Internet have given the United States a unique window of opportunity to distance itself from the rest of the world. There’s plenty of opportunity left, but we must take advantage of this window before it closes.

Edward Conard, former manager of Bain Capital, LLC,  Unintended Consequences: Why Everything You’ve Been Told about the Economy is Wrong, (Portfolio/Penquin, 2012)

June 3, 2012 -  It’s Dark Saturday after Black Friday for the Obama administration.  Yesterday economic figures showed a rise of  unemployment to 8.2% (virtual unemployment 14.8%) and a drop in GDP growth to 1.9%.

Critics on both sides of political aisle were quick to pounce on the bad news, as indicated by these Saturday commentaries.

·         “Job Growth  Down for Third Month,” Shalah Dewin, New York Times

·         “Obama’s Economic Model Is a Failure,” Larry Kudlow, National Review

·         “Black Friday: Has Time Run Out?”, RealClearPolitics

·         “The 5^th Avenue to Serfdom, “ Holman Jenkins, Wall Street Journal

·         “Rotten May Jobs Report Underscores Weak Recovery, “ Jim Schlesinger,  CBS News

Journalists are  ringing the obituary bells for the Obama administration.   This reminds me of a   nursery rhyme

Solomon Grundy,

Born on Monday,

Christened on Tuesday,

Married on Wednesday ,

Took Ill on Thursday,

Worse on Friday,

Died on Saturday.

Buried on Sunday.

Such hand-wringing is premature.   The Obama adminstration will not be buried soon.   However, American attitudes toward Obama’s economic policies  may be down-shifting .  Obama’s  now leads Romney by 2.0% in national polls,  but he trails Romney in Rasmussen and Gallup tracking polls by 4% and 1%. 

I have always thought of Americans as pragmatic capitalists rather than dogmatic progressives. They look at thier pocketbooks,  not at ideologies. 

What do Americans to think about economic policies of bigger government, higher taxes and more regulation vs smaller government, lower taxes, and less regulation?  We shall see in November.

Meanwhile, it may worth looking at what others are saying

In a just released book, Unintended Consquences,  Edward Conard,  former Bain Capital Partner, says we ought to return to past practices – investing heavily in high risk ventures,  lowering marginal tax rates, cutting capital gains taxes, fostering entrepreneurship, and using the Internet to bolster productivity.  

From 1990 to 2008, this strategy led to much faster U.S. growth than in Europe and Japan.  U.S. Productivity grew from 1.2% to 2.0%, a 70% spike, and U.S. worker output grew by 13.6%, far faster than 8.2% to 9.5% in Europe and the U.K.  America, says Conard, “went to work,” U.S.investment in innovation topped out at 15%, way above foreign counterparts.  Companies like Facebook, Google, Microsoft, Intel, Apple, Adobe, Oracle, Wikipedia, Twitter, Amazon, and EBay spread like wildfire, while “the rest of the world did nothing..

Conard  adds,   controversailly, “the U.S. high wage economy had done more for the poor at home and abroad than any other nation."

One can dispute the merits of Conard’s argument that rich have grown richer and so the poor are better off  by appealing to class envry by showing the gap has grown wider.    But there is little doubt that Internet technologies have transformed and improved American productivity, sometimes at the cost of jobs shed through enhanced efficiencies. 

Innovation has apparently not cost jobs in the health care sector, the most robust job creator in the U.S. economy. Innovation has changed medicine.  In 1955, when President Eisenhower had a heart attack,  he was sent home on bed rest with a bottle of oxygen.  Today he might receive a triple bypass, coronary artery stents, a pacemaker, a regimen of cholesterol-lowering,  blood-thinning, and blood pressure-regulating drugs, even a heart transplant.

Will these and other innovations  - such as mobile software to end paperwork,  monitor diseases from afar, and facilitate patient-doctor interaction – continue to restructure medicine. Will  it  reduce its costs and mortalities.  Will it change  our  behavior and encourage wellness?  It might, but according to Scott Gottlieb and JJ Kleinke of the American Enterprise Institute,  federal regulations and taxes on the medical supply chain could suffocate or snuff out innovation (“There’s A Medical App for That – Or Not,” Wall Street Journal, May 29, 2012).

Tweet:  Black Friday unemployment figures of 8.2% and a stalled economic  growth of 1.9% could be a death knell for the Obama administration.