Maybe the US Isn't So Innovative, After All

BusinessWeek economist Michael Mandel has a bummer of a piece arguing that as much as the United States likes to think of itself as the world's eureka machine, maybe we're not as clever as we thought. "Innovation has stumbled" in the past decade, he says, and our innovation shortfall explains our trade deficit. It also explains why consumers took on so much debt. Heck, our national lack of imagination has all sorts of far reaching effects:

A BusinessWeek slideshow highlights some key areas where Mandel sees the failed promises of innovation, like cancer treatments, fuel-cell powered cars, and gene therapy. But wait, is Mandel really saying that slightly better auto and medical technology could have cushioned the subprime meltdown?

Look to the exports, he says. Consider the global tech products market. In 1998 we ran a $30 billion trade surplus in advanced tech; by 2007 we ran a $53 billion deficit. Imagine the billions lost in that swing, and that's just one market. In his words:

[Overall] exports stagnated, stuck at around 11% of gross domestic product until 2006, while imports soared. That forced the U.S. to borrow trillions of dollars from overseas. The same surges of imports and borrowing also distorted economic statistics so that growth from 1998 to 2007, rather than averaging 2.7% per year, may have been closer to 2.3% per year.

In other words: the United States has become a bit like General Motors, writ large: we've hit an innovation wall and now we don't have enough to sell that the world wants to buy. Today we're borrowing money to plaster over the gap.

Where Mandel's explanation comes up short is: What are these innovators doing wrong? And if we're failing as innovators, how do you design a macroeconomic policy to unleash ideas? Certainly, Mandel would agree that spending more on science and technology education is one way to encourage more college graduates to go into the scitech innovation world. But what else? We could ease rules on drug trials to roll out more products, but it might not be in the consumers' interest to have lax FDA policies. We could have government-sponsored contests, like the $300 million prize John McCain offered for a working electric car. We could build in more tax breaks for research in certain preferred medical fields. What else? Open question, really.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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