How Austerity Kills Innovation
Janet Yellen, set to be appointed on Wednesday as the first women head of the US Federal Reserve, is expected to go easy on winding down the easy-money policy which is oiling the US and other economies
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If there’s one thing centrist elites love, it’s innovation, and Bill Keller is no exception. His latest column is all about it: how it’s great, and how to get more of it. He makes some good points, but rather misses the forest for the trees, and in the process reveals a contradiction inherent in elite thinking. Here’s a sample:
But for all the pop-culture enthusiasm, there are signs that our innovative dynamism is diminishing. The pace of new business creation, on a per-capita basis, has been in a slow but steady decline since the mid-1980s, according to the Kauffman Foundation, which studies entrepreneurial trends. That suggests that other essentials of a thriving innovative economy have been neglected.
This will not be big news to loyal Monthly readers. But anyway, in Keller’s tale, what is holding back the innovative class? Here are his answers: the decline of our education system, insufficiently strict intellectual property rights, lack of start-up capital, neglect of infrastructure both physical and intellectual, and a crummy immigration system.
Now, these are mostly fine, with the exception of intellectual property. The patent system has many, many problems, but insufficient protection of producers is very far down the priority list. And furthermore, while the education system could surely be improved, it isn’t collapsing. It’s improving slowly, if anything. He also should have mentioned creeping monopolization, which we’ve been focusing on since 2010.
But in any case, like most diagnoses of the American economy from the #AspenIdeas set, Keller focuses exclusively on the supply side of things, wringing his hands over mild, nearly-intractable problems while ignoring great howling monstrosities on the demand side. Because surely the most important background condition for any seller of things is the ability of other people to buy the things you want to sell. Thus, a years-long spell of mass unemployment will be absolute poison to the entrepreneur class as a whole.
One could argue that Keller just wanted to focus on entrepreneurs exclusively. But like most centrists, he tends to favor austerity, in the form of cuts to social insurance. He’s not as bad as some— he called the sequester a job-killer, for instance—but it does suggest some misplaced priorities. If one favors innovation, then by an order of magnitude at least the most important thing is to return to full employment as soon as possible.
So, elites, what will it be? You can have your beloved social insurance cuts, or you can have your start-up business owners being rewarded for their hard work. But you can’t have both.