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How the Democrats are Blowing It

Is Innovation a Special Interest? |


| Does a global investment shortage matter?

November 17, 2005

How the Democrats are Blowing It

Michael Mandel

Democrats are confused. They propose this great platform of innovation-improving ideas: Provide scholarships for science and engineering students, double funding for NSF, increased funding for broadband, more money for energy R&D. Great ideas, all of them.

AND THEN THEY MUCK IT UP! Here's what the Democrats say about their innovation agenda:

House Democrats will submit these priorities to the rigors of “pay-as-you-go” budgeting to ensure that new spending or tax cuts do not add to the deficit.

Yowza. The Democrats don't seem to understand that "pay-as you-go" budgeting for innovation investments makes no economic or political sense.

Economics: Their innovation proposals are investments in physical, human, and intellectual capital. Elementary economic theory tells us that it's worth borrowing to make an investment if the rate of return is higher than the long-term rate of interest (call it 6% or so). With the possible exception of broadband, it's clear that all of these proposals pass this test. Translating: If these proposals are worth doing, they are worth borrowing for.

Politics: Okay, so the Democrats don't want to add to the deficit. Does anyone think they will cut social programs to fund their innovation agenda? No, they will raise taxes (or eliminate some of Bush's tax cuts). So anyone of any intelligence will realize that a vote for innovation, under the Democrats, is a vote for higher taxes.

Way to build support for the future, folks!

12:39 PM


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The Dumbocrats have done the impossible : Continue to make Bush look like the lesser of two evils, no matter what.

They have a golden opportunity to enact a massive initiative that 75% of the population would approve of, and they sneak in a sure-fire loser, a tax increase.

Posted by: Kartik at November 17, 2005 05:44 PM

I'm having a hard time seeing "broadband" as a national priority requiring funding by the government. There is plenty of bandwidth available at reasonable cost for most business, educational, and/or nonprofit applications...for example, I don't think it's bandwidth that is getting in the way of electronic medical records. As far as consumers go, cable and DSL are available most places...yes, we would need more bandwidth for top-quality TV over the Internet, but is this really a national priority?

And would government funding really help broadband innovation? Imagine if a government program for wide deployment of "broadband" had been created in 1994. The highest speeds in general use now would probaby be ISDN....

Posted by: David Foster at November 17, 2005 10:27 PM

I'd like to imagine the Democrats are being intellectually honest, and realize that all this "investment" may be money down the toilet, so borrowing for it isn't such a hot idea.

If these ideas actually would pay off, the market would have invested already.

I am reminded of the massive expansion in education in Africa, which has been squandered by government anti-market policies, and poverty has actually increased there. Pro-market policies would have grown private schools.

Unfortunately, I think the Democrats just want higher taxes so they can tell the "common people" they "soaked the rich Republicans."

Posted by: Mr. Econotarian at November 18, 2005 03:36 AM

If these ideas actually would pay off, the market would have invested already.

So you think every last idea has already been explored by the market and all we have left is more of the same?

Irrespective of who is funding, do you think these initiatives will encourage innovation? I think they will and you think they won't because the market have not already done them. So would you pick a $20 bill lying on the road or would you say no one else before me picked it up so it must be counterfeit.

Posted by: Jav at November 18, 2005 10:30 AM

If these ideas actually would pay off, the market would have invested already.

Ha, ha, ha. Funny.

Posted by: Lord at November 18, 2005 12:14 PM

Perhaps the best way to fund science scholarships would be for the govenment to reclaim the intellectual property rights to every invention it has funded and pool the money into a fund.

Computers, jet aircraft, the internet and just about anything worthwhile invented in the last 50 years or so is due to government funding.

The royalties the government should be collecting on these invntions would be enormous...or maybe we should just tax 50% of the profits of Microsoft, Google, Yahoo, Boeing, etc.

Posted by: monkyboy at November 18, 2005 06:29 PM

The country has a revenue problem because taxes are too low. There, I said it.

Higher taxes on the upper income brackets do not hurt economic growth nor job creation. The proof is right under our noses: in early '93 Clinton pushed through a massive tax increase (following another tax hike in '91 by Bush 41), but the economy grew like crazy in '93 thru '00 anyway. This proves that the supply siders and trickle down theorists are wrong.

What we need is to do is "demand side" stimulus, especially some neo-protectionist measures to level the playing field so that U.S. industry can be reborn and actually provide meaningful jobs domestically. Economists need to rethink their anti-tariff leanings, especially when our trading partners arbitrage the differences between our labor and environmental laws and theirs.

You can't have continued GDP growth and balance the federal budget if we're all doing $8/hr service jobs.

Posted by: Jim in Calif at November 20, 2005 03:33 PM

Jim in Calif is wrong.

He conveniently forgets that the bulk of the 1990s boom occurred after the tax cut of 1997, where cap gains rates were slashed, and housing gains were excluded up to $500K. This caused the big surge in stocks and housing.

Tax cuts work, and worked each time they were done, by Kennedy, Reagan, Clinton, and GWB. Period.

Posted by: Kartik at November 21, 2005 11:51 AM


You missed an important point. The Democrats don't get elected based on what they actually do. They get elected based on what the public thinks they are doing. Deficit equals bad politics in the eyes of the average voter who hasn't studied elementary economics. Even the average college grad voter hasn't studied any economics. Many people have inherited depression era values from their parents meaning that debt is bad (even if they don't act on the values in their own life) People don't understand the concept of borrowing to invest or risk/reward relationships. The best thing we could do for this country would be to make a full year of economics a requirement to graduate high school and college. Then plans like this would have a chance.

Posted by: Joe at November 24, 2005 10:19 AM

Good grief. As James Hamilton et al. would surely point out - increasing national savings is consistent with having more investment in R&D and education. Someday - you might get Dr. Hamilton's simple point.

Posted by: pgl at December 1, 2005 08:02 PM

Investors invest only if they expect a return: if the taxpayer is the investor, the profits should go to the taxpayers (not filtered through Wall Street)... ditto monkeyboy's comments above! As a taxpaying citizen, I don't care whether private companies make profits or not; I care only about MY standard of living - which I can more readily raise by directly benefitting from non-profit, publicly sponsored research, with the Government retaining intellectual property rights to and receiving royalties (as trustee, if you will) from Our discoveries. Or, would someone like to argue that I've benefitted more by using my tax money to fund the basic research behind the Prevacid that I take daily, and then paying again, to the tune of $2/pill, everytime I take one? Of course, it would be cheaper if someone didn't need to post a profit on their quarterly statement!

Posted by: Larry B in OP at December 9, 2005 01:35 AM


If I boost government R&D spending, national savings as currently measured goes down. If I boost education spending, national savings as currently measured goes down.

Posted by: Mike Mandel at December 12, 2005 09:03 AM

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