Science-based Innovation Promises Long-Term Prosperity, Two Experts Tell AAAS S&T Policy Fellows

Greg Ip, the influential U.S. economics editor for The Economist, told AAAS S&T Policy Fellows that America’s prospects for a quick economic recovery remain poor, yet his 50-year outlook is positive because of the promise of science-based innovation.

“I remain a long-term optimist because of folks like you guys, always coming up with good ideas to make us richer,” Ip, author of The Little Book of Economics: How the Economy Works in the Real World, told the Fellows. “We have the ingenuity to keep coming up with new ideas.”

His 2 September presentation—part of a two-week orientation for 210 AAAS S&T Policy Fellows in the program’s 2010-11 class—included comparisons of the U.S. recession versus economic events in other nations.

In a separate presentation, Patrick Clemins, director of the AAAS R&D Budget and Policy Program, also emphasized the connection between science and long-term economic progress.

Federal research and development funding supports federal missions, Clemins noted, but it also drives U.S. economic growth and innovation.

“Most estimates of the return on investment in R&D are in the neighborhood of $1.50 for every dollar [invested], but you see [estimates] as much as $2.00 for every dollar spent to $2.50, so our investment in research and development really drives the U.S. economy. There’s a strong argument that since World War II, about half of America’s economic growth have been due to technology and innovation.”

Ip’s presentation encompassed an explanation of factors leading up to the U.S. recession, comparisons of the U.S. crisis versus economic events in other nations, and his views on how best to address America’s economic woes.

In particular, he cited three key drivers of the recession: a dramatic increase in private debt as a percentage of gross domestic product (GDP), which rose from about 120% in 1952 to more than 240% in 2007; a “global savings glut;” and a “bipartisan push for more home ownership,” emphasized by Presidents Bill Clinton and George W. Bush alike. These factors, exacerbated by a frenzy of sub-prime lending to marginally qualified buyers, put the country on an unsustainable path, Ip said.

Citing research by Prakash Kannan of the International Monetary Fund, who has charted the economic recovery of various nations following recessions, Ip joked that America is “actually doing better in returning to normal than the average country after a recession when it’s flat on its back.”

But pointing to a graph showing continuing high unemployment, he noted that “this ain’t no V,” meaning the current U.S. recession is not the type described by economists as short and sharp. Research by economists Carmen M. and Vincent R. Reinhart suggests that the United States will be in economic recovery mode until 2015, Ip reported. But he cautioned that recovery may take longer, depending on household debt levels versus disposable income.

Other experts, including some at Morgan Stanley Research, have offered a brighter outlook, he acknowledged. Ip said also that the United States’ recovery is not likely to resemble the situation in Japan, where the economy has been off-track for decades, partly because of a large decline of the labor force triggered by population demographics.

The United States does share a number of economic risk factors with Greece, including rising debt, particularly in struggling states such as California. Still, Ip said, the U.S. debt remains much smaller, compared to Greece, and most importantly, he added, “we issue our own currency.”

The federal debt, or amount of money owed by the government, now stands at $13.4 trillion, Clemins reported. The federal budget deficit, or shortfall between projected 2011 revenue ($2.6 trillion) versus the proposed 2011 budget ($3.8 trillion), is expected to reach $1.3 trillion, including $89 billion borrowed from Social Security, he said.

When asked for his views on how to fix the U.S. economy, Ip suggested that taking a more “hard-nosed” approach to entitlement programs such as Social Security and Medicare may be unavoidable. In addition, he said that Americans will need to overcome their disdain for tax increases.

“Taxes are the price of having a government,” he said. “Let’s drop this fantasy that nobody will have to pay taxes but we’ll have all these great services.”

Despite many gloomy economic indicators, Ip expressed optimism for the country’s long-term prospects. “Americans being as creative as they are, we are going to be O.K.,” he said.

Clemins’ presentation offered a detailed description of the federal budget process and a review of the proposed fiscal year 2011 federal research and development (R&D) budget.

“The R&D portion of the [federal] budget is a very, very small slice,” Clemins pointed out. For fiscal year 2011, for example, President Barack Obama has proposed a total budget of $3.8 trillion.

Of that amount, $148.1 billion would support federal R&D. If approved, this amount would represent a decline of 0.3% compared with 2010—back to the same inflation-adjusted funding levels as in 2005.

Moreover, Clemins said, this support would be spread across more than two dozen departments and agencies, with only two managing more than 10% of the total R&D investment: the Department of Defense (52.7%) and the Department of Health and Human Services (21.7%).

The United States remains a global leader in R&D investment, spending $369 billion, representing 35.7% of the world’s total annual R&D investment, Clemins said. But he added that many other countries “are quickly increasing their investment and the United States has not.“

Between 1997 and 2007, for example, South Korea’s R&D investment as a percentage of GDP jumped from 0.99% to 3.47%, while China’s support increased from 0.85% to 1.49% and Taiwan boosted their investment from 0.81% to 2.63%. Japan’s R&D investment rose from 0.57% of GDP to 3.44% during the same period, while the United States increased its support from 0.10% to 2.68%. Clemins noted that Obama has set a goal to invest 3% of GDP in R&D. Still, he said, the gap between the U.S. and global investment in R&D “is really quickly decreasing.”

Federal funding is essential to basic scientific inquiry, particularly at U.S. universities, where more than 60% of all R&D relies on government support, Clemins said. Private industry spends far more on R&D than the government ($260 billion versus roughly $100 billion in 2008), he said. But corporations tend to focus their R&D investment on development and applied research, rather than basic science.

As Clemins previously reported on Capitol Hill, the president’s 2011 budget proposal would boost support for research into energy, health, space, and basic sciences, but reduce the investment in defense and homeland security.

Big “winners” under the President’s budget would be the National Oceanic and Atmospheric Administration (NOAA), with a 22% increase in its R&D support for next year, followed by the National Institute of Standards and Technology, which would receive a 21.6% boost. Other agencies proposed for significant 2011 R&D budget increases would include NASA, with an additional 17.8% compared to 2010 levels (though with a significantly realigned research portfolio), and the National Science Foundation, up 9.4%.

Agencies proposed to receive less R&D support in 2011 would include the Department of Transportation, the Department of Defense, the U.S. Department of Agriculture, and the Department of Homeland Security, though Clemins noted that last-minute earmarks could result in adjustments to the final budget.

Although the federal fiscal year will end 30 September, Clemins said that policy-makers probably will issue a “continuing resolution” to extend 2010 funding levels into the early part of 2011.

The presentations by Ip and Clemins were well-received by AAAS S&T Policy Fellows. “As a scientist, the economy is difficult to understand, but both of these speakers made it not only accessible, but interesting,” said Congressional Fellow Terry Kane, a veterinarian from Nebraska.

The 2010-11 class of 210 Fellows is the largest in the history of the S&T Policy Fellowship Program, which was established in 1973. During their two-week orientation, Program Director Cynthia Robinson said, Fellows will also hear presentations on the presidency, science policy and the judiciary, the legislative and executive branches, diplomacy, foreign policy, and other aspects of law- and policy-making in Washington, D.C.

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