Another Economic Perversity (and another preview)

Posted by: Michael Mandel on February 02

Here’s another question for you all (and another preview of the coming cover story):

In his State of the Union speech, President George Bush proposed to boost spending for basic research. Suppose that Congress decides to pay for this increase, in part, by cutting funding for “the bridge to nowhere”—the proposed $315 million bridge to Gravina Island in Alaska (population: 50).

Question: Would such a shift in funding, from the “bridge to nowhere” to basic research, would have the effect of raising or lowering the national savings rate?

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Reader Comments

Eric

February 2, 2006 04:58 PM

Reduce.

Although the "Bridge to Nowhere" is wasteful spending it will employ people who thus will save a portion of their earnings. And, due to the nature of the project, the direct labor element world be relatively high.

The basic research would have higher longer benefit to the country, but would not increase national saving rates as much as the bridge.

Kartik

February 2, 2006 06:33 PM

On another note, here is an article on why economic growth must accelerate over the long term.

http://futurist.typepad.com/my_weblog/2006/01/economic_growth_1.html

Christopher

February 3, 2006 04:18 PM

While I suspect that President Bush doesn't have too profound an idea of Basic Research (human-animal hybrids...??? c'mon!?!) I don't doubt that, for better or worse, the advisors over in OST-Office of Science and Technology- are pretty well aware of the fact that basic research is of crucial importance. Not, as the true champion of Basic research Vannevar Bush, would have us believe (for V. Bush, Basic R&D is the beginning of a linear sequence of events that lead from discovery to innovation--most scholars understand that the innovation process doesn't really work like that)

But there is an important point to understand; as both science and technological innovation have progressed from the end of WWII on, the time between scientific discovery and market release of more and more technological artifacts is getting smaller. Put another way, technology and science are getting closer and closer and technological development relies on scientific knowledge in ways that previous generations did not. Whether the President understands this or not is a whole other issue, but the need for us to continue to fund Basic Research (both in the US and abroad) is very real.

Kevin

February 3, 2006 05:06 PM

Neither. 1) Gov't spending doesn't directly contribute towards the savings rate. 2) It's probably not knowable which will lead to more workers' savings in the end between paying contruction workers or paying people doing research. 3) there's certainly no guarantee that $315 spent by the government on research will do anything to enhance savings in the long run. (Hey, the bridge might enable the 50 residents to make more money and open IRA's!)

Lord

February 3, 2006 05:22 PM

But researchers are higher income individuals and would thus save more of their income. Actually since neither the bridge or the research are credited as investments, there would be little or no change in savings.

(Don't you have to explain why economic growth hasn't increased over the last two centuries? Examine Stocks for the Long Run, for example.)

John

February 4, 2006 09:48 PM

As Savings and Investment tend to be equal in the economy disregarding the reporting methodology investing the $315 millon in research would create greater savings duet to the increased knowledge capital created and reinvested. Subsequently creating more jobs and more investment in real capital and knowledge capital. While the investment in the brige would be a one time increase in the savings rate. However, based on current reporting methods it would appear to be quite different i.e. the investment in research would not appear and the bridge does appear as and investment (hence as savings) while the research is not cpatured in the reported data and thus would reflect a reduction in the savings rate in the officially reported GDP data.

george

February 6, 2006 08:33 AM

We are ! !this close to becoming independent of oil. We have enough technology to free ourselves of a major portion of oil imports. If we would just focus on the alternative fuels available to us, that would give OUR RESEARCHERS more time to come up with the solutions we can all live with.
If we wern't spending BILLIONS of $ supporting & fighting ARAB countries, we would have ample funds for research.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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