So is Trumponomics working? With one significant caveat, the answer is no. For one thing, Trump’s trade policy is turning out to be worse than expected. For another, the growth surge mostly reflects a temporary sugar high from last December’s tax cut. Economists are already penciling in a recession for 2020.
.. At a time of toxic inequality and declining intergenerational mobility, inheritance taxes ought to be increased, but Trump cut them. However, the reduction in the corporate tax rate, coupled with incentives for businesses to invest more, has boosted spending on R&D, information technology and other machinery. Extra investment should make workers more productive. It might even shift U.S. growth to a higher trajectory.
.. you can’t rule out the possibility that the Trump investment incentives are hitting the economy just as a new wave of IT innovations is ripe for deployment.
.. The question is whether the expected productivity boost will outweigh the drag from the tax cut’s other consequence: a huge rise in federal debt.
.. The extra $1 trillion or so of federal debt will have to be serviced: Today’s sugary tax cuts imply tax hikes in the future. Likewise, the corporate investment incentives are temporary: They may simply bring investment forward, depriving tomorrow’s economy of its tech caffeine jolt.
.. many Wall Streeters expect a recession once the sugar high dissipates. The Tax Policy Center estimates that gross domestic product in 2027 will be the same as it would have been without the tax cut.
.. There will be no growth to compensate for extra inequality and debt.
.. And that is without considering the harm from Trump’s trade wars. In Europe, Trump has browbeaten U.S. allies and reserves the right to beat them up further; the only “gain” is a discussion of a new trade deal that was on offer anyway before Trump’s election. In the Americas, Trump has arm-twisted Mexico into accepting a new version of NAFTA that is worse than the old one, and demands that Canada sign on.
.. But the greatest damage stems from Trump’s trade war with China. His opening demand — that China abandon its subsidies for strategic high-tech industries — was never going to be met by a nationalistic dictatorship committed to industrial policy.
.. His bet that tariffs will drive companies to shift production to the United States is equally forlorn. If manufacturers pull out of China, they are more likely to go elsewhere in Asia.
And even if some manufacturing does come to the United States, this gain will be outweighed by the job losses stemming from Trump’s tariffs, which raise costs for industries that use Chinese inputs.
.. In short, Trump isn’t helping the American workers he claims to speak for. Instead, he is battering the rules-based international system that offers the best chance of constraining China.
.. do not be surprised if the populists are temporarily popular: Popularity is what they crave most, after all. But recall that, everywhere and throughout history, the populists’ folly is unmasked in the end.
Honda once used staff technicians to design new technologies ranging from engines to the shape of the suspension arms. Today, Honda believes rapid shifts in technology mean it can no longer afford to keep pace working solely on its own.
That is raising hackles among some within the company who complain about “PowerPoint engineering”—where engineers assemble slides showing how they will patch together others’ technology rather than build it themselves.
.. Car makers around the world are under stress from the huge investments needed to develop new technologies used in electric vehiclesand autonomous driving. To trim costs, most are leaning on megasuppliers such as Bosch, Continental AG and Denso Corp. , as well as smaller companies with cutting-edge technology such as IntelCorp. subsidiary Mobileye.
.. Honda, which prides itself above all on its engines, is farming out the development of an electric motor. Hitachi Ltd.’s auto-parts division has the majority stake in a joint venture with Honda that will make electric motors for Honda cars by March 2021. By 2030, two-thirds of its cars will be partially or fully electric
.. Honda also said it would buy electric-car batteries from General Motors Co.
SpaceX works because a lot of people want to put satellites in orbit. In a time of unprecedented peace, how many navy ships do we realistically want to be building?
$4.25B/ship is the wrong way to frame it. Think of it as $23B to keep our shipbuilding expertise current, to make sure we have the capability to build navy ships that incorporate a bunch of cutting-edge technologies (some of which have worked out and some of which haven’t, as is the nature of cutting-edge technologies). If a shooting war started to look likely we’d be building a lot more than 3 of them and the unit cost would come way down.
.. It seems you should be able to bring down a 4 billion ship with a swarm of thousand drones for maybe 1 million each for the total cost of 1 billion. Same for aircraft carriers.
.. The lack of a missile defense system on the Zumwalts has more or less made them pointless beyond research/development testbeds.
too many parts of society are oriented towards bottom line activities of mistake avoidance instead of top line activities of taking risk and creating value.
.. “You can think of this book as detailing the social roots of the resulting slow growth outcome and explaining why that economic and technological stagnation has lasted so long.”
.. Cowen identifies a country that very much has a cheerful, can-do spirit: China. “I have visited China many times over the past five years, for a different book project, and what I’ve observed there has made America’s social stagnation increasingly clear to me. That was one reason I came to write this book.”
.. Thinking about that point makes me wonder if economists are poorly-equipped to measure how an optimistic vision can propel growth.
.. “We are using the acceleration of information transmission to decelerate changes in our physical world.” Must our imaginations be limited by the screen? That would be a shame.
.. Maybe it can push forward nuclear fusion; it’s already been reported that American thorium scientists who could no longer develop the technology in the United States have taken their designs to China, which is happy to encourage their work.
.. One doesn’t have to admire Steve Bannon’s policy views to see that he’s lived a unique life. The recitation of his career path (born in Norfolk; Virginia Tech; HBS; officer in the Navy; Goldman; etc.) doesn’t sufficiently convey the diversity of his experiences. He has been involved with Seinfeld; Biosphere 2; the rescue effort of the Iran hostage crisis; a World of Warcraft virtual gold mining company; Titus (the Shakespeare adaptation featuring Anthony Hopkins); Breitbart; the White House; and surely other interesting ventures I’ve never read about.
.. He contracted Hepatitis C from a trip to Xinjiang in his 20’s; ongoing treatment has required his heart to be stopped over 100 times.
.. Let me take this opportunity to register a complaint with the term “open-minded,” which is increasingly praised as an important virtue.
I’ve started to dislike the term. First of all, it’s unobjectionable—who would profess he is not open-minded? More importantly, it’s not always clear what the term refers to, and this is worth thinking through. It might indicate the state of being “soft-minded,” in which one would readily be swayed by better arguments. But often it tends to connote “empty-minded,” in which one accepts anything and retains little. Many people are indeed open to different cultures and ideas, but they’re not necessarily conceptualizing their experience, nor active in seeking new experiences out.
.. I would like for everyone to be “hungry-minded,” in which one realizes that there is so much to know. A hungry-minded person senses that he is expert in so few areas of knowledge; that terrible gaps plague even his supposed areas of expertise; that there are important areas of knowledge of whose existence he is barely even aware; and that he should be fixing these deficiencies, now and ravenously. My favorite people to talk to are those who look for new experiences, think about them in an analytic way, and are eager to share their thoughts.
.. I’m slightly skeptical of thinking that we can save the world with indeterminate policies like looser monetary policy or housing reform. Are so many companies waiting to make things happen if only we’d cut interest rates by 0.25 percent? Will so many excellent service jobs be created if rents in Manhattan and the Mission were only cheaper by $250? To me these are policies worth advocating for, but I must say that they feel so marginal.
.. The most striking thing I learned from Harford is that the most success-oriented teams are usually the most miserable teams. For example, the amateur investment clubs that generate the highest returns are usually composed of people who don’t know each other well—it’s the only way to generate pushback on ideas that aren’t well thought through. Clubs composed of friends will find it more important to keep friendships intact rather than focus on returns.
.. Living a life that’s not so well-ordered can improve skill-acquisition.
.. It’s odd to me that a country that hasn’t experienced warfare for centuries would maintain such a militarized culture. The book makes it feel that being Swiss is the civic religion of Switzerland, and the service in the army is the annual demonstration of faith.
.. The biggest objections to this book will come from those who haven’t been steeped in Thielian arguments for techno-pessimism.
.. Maybe we can lay the blame for complacency at the feet of Carter, who again and again entreated Americans to lower their expectations. He’s the president who encouraged people to carpool, who put on a sweater and asked people to lower their thermostats, and oversaw repeated crises.
.. The chapter never explicitly mentions pot, except in the title. By introducing little oddities in the text, Cowen makes room for claims that are too difficult to baldly state; in other cases, watch for occasions in which he’s offering commentary on something other than what he’s directly writing about.
Defense R&D and Innovation
The digital age produces binary outcomes. Winners tend to win overwhelmingly—in war as well as in business. The Soviet Union crumbled in the late 1980s when American technology bested Soviet military spending, then estimated at a quarter of GDP.
.. America emerged from the Cold War with a degree of military superiority greater than any country in modern history. It also emerged with a technologically driven economy that had no real competitor, with Russia close to ruin after the collapse of Communism and China in an early stage of economic development.
.. The military balance between the West and the Soviet Union shifted several times during the Cold War until the digital revolution gave the United States a definitive edge.
.. Military strength and economic strength often rely upon the same policy foundations.
.. Without aggressive countermeasures, we risk losing it entirely.
.. If the Eisenhower administration had not responded to Sputnik with massive funding for basic research and scientific education, or if John F. Kennedy had not proposed the moon shot after Yuri Gargarin’s first flight into space, or if public funds had not been channeled into private research facilities to meet military needs, or if Ronald Reagan hadn’t undertaken the Strategic Defense Initiative—we would be living in a different world.
.. Russian surface-to-air missiles and artillery as well as guided anti-tank weapons gave the advantage to Soviet-aligned Egypt in the largest air and tank battle since World War II, the 1973 Yom Kippur War
.. Calculating men concluded that Russia would win an air and land war with the United States in Europe, which meant that Russia had the upper hand in the Cold War.
.. Then came the militarization of the microchip. During the Syrian collapse in June 1982
.. In less than a decade, the American military (with some contributions from Israel) reversed what had appeared to be a decisive Soviet advantage in air combat and established overwhelming American superiority.
.. That and the threat of the Strategic Defense Initiative persuaded Russia’s leaders that America would win a conventional war, which set in motion the collapse of Communism.
When DARPA set out to create a communications system with multiple pathways for national security reasons, no-one had the slightest notion that this would create the Internet. When the Defense Department contracted RCA Labs in the 1970s to develop ways to illuminate night-time battlefields, no-one could have foreseen that the semiconductor laser would revolutionize telecommunications. And when the Defense Department commissioned RCA Labs to develop light and energy-efficient information processors to analyze weather data in the cockpits of military aircraft, no-one expected that the outcome would be mass production of inexpensive chips by the CMOS method.3
.. America dominated world economic life to a degree not achieved since the highpoint of the British Empire during the nineteenth century.
.. America dominated world economic life to a degree not achieved since the highpoint of the British Empire during the nineteenth century.
.. Within the shrinking defense R&D budget, a disproportionate share has been squandered on the F-35
.. select Russian and Chinese advances already limit America’s strategic freedom of action. Russia’s S-400 air defense system, for example
.. Russia has already agreed to sell the system to China, which means that China could sweep the skies above Taiwan. China has two weapons systems that may be able to sink American aircraft carriers, the Dong Feng 21 surface-to-ship missile and the Type 039A diesel electric submarine
.. The deployment of the S-400 in Syria, moreover, made short work of American proposals for a no-fly zone in that country.
.. Many military breakthroughs—such as Israel’s Iron Dome missile defense system—depend on the quality of algorithms and the speed of computation rather than on changes in hardware.
.. China has made advances in technologies that represent a strategic threat
.. satellite-killer missiles and hypersonic weapons delivery vehicles
.. there has been a steady accretion of technological advantages that, combined, pose a threat to American strategic superiority over a ten- to twenty-year horizon
.. The Nobel Prize–winning Professor Robert Mundell, the father of supply-side economics, showed (along with other economists) that chronic trade imbalances stem from demographic shifts.
.. As China’s demand for savings tapers off during the next decade, its trade surplus should gradually fall. This trend is consistent with Chinese policy
.. The seven technologies listed below constitute the basic elements of all modern electronics from computers to smart phones; in each case, their manufacture has migrated to Asia because Asian governments adopted the formerly American practice of supporting basic R&D.
.. China now graduates twice as many STEM Ph.D. candidates as the United States does each year.
A New R&D Policy Agenda
The simplest and most direct response would be to require domestic production for all sensitive defense-related goods, including all computers, displays, integrated circuits, sensors, and other high-technology equipment used in defense applications. In other words, for certain important categories of security-related manufactures, the tariff should be infinite.
This is the only reliable way to ensure that American manufacturers will bring production, including critical parts of the supply chain, back to the United States.
.. Targets for future scientific research should include (but of course are not limited to):
- Defeating the current generation of Russian air defense systems
- Enhanced use of drones in place of manned aircraft
- Hardening of satellites against prospective enemy attack
- Cyber warfare
- New physical principles in computing (e.g., quantum computing)
- Quantum communications and encryption
- Detection of ultra-quiet submarines (the present generation of Chinese diesel-electric boats are practically undetectable, and submarine drones could be used to deliver nuclear weapons to coastal cities)
- Detection and defeat of the next generation of hypersonic missiles
- Countermeasures against anti-ship missiles (rail guns, laser cannon)
.. there is a close relationship between federal R&D spending and productivity growth.
.. It is noteworthy that productivity growth tracks federal rather than overall R&D spending. That is because research that leads to fundamental breakthroughs is more likely to be funded for defense and aerospace needs.
The challenges to American growth and productivity today are arguably even greater than they were when Jimmy Carter left office in 1981. ..
- America’s population is aging rapidly: 15% of the total population will be 65 or older in 2015, rising to 20% by 2030.
- America had little foreign competition as a venue for entrepreneurial startups in the 1980s: the world’s capital and talent had nowhere to go but the United States. Now there are numerous competing venues for technological entrepreneurship.
- Several rising Asian powers, particularly China, have acted aggressively to close the technology gap with the United States, and they have leapfrogged American manufacturing in a number of key industries.
- Federal debt was only 30% of GDP in 1979 (not counting unfunded entitlements) but rose to 110% in 2015.
- Obstacles to growth at the end of the Carter administration—a 70% top marginal tax rate and an inflationary monetary policy—were easier to identify and remedy than contemporary challenges.
- America’s backlog of productivity-enhancing technologies has shrunk, in large part because defense R&D is half of what is was in the late 1970s relative to GDP.
.. Absent innovation, entrepreneurs will find other things to do, such as designing new financial derivatives.
.. Kennedy’s moon shot and Reagan’s Strategic Defense Initiative had such lasting economic reverberations because they were accompanied by tax cuts and regulatory relief that made it easier for entrepreneurs to capitalize on basic scientific innovations.
.. There is a strong case, however, for using government funds to seed new companies that can develop innovative technologies. In an ideal world, the venture capital community would assume this function. But in the real world, the requirements of defense R&D and production require public funding.
.. the most productive investments are the ones that test the frontiers of physics. These projects enabled us to fight the next war, not the previous one.