Depletion of IRS Enforcement Is Undermining the Tax Code [feedly]

Depletion of IRS Enforcement Is Undermining the Tax Code
https://www.cbpp.org/federal-tax/depletion-of-irs-enforcement-is-undermining-the-tax-code

Testimony of Chye-Ching Huang, Senior Director for Economic Policy, CBPP, before the House Ways and Means Committee

 -- via my feedly newsfeed

Tom Friedman: Calling Michael Bloomberg

Tom Friedman goes nuts over Sanders victories: Just take a drink, Tom, lighten up, you act like a boss told he will have to bargain with a union :)   

https://www.nytimes.com/2020/02/11/opinion/bloomberg-president-2020.html  

text only:

My fellow Americans, we face a national emergency. Never before have we had a president so utterly lacking in personal integrity, so able to lie and abuse his powers with such impunity and so blindly backed by an amoral party, an unscrupulous attorney general and a media-fund-raising juggernaut. It is an engine of raw power that will cram anything the president says or does right down your throat.

James Carville had it exactly right when he noted on "Morning Joe" the other day that the only thing standing in the way of lasting damage by this machine to all that makes America unique and great is the Democrats' nominating the right person to defeat Donald Trump.

We have to get this right. This is no ordinary time, no ordinary Republican Party, no ordinary incumbent, and it will require an extraordinary Democratic machine to triumph.

Because, without doubt, Russia and China also will be "voting" Trump 2020 — for three reasons: (1) Trump keeps America in turmoil and unable to focus on building the infrastructure we need to dominate the 21st century the way we did the 20th. (2) Both Beijing and Moscow know that Trump is so disliked by America's key allies that he can never galvanize a global coalition against China or Russia. And (3) both Russia and China know that Trump is utterly transactional and will never challenge them on human rights abuses. Trump is their chump, and they will not let him go easily.

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So who is the right Democratic candidate? Well, for starters I will tell you who it is not. It is not Bernie Sanders. On which planet in the Milky Way galaxy is an avowed "socialist" — who wants to take away the private health care coverage of some 150 million Americans and replace it with a gigantic, untested Medicare-for-All program, which he'd also extend to illegal immigrants — going to defeat the Trump machine this year? It will cast Sanders as Che Guevara — and it won't even be that hard.

Yes, the failures of American capitalism to deliver inclusive growth, which have propelled the Sanders campaign and animated his followers, require urgent attention by our next president. But Sanders, in key cases, has the wrong solutions to the right problems. He's the wrong candidate to take down Trump.

Please, Democrats, don't tell me you need Sanders's big, ill-thought-through, revolutionary grand schemes to get inspired and mobilized for this election. You want a revolution? I'll give you a revolution: four more years of Donald Trump, unencumbered by the need to get re-elected. That will be a revolution! And it will do permanent damage to the institutions and norms that have sustained this country since its founding, not to mention our environment, which Trump has been selling off to oil, gas and mining companies at an alarming pace.

So, who is the right candidate and what is the right strategy?

On strategy, we know the formula that works, because it already has: Appeal to independents, moderate Republicans and suburban women. These are the constituencies that did not like Hillary Clinton and were ready to give Trump a chance in 2016 — but abandoned him in 2018 and delivered the House of Representatives to the Democrats, and then also two governorships in red states.

If Democrats can choose a candidate who can hold the core Democratic base and also appeal to these same independents, moderate Republicans and suburban women in the key swing states, they can absolutely defeat Trump.

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How do you do that as a candidate?

For starters, by stressing national unity, personal integrity and a willingness to pursue bipartisanship whenever the other side is ready. A lot of Americans are worried sick that Trump is tearing the country in half.

As Larry Diamond, editor of The Journal of Democracy, pointed out to me, several studies he's been publishing show that the best way to defeat illiberal populism is not by trying to out-polarize the polarizer in chief but rather through broad, inclusive electoral strategies that pragmatically address the economic and social concerns of voters, including those who had previously voted for the populist.

That was the approach that enabled the secular opposition to defeat the party of Turkey's autocratic president, Recep Tayyip Erdogan, in municipal elections last year in Istanbul and other cities. A similar depolarizing approach powered the victory of Greece's liberal-centrist New Democracy party over the ruling left-wing populist Syriza in national elections last year.

You also do it by repeating every hour every day — with evidence — that Trump is out to destroy Obamacare through the courts, which means eliminating its coverage for pre-existing conditions, and only the Democrats will save it and improve it.

You do it by not only talking about how to redivide the pie — which we need to do — but by also talking about how to grow the pie, how to create more taxpayers and how to inspire more innovators. Ours is a capitalist country. Americans admire successful entrepreneurs. Let's praise job creators and risk-takers — as long as they and their companies pay their taxes. You want more and better jobs, you need more Steve Jobs.

You do it by celebrating the growing economy that Barack Obama reignited and Trump continued, while making clear that it still needs work. Too much of the Trump tax cuts have gone to companies and the most wealthy, with virtually nothing invested in infrastructure — roads, ports, schools, bandwidth, scientific research — or affordable housing, which we must have for inclusive prosperity.

You do it by hitting Trump hard on the environment, but not focusing just on "climate change," which is an abstraction for most people. Trump is unfit to serve four more years because of how he has removed so many protections for the water and air America's kids drink and breathe every day.

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And you do it by supporting a balanced approach to immigration reform — a high wall, with a big gate.

I was glad to see candidates with this kind of message, like Amy Klobuchar and Pete Buttigieg, trending better in Iowa and New Hampshire. It showed that lots of Democrats are searching in this direction.

But there is one candidate on the Democratic side who not only has a track record of supporting all those issues but also has the resources to build a machine big enough to take on the Trump machine.

This candidate also has the toughness to take on Trump, because while Trump was pretending to be a C.E.O. on the show "The Apprentice," this candidate was actually building one of the most admired global companies as a real C.E.O.

This candidate is not cuddly, he is not always politically correct and he will not always tell you what you want to hear — or try to outbid you on how many free services he'll give away. He's made mistakes, especially around stop-and-frisk policing in New York City, which disproportionately targeted black and brown men and for which he recently apologized.

His mistakes, though, have to be weighed against a record of courageously speaking out and devoting enormous personal resources to virtually every progressive cause — gun control, abortion rights, climate change, Planned Parenthood, education reform for predominantly minority schools, affordable housing, income inequality and tax reform. And he has vowed as president to focus on building black wealth, not just ending poverty.

And this candidate knows how to get stuff done — he can fight this fire at the scale of the fire. His team has for years used social networks to promote progressive issues to centrist and conservative audiences. He won't cede the internet/Facebook/Twitter battlefield to Trump's team, who are killers in that space.

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And this candidate is now rising steadily in the polls. This candidate is Michael Bloomberg. This candidate has Trump very worried.

Yes, Sanders is also polling well against Trump, but the Trump machine has not begun to focus on him yet — it hasn't begun bombing Facebook with ads about how Sanders honeymooned in the Soviet Union.

Sitting here today, Bloomberg — paired with a progressive vice-presidential candidate who can appeal to Sanders's voters — has the best chance to carry the day.

In an age when political extremists go all the way, and moderates tend to just go away, Bloomberg has the right stuff — a moderate progressive with a heart of gold but the toughness of a rattlesnake — for what is going to be an incredibly big, brutal task: making Donald Trump a one-term president.

(Disclosure: Bloomberg Philanthropies has donated to Planet Word, the museum my wife is building in Washington, to promote reading and literacy.)

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Thomas L. Friedman is the foreign affairs Op-Ed columnist. He joined the paper in 1981, and has won three Pulitzer Prizes. He is the author of seven books, including "From Beirut to Jerusalem," which won the National Book Award.

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John Case
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President’s “Health Reform Vision”: $1 Trillion in Cuts, No Plan to Protect People With Pre-Existing Conditions [feedly]

President's "Health Reform Vision": $1 Trillion in Cuts, No Plan to Protect People With Pre-Existing Conditions
https://www.cbpp.org/blog/presidents-health-reform-vision-1-trillion-in-cuts-no-plan-to-protect-people-with-pre-existing

 -- via my feedly newsfeed

Tim Taylor: South Africa: Mired in Stagnation [feedly]

A thorough look at SA stagnation. I lean a little more toward Dani Rodrik's emphasis on the labor mismatch introduced by financialization in the larger cities. Manufacturing is the fastest path, along with education,  to raising working class skills and capacities, especially when coming from a primarily agricultural background. Tourism is good for small  biz startups, which play a role, but it doesn't do much for wages, in South Africa, or here.

South Africa: Mired in Stagnation
http://conversableeconomist.blogspot.com/2020/02/south-africa-mired-in-stagnation.html

South Africa is a political miracle: a country which managed to negotiate its way peacefully to ending apartheid rule through a democratic election in 1994. After that, South Africa's economy mostly grew up until the Great Recession, but it has now been largely stagnant for a decade. Here's a figure from the IMF showing per capita GDP in South Africa since 1993. (Values are index numbers set relative to a value of 100 for 2014.)

Other IMF stats show that overall unemployment is 25% and youth unemployment exceeds 50%. A combination of high-income cities like Johannesburg and Pretoria and low-income urban slums and rural areas have also combined to make South Africa one of countries with highest levels of income inequality.


The IMF just completed an evaluation of South Africa's economic situation a few weeks ago. Also, in August 2019, South Africa's Treasury department published a list of suggested reforms. What are some themes that emerge about what has gone wrong and what needs to be done?

1) Many of South Africa's state-owned enterprises (SOEs) seem to be in disastrous shape, and the biggest disaster is ESKOM, the electricity public utility. The IMF writes:

Most SOEs face elevated costs arising from bloated wage bills and costly procurement. Cost increases have outstripped tariff increases and cuts in capital expenditure, and debt service burden has risen, keeping SOEs net cash flows negative. Eskom is by far the largest SOE and its position is particularly critical, with an operational balance insufficient to service its high debt—around 10 percent of GDP. ... Corruption, delays in debt-financed investments, and expensive procurement have generated cost-overruns and left Eskom reliant on outdated plants vulnerable to breakdowns (the average age of the fleet is 37 years). 

Other especially problematic state-owned enterprises are South African Airways and the passenger railway company PRASA.

2) In substantial part because of subsidies to the state-owned enterprises, South Africa's government is already running large fiscal deficits--which of course makes it difficult to focus resources on social spending. The IMF writes: 

In the early and mid-2000s, annual output growth averaged about 4 percent, fiscal deficits turned to small surpluses, and public debt declined to 27 percent of GDP. By contrast, starting in the late-2000s, private investment's contribution to growth fell considerably, and total factor productivity (TFP) growth became negative, dampening growth to slightly above 1 percent. Following the countercyclical easing at the time of the global financial crisis, fiscal deficits have remained wide at around 4½ percent of GDP, more than doubling public debt to close to 60 percent of GDP. 

IMF projections are for the annual deficits to get higher, in substantial part because of promised subsidies to the state-owned enterprises, but also for paying interest on past borrowing--much of which is paid to international investors outside South Africa. 

3) Product markets in South Africa strongly favor large incumbent firms, and choke off new competitors. The IMF again: 

Several economic sectors, including manufacturing and banking, are dominated by a handful of big players with significant market power. High concentration has inhibited the emergence of smaller firms, which are powerful job creators in other EMs [emerging markets]. SMEs [small and medium enterprises] have shrunk in importance relative to large firms in the past decade. Staff analysis suggests that rising input costs and markups are associated with declining economic growth. This is clearly the case of large SOEs that pass-on high costs to businesses, thus sustaining elevated price
levels and reducing the economy's competitiveness. Firms subject to restrictive procurement and labor regulations also suffer from high costs and low productivity. A distributional analysis suggests that the poor are more affected as they face both fewer employment opportunities and higher prices.

One striking comparison looks at "mark-ups" across countries--that is, how much are the prices that countries charge above marginal cost of production? Here's a study that looks at the change in mark-ups over time, compared to the rise in marginal costs. 

Here's another figure looking at concentration in the retail industry, which is often an industry that can be friendly to new entrants. South African retail is far more concentrated than the comparison countries.


4) South Africa is experiencing a labor market mismatch, where much of the job growth is in higher-skilled jobs and much of the unemployment is among lower-skilled workers. Moreover, requiring that state-owned enterprises pay high wages means that these firms try not to hire lower-skilled workers. As the IMF writes:

South Africa has a higher level of unemployment and lower labor force participation than both regional and emerging economies. With skill mismatches and economic growth tilted toward the most sophisticated sectors (finance, information technology, and specialized business services), the bulk of job creation benefits high-skilled workers as opposed to low-skilled workers and labor-intensive industries including agriculture, tourism, and manufacturing. Further, labor cost increases exceed productivity improvements—largely a reflection of the centralized wage bargaining that transmits labor cost increases to the rest of the economy—systematically keeping demand for labor (including for new entrants) significantly below employment needs. Firm closures further worsen the dynamics. ... Regulatory constraints that inhibit firms' ability to hire on a need basis limit employment opportunity, particularly for the inexperienced and the youth. To justify payment of centrally bargained wage levels, firms prefer to hire skilled and experienced workers, who represent a small percentage of the population.

This is why one of the main recommendations from the report of South Africa's Treasury focuses on "prioritizing labour-intensive growth in sectors such as agriculture and services, including tourism."


5) In the long run, a key element for South Africa will be its education system and other methods of getting future employees the skills they need. South Africa's education system is not performing well. From the IMF, here's a figure showing spending on education on the horizontal axis, and performance on the international PISA tests on the vertical axis. South Africa's performance lags far behind other countries with a similar level of spending.

The South African Treasury, before starting its discussion of reforming state-owned enterprises and all the rise, first emphasizes the importance of education in its  report:

However, any attempt to raise South Africa's potential growth rate must include progress on the fundamental building blocks of long-run sustainable growth. First, there must be an emphasis on improving educational outcomes throughout the educational life-cycle ... The South African education system, which other countries have used to promote equality of opportunity, perpetuates inherited socio-economic disadvantage: if your parents are poor, the chances of your being poor are about 90 per cent (Finn et al. 2016). The lack of a transformative education system is a key factor in this persistence. Our educational outcomes are poor, even when compared to other less well-resourced countries in the region. This is a major driver of intergenerational inequality and inhibits the inclusivity of growth and global competitiveness. Since the highest return to human capital investments are associated with the earliest interventions, an educational life-cycle approach must include a strong emphasis on early childhood development, which has demonstrated the ability to: (i) improve long-term health outcomes (Campbell et al. 2014); (ii) boost earnings by as much as 25 per cent (Gertler et al. 2014); and (iii) generate a rate of return on investment of 7 to 10 per cent through better outcomes in education, health, and productivity (Heckman et al. 2010). Evidence of inadequate
teacher content knowledge (see Venkat and Spaull 2015) and significant reading deficits in primary schools (see Spaull and Kotze 2015) points to the need for a comprehensive reading plan for primary school learners drawing on successful experiences such as the provision of reader anthologies.

Second, we need to continue to implement youth employment interventions, including training opportunities that remove barriers to entering the labour market and apprenticeships based on close cooperation between technical, vocational, and other training institutions and the private sector to ensure that training needs are demand-driven (Bhorat et al. 2014). Investing in the capabilities and educational and health outcomes of young people is unlikely to yield a dividend unless the youth are absorbed by labour markets (Mlatsheni 2014). 

6) A separate report from the IMF also added a discussion of the problem of crime in South Africa. For illustration, here's the homicide rate in South Africa, which has dropped a bit since 2000 but remains very high. 

Surveys of business in South Africa see the crime rate as one of the biggest problems.

International comparisons of businesses also suggest that crime is a particular problem in South Africa.

Overall, the in-depth discussion of policy steps by South Africa's Treasury sums up this way:

These growth reforms are organized according to the following themes: (i) modernizing network industries; (ii) lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth; (iii) prioritizing labour-intensive growth in sectors such as agriculture and services, including tourism; (iv) implementing focused and flexible industrial and trade policy; and (v) promoting export competitiveness and harnessing regional growth opportunities. We estimate the economy-wide impact of the proposed interventions over time based on when they can realistically be implemented, and find they can raise potential growth by 2–3 percentage points and create over one million job opportunities.

There used to be a hope that South Africa's economy could provide provide both an example and an engine for lifting standards of living across sub-Saharan Africa. Back around 1995, for example, South Africa had about 7% of the total population of sub-Saharan Africa, but the GDP of South Africa was about one-third of total GDP for the region. By 2018, however South Africa had about 5% of the population of sub-Saharan Africa, but 21% of the total GDP of sub-Saharan Africa. The blunt truth seems to be that South Africa's government has not delivered in the last decade on many important outcomes: not in education and training, running state-owned enterprises, providing a climate for new businesses to start, not in reducing inequality, getting crime under control, or keeping government debt manageable

 -- via my feedly newsfeed

Branko Milanovic: Transcending Capitalism: Three Different Ways? [feedly]

Very interesting speculations from Branko -- who has a rep of being the Eeyore of progressive economists :)  -- but appears  more optimistic. Note the  influence of Piketty --- i.e., there are paths to "socialism" quite different than the particular history of the USSR or the Chinese revolution, and which, also, do not have their feet planted in mid air, as in some affectionate, but impossible, "hippie" models.

Transcending Capitalism: Three Different Ways?
https://www.globalpolicyjournal.com/blog/10/02/2020/transcending-capitalism-three-different-ways

Branko Milanovic explores three ways capitalism may be transcended.

 

After the crisis of 2007-8, capitalism has entered among some parts of the public opinion into an ideological crisis. (I have written elsewhere why I think this is not a general crisis of capitalism but a response to the decline of western economic and political power.) However, the question  of durability or of non-permanency of capitalism has, unlike in the years after the fall of communism, reentered the public discourse. In many ways, in the West, the situation is returning to the 1970s or earlier when the ideas of alternative socio-economic systems were hotly debated. This is something that had disappeared in the next several decades driven away by neoliberalism in economics, the collapse of Soviet socialism, and the imposition of the pensée unique.

 

Now, things are changing, and understandably many people bring their own ideas about how capitalism can be "transcended", that is replaced by a different socio-economic system. I want here to highlight three different ways in which this subject has recently been addressed.

 

In a new paper "What is socialism today: Conceptions of a cooperative economy", John Roemer starts with three essential pillars of all economic systems: an ethos of economic behavior, an ethic of distributive justice, and a set of property relations. In capitalism the three pillars are (1)  individualistic ethos, (2) laissez-faire (no redistribution), and (3) privately owned means of production with profit accruing to capitalists. Until now, Roemer argues, all attempts to transcend capitalism focused on element No. 3, replacing privately owned capital with state or socially (collectively) owned capital. They have all failed.

 

Instead, our emphasis should be, according to Roemer,  on developing solidaristic ethos. Using the terminology from the game theory, Roemer contrasts Nashian ethos where each individual behaves as to maximize his or her  gain (and which in some cases, like the prisoner dilemma, may lead to perverse outcomes) and the Kantian ethos where we behave in the way in which we wish that everybody else would behave. This is a form of a golden rule (behave towards the others the way you wish that they behaved toward you), or, in more narrowly economic language, we try to internalize (account for) the behavior of everybody else.

 

In a presentation given recently at the Graduate Center CUNY in New York, Roemer gave the example of the "tragedy of the commons" where Nashian (narrowly profit-motivated individuals) maximize own fishing with the result that eventually no fish remain vs. a Kantian type of solidaristic behavior where one needs to think that if he increases his fishing everybody else would do the same. The person would thus "internalize" the behavior of others and presumably avoid the tragedy of the commons.

 

Roemer argues that, as societies get richer and as a conscious effort is made, the percentage of "Kantians" would increase compared to the "Nashians" and we would gradually move toward more solidaristic and cooperative societies. A nice example that Roemer used to buttress his case is the increasing attention given to environment where many people make an extra effort to adjust own consumption or sort different types of trash even if neither is monitorable and defections are costless. Still many do it the way they wished everybody else did it too.

 

A different way of "transcending capitalism" was recently proposed in Piketty's new book "Capital and Ideology". In the last part of the book,  Piketty, after reviewing on some 800 pages, the ways in which various hierarchical and property relations that seem abhorrent to us today (slavery, patriarchy, racism, serfdom etc.) have been ideologically justified, argues for ending the ideology of private property fetishism.  In terms of Roemer's taxonomy, Piketty is clearly back to the pillar No. 3 but unlike Marxists and the Soviets Piketty does not require a dogmatic thorough-going elimination of all private property but looks at the ways in which the economic power held by property holders could be limited. To that objective, he deploys a radical yet realistic proposal whereby all enterprises after a certain size would have obligatory workers' shareholding with workers holding 50% of the shares, and no single capitalist (regardless of the amount of capital he has invested in the company) could hold more than one-tenth of the capitalist half of shares. (Thus even the largest owner would be limited to 5% of total voting power). Piketty would allow small enterprises to be managed as they are now with capitalists holding the full power and workers being a hired labor, but as soon as such enterprises would go over the threshold, obligatory workers' shareholding would kick in.

 

This two-tier system at the production level would be combined with the system of the so-called "temporary ownership" consisting of severe annual taxation of private wealth and progressive taxation of inheritance.  

 

The aim of the two systems (at the production stage and fiscal) is to fundamentally alter the relations of production in favor of labor and to limit the accumulation of private wealth. The latter will not only change levels of inequality that currently exist but would structurally constrain  the ability of the rich to control the political process and to transmit their wealth across generations. It would thus significantly change inter-generational mobility. But even more importantly, perhaps, it would change the intra-enterprise hierarchical relations between owners and workers.

 

(Piketty's idea have been criticized---see here—for being un-Marxist in the sense that they do not go beyond the logic of capital or social-democracy, do not dispense with all power relations derived from ownership, and that his concept of social change is idealistic, as opposed to materialistic.)

 

A third way to envisage the change in the modern capitalism is somewhat different and I briefly mention it at the end of "Capitalism, Alone". It is materialistic and grounded In the "objective" relationship between the two factors of production (labor and capital), or more exactly in their relative scarcities. It is based on a standard Marx-Weber tripartite definition of capitalism (used in the book): (a) production is carried using privately-owned means of production, (b)  labor is legally free but hired (that is, the entrepreneurial function is exercised by owners), and (c) coordination of economic decision-making is decentralized. Now, as I argue in "Capitalism, Alone", the current apotheosis of capitalism is largely due to the weakening power of labor, brought about by the doubling of the global labor force that works under capitalist conditions following the transition to capitalism of the Soviet-bloc countries, China, Vietnam and India. Furthermore, the digital capitalism of today has enabled commercialization ("commodification") of many activities that have never been commercialized before and has thus made further inroads into our private life. The dominion of capitalism has become extended both geographically (to encompass the entire globe) and "internally" to move to our individual private sphere.

 

But if the underlying relations of relative scarcities between labor and capital change in this century or the next, if the world population reaches its peak and remains there (as all projections indicate) and if the capital stock keeps on increasing, we might face an entirely different situation between capital and labor—very much the reverse of the one the world is facing since 1990. The relative abundance of capital may allow individuals to become entrepreneurs by simply borrowing capital and not letting the suppliers of funds have a decisive role in management. This is what we currently observe in the start-up world. It might seem not important, but it is: the agency which is now almost exclusively vested in capitalists would be transferred to "workers". The component (b) of the standard Marx-Weber definition of capitalism –the existence of wage labor—would disappear. The system would still maintain the private ownership of the means of production and decentralized coordination: it would  be a market economy, but it would not be a capitalist market economy.

 

This "transcending" would be different from the other two. Unlike Roemer, it would not rely on the change in our ethos, and unlike Piketty, it would not depend on constructivist change in the rules but would arise "organically" from the changed relationship between the two factors of production. Being "organic" would make it stronger and more durable.

 

 

This first appeared on Branko's blog and wad reposted with permission.

 -- via my feedly newsfeed

Economic Update - Capitalism's Uneven Development [feedly]

Economic Update - Capitalism's Uneven Development
https://economicupdate.podbean.com

Introduction to capitalism's systematically uneven economic development. From Marx's original criticism of capitalism for producing and reproducing unevenness to the many historical examples, today's program argues that there are heavy social costs that flow from capitalism's uneven development. Those costs then become bases for arguing the need to move beyond capitalism.  

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Global R&D:The Stagnant US Position [feedly]

Global R&D:The Stagnant US Position
http://conversableeconomist.blogspot.com/2020/02/global-r-stagnant-us-position.html

Research and development isn't enough by itself. . New discoveries needs to be brought into the economy in the form of new companies, new products, and new jobs. But it matters. A long-standing concern among economists is that a market-oriented economy may tend to underinvest in R&D, because even with intellectual property like patents and trade secret law, an innovator captures on average only a modest share of the social benefits from R&D. Thus, a variety of estimates suggest that the social return from more R&D spending is 60%, or thatthe US should be aiming over time to double its R&D spending. 

In a global context, the US efforts to invest in R&D look stagnant. Here are some figures from a January 2020 report of the National Science Foundation and the National Science Board, called "The State of U.S. Science & Engineering 2020," 

This figure shows total domestic spending on R&D (government, private-sector, nonprofits). The US leads the way. The purple line is China, which surpassed Japan about a decade ago and Europe about five years ago.

If you look at the growth rate of R&D from 2000-2017, you can see that the China is the most obvious area catching up to the US, but certainly not the only one.  

As a result of these ongoing shifts, the US used to be the preeminent region for R&D spending. But now, the the primary geographical  home of most global R&D is the East and South Asia region.

One issue is that the US spends about 2.5% of GDP on R&D in most years, give or take a few tenths of a percent. Germany, Japan, and South Korea spend more. China spends a lower share of GDP on R&D, but the share has been rising and of course China's GDP has also been growing quite rapidly in recent decades. 

In the US, government spending on R&D has been pretty flat for the last decade or so; instead, it has been business spending on R&D leading the way. Business involvement in R&D spending is clearly a good thing, because it suggests that business are seeing ways to bring new discoveries into the day-to-day operations. However, there are also concerns that when it comes to research and development, business can be heavier on the "D" and lighter on the "R." The giant corporate laboratories of the past like AT&T's Bell Labs, Xerox's Palo Alto Research Center, IBM's Watson Labs, and DuPont's Purity Hall have diminished in scope or closed altogether. Relatively few modern companies finance research in basic science, or in long-horizon, high-risk projects that may turn out to be central to whole new industries.


When confronted with these kinds of issues, a standard US response is to raise suspicions that the quality of R&D being done in China or across other countries of east and south Asia may not be very high. It's of course hard to measure the quality of research, but one method is to look at whether research articles are heavily cited by follow-up research. The NSF report explains: 

The impact of an economy's S&E [science & engineering] research can be compared through the representation of its articles among the world's top 1% of cited articles, normalized to account for the size of each country's pool of S&E publications. This normalized value is referred to as an index and is similar to a standardized score. For example, if a country's global share of top articles is the same as its global share of all publication output, the index is 1.0. The U.S. index was 1.9 in 2016, meaning that its share of the top 1% of cited articles was about twice the size of its share of total S&E articles (Figure 22). Between 2000 and 2016, the EU index of highly cited articles grew from 1.0 to 1.3 while China's index more than doubled, from 0.4 to 1.1, indicating rising impact from both areas.

In short, this metric suggests that US research efforts are more likely to be in the top 1% of the research literature. It also suggests that the gap is closing.

I often see proposals for the US to focus on building its transportation infrastructure, like roads, bridges, railroads, and airports. One can certainly make a reasonable case for such investments. But I also suspect that transportation spending is not going to be the main driver for leading global economies for the remaining four-fifths of the 21st century. A serious national conversation on how best to expand US R&D spending substantially is overdue. 

 -- via my feedly newsfeed