MIT President on How to Improve America's Innovation Economy

Introduction and Overview

Susan Hockfield, president of MIT @ 11/9 Commonwealth Club Meeting in Santa Clara - Image courtesy of MIT

Susan Hockfield, President of MIT, spoke to a sold out crowd at the November 9, 2011 Commonwealth Club meeting in Santa Clara, CA.  The topic discussed is very dear to this author:  “Revving Up America’s Innovation Engine.”

Ms. Hockfield is a noted neuroscientist whose research has focused on the development of the brain.  She is the first life scientist to lead MIT and holds a faculty appointment as professor of neuroscience in the institute’s Department of Brain and Cognitive Sciences.

According to Hockfield, the U.S. rose as an economic power on the strength of its innovation system, especially after World War II. We pursued advanced scientific research, turned those discoveries into breakthrough innovations and manufactured them for markets around the world.  What was conceived and invented in the U.S. was also made here, unlike today’s world of outsourcing manufacturing and production.

To restore American jobs, industry, universities and government must come together to reinvent and reinvest in key components of our innovation system, many of which have been neglected.

During her lecture, Ms. Hockfield discussed a range of “innovation economy” priorities, including federal government funding of basic research, immigration policy for foreign students, creating an entrepreneurial culture at universities and seizing the opportunities of advanced manufacturing.  She believes that the intersection of the life sciences and engineering will be pivotal to innovation and economic growth in the 21st Century.

Innovation Tied to Economic Growth

Successful innovation was defined as new ideas, based on science and technology, that are transformed into commercially successful products, which create new markets and a better future. The United States became the world’s largest economy because we invented products and then made them with new processes.

Since World War II, federal government investments in scientific research have set off waves of job-creating innovation in aviation, electronics, computing, the Internet and biotechnology. Some examples of successful technologies made possible by U.S. government-funded research include:

  • Real-time, Networked Computing, radical advances that transformed computers from overgrown calculators used by a handful of scientists into the communications infrastructure of our entire society;
  • PET scans, which allow doctors to pinpoint malignant tumors without invasive procedures;
  • Lasers, which were once arcane scientific tools — no one knew what they’d be good for — that now lend their power to mere mortals as we scan bar codes at the checkout counter, burn CDs or have our vision corrected;
  • GPS, a technology invented for positioning nuclear missiles that now offers a universal tool to find your way to a hospital, a job interview or the nearest Starbucks;
  • eBooks, which enable us to carry more books than we will ever have time to read everywhere we go (Ms. Hockfield indicated she was carrying several books with her that were stored in her iPad);
  • Siri, the voice activated personal assistant in an iPhone.

These technologies all grew out of advanced research at U.S. Universities, which was later translated into products by entrepreneurs.  (U.S. based research and DARPA funding also gave us the Internet, which was previously called ARPA Net).  U.S. government funded research is a direct descendent of the defense related research, like Radar and the atomic bomb, which helped the U.S. win WW II.

The U.S. has experienced huge productivity gains since then based on innovative new technologies:

  • Electronics and semiconductors in the ’50s and ’60s
  • Mainframe and minicomputers in the ’70s
  • PC and Internet in the ’80s and ’90s & 1st part of this decade
  • BioTech from the ’90s till now

The cumulative effect of the IT wave in the 1990s, for example, produced one of the most successful growth periods in our recent economic history. From 1995 through 2000, the United States sustained annual GDP growth around 4.2 percent and productivity growth of 3.5 percent* — stunning results for a mature economy.  We also had real income growth for everyone, not just those in the upper echelon.

The IT wave was transformative for the U.S. economy.  Over the decade of the 1990s, the U.S. economy created 22 million net new jobs, or 2.2 million jobs a year! Comparing that to our current lackluster and dismal employment record underscores the need to kick-start innovation today.

Technology–based companies have had a disproportionately positive impact on their local economies. When they sell products into national and global markets, they draw money into the local economy from outside it (often from foreign countries), unlike a local service-based company, like a dry cleaner or restaurant, which only caters to those in the immediate area.  Those external markets also give technology-based firms the ability to scale up production and employment. That’s a powerful engine of job creation.

Manufacturing is an important last link in the chain of innovation.  For many years, U.S. industries made products here after conceiving and designing them.  Semiconductors are a good example, with SEMATECH helping U.S. based IC companies compete with the Japanese in the mid to late 1980s.  Of course this is no longer true. With the exception of Intel, almost all ICs today are made in Taiwan, China, Korea, Japan, or elsewhere in Asia.

Four Rules for Improving our Innovation Economy

Rule 1.  Growing good new ideas into commercially viable products takes money – from the right source(s) at the right time(s).

Early stage start-ups need funding at the right time, but VCs may not be the source.  From 2007-2010, cumulative VC investments dropped by 26% (and much more for early stage companies).  “There is no substitute for sustained, strong, federal funding for advanced early stage research,” according to Ms. Hockfield.  (She evidently assumes that such funding will trickle down to early stage start-ups, but didn’t say how).

There are several new innovative technologies ready to launch, but they all are in need federal funding of research:

  • Clean Energy
  • Robotics
  • Advanced Materials
  • Convergence of Life Sciences and Engineering Sciences, beyond biomedical

These (and other) emerging technologies  have the potential to drive new innovation waves.  Who will be the owner of these new technologies U.S. companies or the Rest of the World (RoW)?  Unless decisive action is taken on several fronts, it looks like RoW, according to Ms. Hockfield!

Hockfield expressed a huge concern that, in its current deficit reduction drive, the U.S. Congress may slash federal funding of many research projects.  These anticipated federal research spending cuts will have a negative impact on future economic growth and “produce stagnation for a decade,” according to Ms. Hockfield.

Rule 2.   If we want innovation systems to thrive, we need to attract talent from all over the world.  This requires a more relaxed U.S. immigration policy for foreign scientists and engineers.

Several illuminating examples were cited:

  • Over one half of Silicon Valley start-ups have been launched by entrepreneurs born outside the U.S.
  • At MIT, 40% of undergrads, 55% of Master Degree recipients, 63% of new PhDs are foreign nationals.

Current U.S. immigration law requires foreign students to return to their native countries after obtaining their degrees.  Then they can apply for an H1b Visa to work in the U.S.  This should be changed to permit those graduates to work in the U.S.  “Foreign talent should be permitted to stay in the U.S.,” said Ms. Hockfield.  “We should stamp a Green Card to their diploma,” she said.

The U.S. needs a full, comprehensive immigration policy, which we are far away from achieving at this time.

But, we also need to improve our science and math education and make it culturally more desirable to enter those fields.  That requires a major trend reversal.  Currently, 40% of all science, math, and engineering undergrads change their major to something else prior to graduation.

In conclusion, Ms. Hockfield said that the U.S. should attempt to attract brilliant strivers (both American and foreign nationals) and help them get all the education and hands-on experience they can handle.  But, she offered no prescription on how this could be done.

Rule 3.  Scientists and engineers can make great entrepreneurs, but an entrepreneurial culture is needed to make them flourish and push great ideas into the market place.

Such a culture should encourage innovative thinking and new ideas, tolerate failure (mistakes are OK), and offer connections to business people and money.

Every research university, public and private, can do more to build up its entrepreneurial culture. Here are a few suggestions offered:

  • Encourage faculty and students to launch startups and build curricula and mentor networks to teach them how to do it;
  • License technology seamlessly and fast, to get products into the market;
  • Run startup competitions to inspire, test-drive and showcase entrepreneurial teams;
  • Organize alumni entrepreneurs to advise the fledgling ones — they do it for free and then they thank the university for the opportunity.

The MIT Venture Mentoring Service, started and run by alumni volunteers with less than $3 million in funding over 10 years, has helped launch 142 ventures that have raised $850 million in external financing.

The Deshpande Center for Technological Innovation was also cited as a successful effort in creating an entrepreneurial culture.  By funding novel-early stage research and connecting MIT’s innovators to the business community, the Deshpande Center helps emerging technologies to become a commercial success.

Rule 4.   We need to make products here, not just conceive them here.  That means revving up advanced manufacturing in the U.S., in lieu of outsourcing production.

The U.S. is still number two in the world in manufacturing, with $1.6T or 13.4%, to our GDP and 12M direct manufacturing production jobs in 2007.  But, as we continue to outsource manufacturing, we are losing our competitive edge.

According to Ms. Hockfield, it is imperative that the U.S. restart the virtuous cycle of invention and manufacturing.  A new era of advanced manufacturing requires more high school and community college graduates with greater proficiency in science, technology, engineering and mathematics.  There are some excellent models for preparing workers for 21st century manufacturing – some right here in California- and we need to build on those.  Rebuilding our manufacturing capacity requires the demolition of the idea that the United States can thrive on its service sector alone.  To make our economy grow, sell more goods to the world and replenish the work force, we need to restore manufacturing — not the assembly line jobs of the past, but the high-tech advanced manufacturing of the future.

Ten years ago, we enjoyed a trade surplus in advanced technology manufactured goods; today, that category accounts for an $81 billion annual trade deficit. Countries that used to make inexpensive goods at low cost have developed the capacity to produce high-value goods, making it ever more tempting for American companies to design at home but manufacture abroad.

The United States remains a top producer of advanced technology products. But, our dominance has eroded significantly.  Over time, manufacturing off shore leads to innovation off shore, according to Ms. Hockfield.

Highlights of Q and A Session

  • MIT is collaborating with Singapore and Abu Dhabi United Arab Emirates on (undisclosed) research projects.
  • “Hubs of innovation” are sprouting up all over the world, e.g. Shanghai, Singapore, India.
  • While other countries have an industrial policy, Ms. Hockfield is skeptical about the U.S.  having one.  However, she said “some tweaks were in order.”
  • Congress should make R & D tax credit permanent.
  • U.S. should promote and encourage investment and research in “long cycle” industries, such as biotech and clean energy.
  • U.S. has embraced a “spend or save” mentality, rather than investing in research with a longer-term payback.  We have lost the sense of investing for future economic growth (a huge mistake).
  • U.S. needs a full-fledged immigration policy which includes retention of foreign graduates to work in the U.S.
  • U.S. needs to make engineering and science education more interesting and not be perceived as being so difficult to master. Those fields drive innovation and economic growth.
  • Convergence of life sciences and engineering sciences will be the story of the 21st century.
  • Biology parts lists are being picked up by engineering science fields.  One third of MIT engineering faculty are using life science tools, including medical devices, imaging technology and nano particles (for hunting and destroying malignant cells).
  • Example of biological research combined with engineering technology: Batteries are being made at room temperature by viruses with no toxic byproducts.  Viruses could be used to make solar cells in the future.

* [Editor’s note, McKinsey suggested that the productivity growth in the 1995 to 2000 time frame was closer to 2.5%, while the Federal Reserve Bank of New York suggested it was more on the order of 2.8%]


1.  Podcast of the talk + Q and A session-  CLICK “play now” in Podcast box, top right of page:

2.  Transcript of prepared speech (may not be exactly what was said):



0 thoughts on “MIT President on How to Improve America's Innovation Economy

  1. Is there a lack of innovation? It seems like innovation is accelerating in some ways because of the advance of technology – things like cloud computing made possible by ever better access to fixed and mobile broadband, are distributing knowledge beyond the confines of the university wall. Innovation and disruptive technology is just as likely to come from a small village (think the new low cost Indian tablets) as it is from Silicon Valley.

    The question is how to motivate the kids to go into Science, Technology, Education and Math?

    One idea is to leverage the power of the video game. The language today’s kids understand.

    1. Thanks Ken. President Hockfield did not mention advances in mobile broadband or Internet technologies, which I found surprising. The emphasis was on life sciences merged with engineering sciences and biotech/ clean tech, rather than traditional IT (telecom/ wireless/mobility, computing, storage, software, etc).

      Unfortunately, she did not offer a roadmap or prescription for accomplishing any of the 4 rule based objectives she articulated during her talk/Q and A.

  2. Well done! I believe US is still the leading innovator in the world. I also believe United States domination as an innovator will become increasingly questionable over time. Policies to realize Rule 4 objectives are due to the political divide in this country and to a lesser extent, globalization. U.S., by and large, has become an ungovernable country. Apple’s employment in US could be over 200,000 instead of 50,000! We have to ask ourselves what are the right set of policies to keep many of the Apple’s manufacturing jobs in US. Unfortunately, we would rather pay for unemployment and a lot of other subsidies than to think through the policies which get rid of those super-expensive, shortsighted subsidies.

    I beleive that implementing Rule 4 and Rule 2 is probably the only way to effectively address the issue of motivating kids to go into technology areas. Success feeds success!

    1. Alan, thanks for the well written article about her comments and for getting the discussion going. Basant, thank you for your comment.

      Yes, I agree that rule #2 is important. The U.S. should be taking leverage the fact that smart people want to live here and not drive them away. To give a personal experience, thanks to the H1B issue, a start-up I was working on could not be “started up”, as my partner was forced to take a job in order to stay in the country. Less than 30 days is not enough time to prove a model. But to also navigate through an immigration policy just doesn’t make sense. So, that dream, which may have been one the most viable business concepts I have had as it had customers and a basic product in place, died.

      Regarding rule #4, it seems like the education system needs to change (I think we are on the cusp of that) to adapt from an “Agrarian to an Achievement calendar (thanks Gov Wise for that quote). That is learning never stops and it needs to extend beyond the walls of the classroom into the home and beyond. As mentioned in my comment above, there is so much potential for games to be part of the process. As Big Al (the famous Little League coach trainer) says, “You can’t teach them when they are young, but you can sometimes trick them into learning.” That is the case with video games.

      Having said that, it still doesn’t take the place of real-life physical presence of a campus. I like the concept of this high school in South Carolina, where they have created more of a college environment. It does smack a bit of vocational schools, but if it keeps the kids interested and not dropping out, then that is a good thing. The interview with the principal of this high school, along with other interviews regarding blended learning and things that must be changed in order to advance the education system, can be found here:

  3. Alan- It’s a great article but as you indicated rightly that she has missed out on some of the key elements and didn’t offer anything new. We know how education, innovation and manufacturing played its role in making US a huge Super Power especially after WWWII. It was then when there was lack of infrastructure and no globalization, which is far different from today’s reality. Today to compete into the next era of global evolution-

    -We must overhaul our entire education system and cost for our next gen.

    -We must create the culture of doing more with less

    -We must develop new policy to prosper innovation and manufacturing for the globalized economy

    -We must have a policy to train workforce to adopt changing professional landscape instead of keeping them on the bay of unemployment

    -We must find a way to provide funding to small & medium businesses without having them to go through the big banks and SBA’s red-tapes

    These are just few of my thoughts!

  4. The article showed the percentages of foreign nationals at MIT. I do not know the percentages at the various UC campuses but it is very high. Although the UC system was originally chartered to allow all Calif high school students meeting a minimum requirement of a B average to be admitted to the University, today the UC system declines admission to Calif students and admits out-of-state and foreign students in their places because this is a revenue cash-cow. This and the huge tuition increase are responsible for Calif dropping from No. 1 to No. 49.

    Additionally, look at the marketing to kids in elementary and high school. One responder to the article mentioned video games as a solution. Let me ask, just how many video games do we need and also please note their focus. Ever since the big push for the Vietnam War, TV, movies, and now video games are mostly focused on violence and the glorification of war with an emphasis on killing and destruction. This is why we have been able to have millions of enlistments without returning to the draft system for the military.
    Look all around you and you will see parents dressing their very young children as soldiers. How is this different from Nazi Germany?

    Also look at the only other major focus for both video games and promotion in high school: preparation for pro sports. I propose the main challenge for America is the substitution of real education and learning in place of glorifying war and sports. But I unfortunately do not have any positive ideas of how to change this on a National Consciousness level. I think it has become too engrained in our culture and is encouraged by the vast majority of the population. It seems to me that when I look at the lines in front of the Kumon and other college prep companies, I only see Asian and Indian children.

    For me, I am trying to help facilitate interest and participation in science and engineering by promoting a future project in Sunnyvale. The Onizuka Air Force Base was closed in September. (This is the Eastern side of Moffett Field.) I was able to persuade the AFB and the City of Sunnyvale to save only one lone dish antenna of the many that were there when the base was operational. It is a geostationary 10m dish located in the SW corner next to hwy 237.

    I have proposed to the City of Sunnyvale to keep this dish and the small equipment building next to it. I have proposed that I and my modest group of microwave amateur radio operators in the 50MHz and Up Group of N Calif. which is a non-profit educational group (501c3) be allowed to be the custodian of this dish a building and that we solicit donations and grants to rebuild and power it. I and my group have volunteered to do all the electronic work and supply all of the communications equipment by loaning it from our own home stations. We would do this as unpaid volunteers. My vision is to have some scheduled public times so that school classes and the public could come in to learn.

    The current status is that we are waiting for the AF to give the lower 4 acres to the City of Sunnyvale. Then the very real problem might be that a commercial developer could offer the city a large financial incentive to tear down the dish and building and instead put in office buildings or another mall.

    1. While I agree that there is violence associated with many video games (and I use that term to describe all games, whether on a PC, tablet, or game console), there is so much that can be done to create more productive learning environment.

      Personally, I am not into games and I resist every chance I get in introducing them into the household. Still, I have seen the positive attributes of the right games.

      To provide one example, This is a site founded by Sandra Day O’Connor with the intent to help high school kids learn civics.

      Turns out, it’s effective for kids who are still in elementary school (and for their fathers who have forgotten what they probably didn’t learn in the first place). I am not a gamer by any stretch of the imagination, but this is a memorable way to spend a rainy afternoon with my kids – learning, while having fun.

      P.S. Keep us posted on your efforts to save the dish at the former Onizuka AFB.

  5. That is a very nice article, and I plan to listen to the full talk on a podcast.

    I was struck by the statement that “advanced manufacturing” should stay in the US. It is not clear to me what is defined as advanced manufacturing. Is iPhone assembly, or even memory-chip fabrication defined as advanced manufacturing? Or is advanced manufacturing restricted to complicated processes such as nanostructure fabrication, or biotech? It is hard for me to imagine the former type of activity returning to the US, but I also have doubts about the scale (in terms of number of people employed) that can be achieved by the latter.

    Regarding Jeffrey’s comments: I am a foreign national educated at one of the top US universities, but also I am the father of a child that I would like in the future to have a good chance of studying in one of the UC campuses. I would still prefer that he competes against the best candidates from around the world to get that spot, because that is the best way for our universities to remain at the top (even more so than generous funding I would dare to say).

    I do share similar concerns with Jeffrey about what is “marketed” to kids, and I greatly admire his initiative. (Save a spot for me for one of those classes.)

    1. 35 Facts About The Gutting Of America’s Industrial Might That Should Make You Very Angry

      “Did you know that an average of 23 manufacturing facilities were shut down every single day in the United States last year? As World War II ended, the United States emerged as the greatest industrial power that the world has ever seen. But now America’s industrial might is being gutted like a fish and both political parties seem totally unconcerned. Yes, we will always need trading relationships that are fair and balanced with other countries that have economic systems that are similar to our own.”

  6. Great comments! This subject should be debated at a future IEEE Conference with panelists from all academic disciplines, research institutes and VCs!

  7. Very well written article, but as noted in a couple of comments, there are no hints or specific recommendations on how to achieve rules 1,2, or 4. For rule 3, I assume the proposal is for Universities to establish Entrepreneurial Centers like MIT has done. But very few Universities have the money to do that!

    So it seems none of the four rules will be implemented any time soon! Did I miss something?

  8. Improving the education system is required, but that is a 10 – 15 year project. We need something now!

    We need something that will require 5 to 10 years to complete, so some level of security can be established. High Speed rail is one such project. It might not ever be economically self sustaining, but it meets the goal of employing a lot of people (blue collar and high tech) and when we are done spending the money we will have something of value.

    Spending stimulus funds to avoid laying off police is fine (and tremendous if you are the cop) but all it did was enable cities to push off for a few years their budget problem. If Obama had put his full office behind long term infrastructure spending, that would have been money better spent.

    We have to have a project that will give some hope now to the lesser skilled. In the 2000s they built house that we did not need. We should be employing them now building transportation systems that we will be used.

  9. This subject should be closed now, because it is just a “pie in the sky” wish list from MIT President, who seems to have a bias to Life Sciences and Biotech. Incredible she did NOT once mention the transformation of life styles due to the Internet or mobile computing/smart phones/tablets.

  10. Before America’s “Innovation Economy” can be improved America’s entire economy has to be improved. It has gotten badly out of whack in the last 20 years or so. We have been milking the existing system and not paying up for the current cost of running things. This is most apparently true when one looks at roads and bridges. We aren’t doing maintenance on our infrastructure and aren’t setting up our tax system to cover the cost of infrastructure maintenance on an ongoing basis. Our fuel taxes are a world wide joke and the condition of our roads demonstrate it. Our broadband system should be the functional equivalent of the Interstate highway system in 60s. Instead we are an also-ran nation in terms of broadband residential deployment.

    Fixing both of these would require both revenue (some capital but mostly expense) but it would also require LOTS of labor which is what the country needs right now.

    Beyond that, we need to fix a number of our higher cost systems that have been the economic sponge for absorbing the output of our educational systems:
    – The finance industry has gotten bloated and has become an end to itself rather than its appropriate mission of a (albeit profitable) service to society of providing capital for productive industry and business and providing an investment mechanism for savers that works better for everyone than hiding your gold in a mattress.

    – The cost of higher education has been rising significantly faster than inflation for a long time now, effectively pricing itself out of its market. This is especially true for public higher education. The cost of getting a qualifying education at a state institution to be a teacher HAS to make sense in order to have any hope of quality teachers.

    – Executive pay and the theft of funds from investors has gotten completely out of hand. I attribute much of this to the tax code’s double taxation of dividends which discourages paying dividends at all, leaving too much money in corporate coffers, stock price manipulation by management to “enhance shareholder value” and especially the effective disconnect between company profitability and return to the long term shareholder (as opposed to the short-term trader).

    – Our high overhead medical system is incredibly bureaucratic (thanks to govt and insurance factors) and high overhead. It compares poorly in cost effectiveness on the world stage.

    Enough for now!

  11. In my 40 years in the engineering profession, I have never considered the possibility that innovation per se had to be somehow encouraged by government policy. Rather, I saw engineers solving problems and generating new technology and businesses because they like to do that, and sometimes it pays a lot of money.

    Having said that, which I believe most of you will roughly agree with, consider a new idea: that government should get out of the way! The core issue for me is that government rules, past a certain complexity level, generate serious negative and unpredictable effects.

    The Obamacare bill is “enabling legislation” of 2500 pages. This means that 2500 pages of instructions (at ~one “shall” per page) are used to command regulators (i.e., bureaucrats) to generate laws to satisfy the 2500 pages of commands. (Really–that’s what enabling legislation means.) The Sarbanes -Oxley bill of about 100 pages and famed complexity has already stifled small businesses so much they refuse to go public and incur the costs (thus reducing financial incentives), but the new Dodd-Frank of another 2000 pages is a really juicy rule generator. D-F was written by the identical politicians who crated the banking problem it was inteded to solve. And in fact the “systemic risk” has NOT been solved in the D-F bill. Consider the stupendous operational complexity and cost of such legislation.

    I am serious: such monster packages of rules intended to lead to laws that somehow place constraints on activity to make things safer and more predictable does what all of you guys know: it leads to vicious unintended consequences. This is worse than software complexity because the design of SW usually tries to solve a problem subject to complexity upper bound (cost). Government cares not for simplicty: it cares to provide the loop holes for its lobbying constituents, which pile up on previous loop holes.

    Notice this entire discussion has been conducted in a frame that placidly assumes government should somehow DO SOMETHING. I say, it should STOP and take a breath. These policies have added huge costs of doing business and thus reduces the rewards for innovation…unless you try to innovate around the artificiality of the policies! (Which doesn’t do much for the general economy).


    1. hmmm… SarBox did not really originate in government, but was primarily motivated by investors who clamored for more transparency in what they invest in. So I think its fair to say that if SarBox hurts small businesses, they can thank big businesses for this – such as Enron – who made it a habit to misrepresent their accounting and business status.

  12. Except in the IT software area, industrial innovation feeds on a strong manufacturing base. Lose or neglect this base and your innovation is gone 2 decades later (there is a latency effect). See how Japan became a leader in the auto industry coming from nowhere in barely 3 decades. China is on its way with an unprecedented manufacturing economy. See how China has “stolen” the solar panel industry (where is US innovation there? I was told a few years ago that my state – California – was to be the leader there). So when we say “US is still the leading innovator in the world” we should be cautious and look at the health of the manufacturing base that feeds this innovation: it is a good predictor where we will be in 10-20 years. And so much for the “service-based” economy glowing forecasts of the 80s/90s that delivered nothing except a fair Web site services and tools market, and contempt for the brick-and-mortar economy from politicians down to college students.

  13. How to Improve America’s Innovation Economy

    The US can become more industrial by removing the costs imposed on production by government, including excessive restrictions, mandates, and taxes.

  14. Innovation takes money and you must have the economy to support it and the entrepreneurial spirit that makes it reality. A lack of innovation is not the fault of the human brain. It is an economical matter. When the economy is drained of capital by taxes and inflation caused by increasing debt and money creation, innovation and the entrepreneurial spirit have a hard time surviving. This is illustrated by the amount of innovation that we had in the 60s and 70s when the economy was growing rapidly compared to the amount that we have now that the national debt exceeds a fairly stagnant GDP. A tell tale sign that we were headed for trouble is that the government, relatively, has grown much faster than the GDP. In order to stay in power, it has not blatantly raised taxes but, it has borrowed excessively creating inflation which is actually a tax and it has sneakily increased taxes with fees and licensing charges. In order to restore innovation and advance as fast as we did in the first 50 years of the century, we have to reduce taxes, borrowing, and debt and reduce the size and intervention of government. Otherwise, innovation will continue to slow and we will be stuck using oil as an antiquated energy source and fighting further draining wars for it.

  15. Great article and follow up comments. Kudos to Alan W. for writing and stimulating a lively discussion and Ken P. for hosting it!

    It seems to me that the ruling elites from both parties of the US have “bet the farm” on an industrial policy where the developing nations fight for the $1 per hour sweat labor producing goods (that were at one time made in US) so that the Americans would enjoy the high living standards while American financial institutions would ‘innovate’ to skim from the profits of central banks and other large financial institutions around the globe! But with many countries banning (like Germany, China, India, etc.) derivatives which are not tied anything in the real world, even this financial ‘innovation’ from the US is a hard sell! Derivatives are not constrained by natural resources, not limited by labor, and restricted only by the broker’s ability to sell the ‘financial’ product! I read some where that the ‘cancer’ from derivatives has now grown to over US$700 trillion (as of June of 2011, per Bloomberg), equaling 50 times the American GDP! That is the REAL American debt, not the $14.xx trillion debt ceiling that we crossed recently (and still being haggled on in the debt committee).

    As many pointed out above, innovations that produce real products built by real people will spur again REAL innovations in the US. Not the so called financial ‘innovations’ that have produced disasters that the tax payers have rescued time and time again!

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