BY JAMES PETHOKOUKIS
Economic optimists (like me) who are hoping for a second Roaring Twenties have to concede version 2.0 isn’t starting off so good. Not only is the COVID-19 pandemic getting worse — as measured by cases, hospitalizations, and deaths — but there was a seditious attack on the US Capitol. And a slower-than-expected vaccine rollout could push back an expected economic surge based on pent-up consumer/business demand and more fiscal stimulus.
But take heart, history does provide a reason for good cheer amid the current gloomy state of things. The original Roaring Twenties didn’t start off so well either. It began mired in a mini-depression. The somewhat forgotten 1920-21 downturn saw output fall by nearly 10 percent, stock prices cut almost in half, and unemployment surge to about a fifth of the labor force. But that post-WWI shock was followed by a powerful and sustained rebound in 1922 that helped give the decade its famous nickname.
Now one of the biggest reasons for optimism heading into 2021 was the sheer number of big advances we saw last year. Among them, as I recently wrote, “…rapid vaccine innovation, good news about nuclear fusion, the AlphaFold breakthrough, a possible CRISPR-based gene-editing therapy for inherited blood disorders, AI as super research assistant, and a new age of human spaceflight for America.”
Hopefully more on the way. I would note that at the CES tech event on Tuesday, reports The Verge, GM “showed off a luxury egg-shaped autonomous vehicle and a single-seater electric vertical takeoff and landing (eVTOL) aircraft … Both vehicles are part of Cadillac’s Halo Portfolio and probably won’t be going into production anytime soon — or at all.” Of course, that downbeat ending — “or at all” — is something techno-optimists are long used to when analyzing a number of potential innovations. But implicit in the Roaring Twenties thesis is that our patience will be partially rewarded in coming years on several fronts.
That said, now is no time to simply wait around and hope. A fascinating new report from the Tony Blair Institute for Global Change attempts to answer the question of how to encourage technological progress by asking some experts about what their “moonshot” projects would be in sectors such as food, health, energy, and space. Of course, many plans to boost tech progress recommend more government science funding. Seems like a no-brainer. Washington should just, say, double the amount the US spends every year and be done with it.
But maybe not. The 2009 paper “What If Congress Doubled R&D Spending on the Physical Sciences?” by Richard Freeman and John Van Reenen examines the impact on the science job market from the 1998–2003 doubling of the National Institutes of Health budget on the biomedical sciences. From the paper: “We find that the rapid increase in NIH spending and ensuing deceleration created substantial adjustment problems in the market for research and failed to address long‐standing problems with scientific careers that are likely to deter many young people from choosing a scientific career.”
In other words, spending binges are problematic for young scientists unless there is a long-term, predictable growth path. More: “One‐time surges in spending, which produce a deceleration after the surge, have sizable adjustment costs. Instead of making ‘doubling’ spending a goal, policy makers could determine a desired ratio of R&D to GDP and increase funding smoothly to attain that goal.”
My take-away is that pro-progress policymaking should always be a priority, and policymakers should always view tax, spending, and regulatory decisions through a lens that takes into account the potential innovation impacts of decisions — even when those impacts may not be as straightforward as they first seem.