Comments from Rob Atkinson on 'An Economic Recovery Program for the Post-Bubble Economy'

Rob Atkinson is the founder and president of the Information Technology and Innovation Foundation. Click here for the full text of the article in question; or here for the comments of Jeff Madrick, editor of Challenge Magazine.

Bernard Schwartz and Sherle Schwenninger provide a much needed correction to current economic thinking by pointing out that current thinking on stimulus policy is right out of the Keynesian economics playbook, focused on spurring consumption. They rightly propose a stimulus package out of the innovation economics playback that would spur investment leading to job creation in the short run and higher productivity growth in the long run.

However, as Washington consider such policies, it's important to not fall sway to some of the thinking that has predominate the left in recent years that holds that productivity growth should no longer a top priority because it doesn't benefit workers any more. There are two problems with this view. First, it leads us away from the kinds of policies proposed here designed to spur investments that raise productivity. Second, it's just plain wrong. As noted labor economist Steve Rose has shown in an ITIF report, productivity growth over the last 30 years has helped average American workers and there is no reason to believe that it won't continue to do so in the future. This isn't to say that income inequality has not gone up and should not be addressed, but without higher productivity it will be difficult if not impossible to improve the standard of living of average Americans. As a result the focus of economic policies should not just be on creating high value jobs, although that is important, but on also boosting productivity throughout the economy, including the productivity of current low-value jobs so that they can pay more....

The authors propose a bold and needed plan for economic recovery and growth that rightly focuses on the key role that public investment can play in that process. I would perhaps go further, and expand the definition of public investment to include not just public spending on things that spur long-term growth, but also public tax expenditures (e.g., incentives) that spur the private sector to make the kinds of infrastructural investments that spur innovation and productivity of the U.S. economy.

In this regard, for example, the U.S. would benefit from a more robust broadband infrastructure network. As the Information Technology and Innovation Foundation has documented the U.S. lags many other nations in broadband and one reason is that a number of other nations, including Sweden and Japan, two nations the authors highlight, have put in place proactive national policies to spur broadband deployment and adoption. But they largely didn't fund the building of public networks, they provided incentives to private telecommunications operators to extend and upgrade their own networks. The U.S. needs to do the same, and as ITIF has proposed, one way to do this would be to allow broadband providers to "expense" in the first year investments in broadband either in places that currently don't have broadband or that are significantly faster than the current average U.S. speeds. In this sense, spending on infrastructure, whether it is by the government (e.g., building a public road) or by the private sector (expanding a broadband network), will have both short term stimulus effects and long-term productivity growth effects.

Later in this piece, the authors rightly point to the critical need to increase U.S. technology competitiveness so that they can export more. Our tax code could help with that process. One place to start would be to expand the R&D tax credit. In 1992 the U.S. had the most generous tax treatment of R&D in the world. Today we have fallen to around 15^th among the 30 OECD nations as most nations now understand that attracting and growing R&D is a key to their future economic growth. In contrast, Congress debates over whether to even extend the current credit. But this is fiddling while Rome burns. Instead, we to significantly expand and reform of the credit....

The authors are right to point out that a reversal of the trade deficit promises to be a very effective economic stimulus. In fact, given that the U.S. ran an $800 billion goods deficit last year, there is a lot of stimulus on the table if we eliminated the trade deficit. Obviously this hole cannot be reversed overnight, but we can and should set a goal to bring the trade deficit into balance in the moderate term. One way to do this is as the authors propose; to encourage other nations to stop propping up their currencies and to spur domestic demand. But we need to go even farther and get much tougher working to reduce widespread mercantilist trade policies these nations have put in place, many directly focused on gaining competitive advantage in the very technology sectors the authors rightly argue are the core U.S. strengths.

And here at home a key leg of that policy has to be for the U.S. government to not to defend the dollar, but rather to let the market naturally dictate its continued decline, especially vis-à-vis unfairly propped up Asian currencies. When you are running close to an $800 billion trade deficit (and in the process adding to the debt that the next generation of Americans will have to pay), the only place for the dollar to go is down.