It's Not The Deficit Stupid!... Tech is the Primary Driver of Economic Growth

During the Clinton years, the two most common things I heard from high-profiled Democrats was how the deficit reduction caused the boom times, or how Clinton asking Greenspan to lower short-term rates caused the Internet boom. I would just roll my eyes at such simplistic statements. If only cause and effect could actually be that simple, the Merovingian would truly rule our matrix. The reality is that for every effect there are probably at least 5 or more factors causing it… probably a dozen more. But that is the way of politics, pick one of the causes or statements that can effectively cling to the minds of most voters and spread the virus of malcontent against your opponent, or create a statement of “fact” that makes a candidate or party a hero.

Anyway, the article from last week’s BusinessWeek begins to unravel the Democrats' claim that Clinton caused the boom times of the ‘90s. It almost similar to Al Gore claiming he invented the Internet. Interesting article to read below (for those wondering, i paste the whole article on my blog because many online publications archive the articles after a few weeks and are not accessible anymore for free), but not really the focus of this entry.

The cause of the boom times can be traced back to the DARPA's (Defense Advanced Research Projects Agency) project that led to the birth of the Internet (yes, not Al Gore, DARPA... with respect to Joseph E. Stiglitz below, I'm going to take a step back into a bigger picture). More importantly, this was the result of the unique matrix within the fabric of the U.S. that invests public and private money into science. University labs, corporations, and government research centers all heavily invest into science. Whether the search for the "truth" in the universe, basic science, or research for a commercial purpose, applied science, all types of research have led to the benefit and growth of our society and economy. On top of this layer, is America's strong encouragement of entrepreneurship and the availability of risk capital, especially for early-stage companies. This complex web of universities, government institutions, corporate entities, venture capital firms, wealthy individuals investing in high-risk ventures, and the abundance of entrepreneurs have allowed the U.S. to prosper at various times and lead the charge into new eras of economics growth and technological advances.

To be upfront, I'm influenced by my former professor, Michael Crow, who taught U.S. science policy while he was at Columbia University (also gracious advisor to my first startup and failed early-stage fund effort). He was influenced by Richard Nelson, a neo-Schumpeter, considered a founder of evolutionary economics.

Nelson and others within the same camp believe technical advance or growth in technology account for 50%-70%+ of long-term economic growth. Seeing how the U.S. has become the world's foremost economic power, it's difficult to deny some of the truth and theories developed from Nelson and others. Whole new industries were created by developments that sprouted from U.S. R&D labs throughout the 20th century. From Xerox's fabled Palo Alto Research Center (PARC) to AT&T's Bell Labs to DARPA, inventions such as laser printing (1971), Ethernet, the graphical user interface, the Internet (1969), and cellular communications (1947) were given birth to in these halls.

One of the people most responsible was Vannevar Bush, Director of the Office of Scientific Research and Development under FDR. His report to President Roosevelt, "Science The Endless Frontier" (July 1945), help set forth and secure U.S. investment into scientific research as one of its core policies. Heavy investment by the government into various military and non-military labs were initiated.

One danger that is recently occurring is the decrease in funding for basic research. Basic research allows scientists to research for the sake of researching. To seek out their curiosities and find the truths of the universe. This is more of a non-linear approach that allows for a wide-range of possibilities, and many inventions that have changed our lives have come from basic research (e.g. x-rays, superconductivity, laser... what would you do without CDs or DVDs?). Over the past decade, corporations under pressure to perform have cut back or closed down their basic research efforts and only focused on applied research that seeks out a specific solution or product that can eventually generate revenue for the company. Even universities have scaled back on their basic research efforts since the licensing of their patents and inventions have become huge sources of funding since the Bayh-Dole Act of 1980, and have become more focused on applied research.

I really don't know the true impact of this shift in research funding and focus, but I hope it does not lead to the loss of leadership for the U.S. in the area of technical advance. Of course, the funding shift alone probably will not lead to the U.S.'s decline since there are many factors that make the U.S.'s innovation engine unique in world history (e.g. spirit of 'mother necessity', educational development of its citizens, legal foundation of the U.S... such as separation of church and state, freedom of speech, and so on). As long as the U.S. maintains its leadership in technology, I believe it will be in good position to remain the dominant power in the world.


Harping On The Deficit May Undo The Dems
NOVEMBER 24, 2003

BusinessWeek
ECONOMIC VIEWPOINT
By Robert Kuttner

I hope the Democratic candidates for President are in touch with Joseph E. Stiglitz, the 2001 Nobel prize co-winner in economics, who served as chairman of President Clinton's Council of Economic Advisers from 1995 until 1997. In Stiglitz' new book, The Roaring Nineties, and at a recent conference at Columbia University honoring his work on market failures,

Stiglitz challenged a premise that has become like holy writ: the idea that deficit reductions caused the boom of the 1990s.

Under this scenario, Clinton agreed to cut the deficit, the Federal Reserve obliged with lower short-term rates, markets were reassured, and the great boom was on. Message: A balanced budget equals prosperity. Stiglitz has a more persuasive view: Other forces, most notably higher productivity growth, allowed the Fed to run a hotter economy. "Deficit reduction," he writes, "accelerated the decline in interest rates, which helped recapitalize the banks. But interest rates would have fallen anyway. The forces taming inflation -- weaker unions and increased international competition in addition to rising productivity -- were already at play. It was the lower inflation as well as the deficit reduction that lowered long-term interest rates."

STIGLITZ DID SUPPORT REDUCTION of the structural deficits inherited from the Reagan and Bush I administrations, resulting from excessive tax cuts. These had to be reduced because they had put the budget on a path to ever-rising national debt. But in Stiglitz' view, Clinton overdid a good thing. He writes that if the Clinton Administration had put less money into deficit reduction and more into research and development, technology, infrastructure, and education, "given the high returns for these investments, [gross domestic product] in 2000 would have been even higher, and the economy's growth potential would have been stronger."

Stiglitz told Clinton all this. But he lost that argument with Treasury Secretary Robert E. Rubin, on whom Clinton relied to understand the markets' pulse. Recently, Rubin reiterated that high deficits cause high interest rates because government competes with other users of credit for a limited supply of savings. However, this premise is true only at full employment.

Stiglitz' point on the deficit is especially important now, as George W. Bush repeats Reagan's squeeze play: cut taxes, generate huge deficits, make Democrats play the role of fiscal Scrooges, and force permanent program cuts. As Rubinomics has more sway over most Democrats than Stiglitz-omics, Democrats are about to repeat Clinton's mistake.

It's hardly surprising that the immense deficits have stimulated sizzling short-term growth. The third-quarter growth is impressive, but entirely Keynesian. And while temporary deficits can generate short-term stimulus, permanent structural deficits can sap productivity.

As Stiglitz made clear at the recent conference, the Bush tax cuts should certainly be repealed, save those for middle- and lower-income taxpayers. But the revenue gained should not go entirely for deficit reduction. Rather, it would be better in the short term if the money went to help states and localities avoid cutting jobs. In the long term, it would be better for more money to go into productivity-enhancing public investments in education and technology. And the proposed new corporate tax cuts? They won't spur much investment, given the capacity overhang.

Bush's earlier tax cuts were so huge that even if those for the rich are repealed, there appears to be little room for increased public outlay. Here, I commend The New York Times reporter David Cay Johnston's Perfectly Legal, the definitive investigation of legal (and illegal) tax cheating. Johnston shows how tax avoidance among corporations and upper-income individuals is far outrunning the audit capacity of the Internal Revenue Service. There's a $113 billion gap between what corporations should be paying and what they pay. And 78% of the cases of known underpayment by partnerships were not even pursued by the IRS.

Combine a repeal of much of the tax cut with a serious effort to collect revenue, and the deficit can be brought down to, say, 2% of GDP, with money to spare for new public outlays. This would be sensible economics and better politics, since it would let Democrats offer something tangible to voters. But it's more likely the Dems will wrap themselves in the reassuring -- and suffocating -- blanket of Rubinomics.


Robert Kuttner is co-editor of The American Prospect and author of Everything for Sale

Is Man Determined or Free?... Freedom? Choice? God?

(continued)

"Choice. The problem is choice," Neo states.

"The first matrix I designed was quite naturally perfect, it was a work of art, flawless, sublime. A triumph equaled only by its monumental faliure. The inevitability of its doom is as apparent to me now as a consequence of the imperfection inherent in every human being, thus I redesigned it based on your history to more accurately reflect the varying grotesqueries of your nature. However, I was again frustrated by failure. I have since come to understand that the answer was stumbled upon by another, an intuitive program, initially created to investigate certain aspects of the human psyche. If I am the father of the matrix, she would undoubtedly be its mother," said The Architect.

"The Oracle," replies Neo.

"Please. As I was saying she stumbled upon a solution on whereby nearly 99.9% of all test subjects accepted the program, as long as they were given a choice, even if they were only aware of the choice at a near unconscious level. While this answer functioned, it was obviously fundamentally flawed, thus creating the otherwise contradictory systemic anomaly, that if left unchecked might threaten the system itself. Ergo, those that refused the program while a minority, if unchecked, would constitute an escalating probability of disaster."

This issue of choice is interesting and, as written in my prior blog post, explained well by The Old Oligarch:

St. Augustine's De Libero Arbitrio Voluntatis (often titled in English "On the Free Choice of the Will"). For Augustine, liberum arbitrium (free choice) is different from, but related to voluntas (the will).
...
Voluntas is what enacts our actions, but voluntas, for the classical mind, includes habits, the motivations of nature, personal history and free choice.
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I like to compare the classical conception of voluntas and liberum arbitrium to a boulder-sized stone that is rolling on a playing field and a man who has sole charge of where it rolls. The stone has momentum. So, likewise, our will has its disposition. The environment can draw the stone in one direction more than the other, i.e. external circumstances partially determine appetites. The liberum arbitrium in this example, is the man, who can slow or accelerate the movement of the stone, and alter its course. But the stone is more massive than the man. Individual acts of exertion cannot completely alter the direction of voluntas and send it instantly careening in another direction regardless of past acts. If the stone is rolling in the wrong direction, a forceful push can avert it from its "inevitable" course, but the man cannot instantly stop it, pick it up, bring it back to its rightful place and trajectory, and send it on its correct path as if nothing had happened. He simply doesn't have the strength. Likewise our will when it gets accustomed to, or "disposed" to a certain way of behaving. Liberum arbitrium can prevent the necessity of running headlong into old behaviors, but it takes a long, concerted effort to undo the cumulative effects of the many half-witted, unconscious decisions we've made which created in us bad dispositions. End tangent.
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I think the Oracle makes a similar observation about the will. What the will does -- especially in unconscious, unreflective people -- is 90% the product of decisions already made.

"Watch and pray so that you will not fall into temptation. The spirit is willing, but the body is weak." Matthew 26:41

So what you want (free choice) and what you actually do (will) are two different things. The Old Oligarch actually has a better analogy for you gamers, so read the rest of the entry if you're interested.

This issue of free choice and will can be seen in other arenas of thought. One is General Semantics, which was developed by Alfred Korzybski, a Polish mathematician and engineer, over 50 years ago. "General semantics is the study of the relations between language, ‘thought’ and behavior: between how we talk, therefore how we ‘think’, and therefore how we act."

This system of thinking was a basis of my training with the Coro Fellowship and set out to improve our skills in relationships with people, communications, and critical thinking. It was interesting when I read The Old Oligarch's entry on St. Augustine's De Libero Arbitrio Voluntatis and was thinking about The Matrix: Reloaded because it reminded me of some of my old training materials which contained overlapping viewpoints:

"We were born into, and are immersed in particular environments (cultural, language, home, religious, social, work, etc). Our behaviors are usually automatic responses, generated by our uncritical acceptance and conditioning, by the demands and expectations, from these environments. The "woa of consciousness" (*wedge of awareness. tool to increase our wakefulness) gives us a chance to move from automatic, unwanted, unproductive, stress producing behaviors toward more creative and self-directed and self-managing behaviors." - Milton Dawes

From my perspective and experiences, these philosophical approaches have huge limitations. The boulder in our lives is always heavier and bigger than we actually think. Like Stephen Hawking's limited explanation for whether man is determined or free, the thinkers of the ages cannot close the gap between man's will and free choice without God in the equation. Obviously, I'm biased as a Christian, but He does create a more orderly and logical world. God makes a huge difference on the cosmic scale and on the personal scales of every man seeking to close the gap between will and free choice. The difference between God and the Architect is that God actual loves His creations and the world He built. The Architect oddly enough sounds more like Hawking or some omnipotent being from a sci-fi novel.

Is Man Determined or Free?... Thoughts From "The Matrix: Reloaded"

I recently saw Bruce Almighty which was entertaining at times, but overall a mediocre movie. Anyway, it jarred my thinking to a few months back after I saw The Matrix: Reloaded about the issues of whether man is determined, what is free will, and predestination. Bruce Almighty interestingly provided a simplistic yet smart and concise perspective on the issue of how God can predetermine and control the universe while allowing for man’s free will. Morgan Freeman plays God who bestows upon Jim Carrey’s character all his powers, but he cannot affect a person’s freewill. Later on in the movie, Carrey’s character truly learns about this limitation, but I won’t spoil it for anyone.

Severals weeks before watching this movie and after The Matrix: Reloaded, I was listening to an excerpt by Stephen Hawking on his lecture at Cambridge University on whether man is determined or free.

As you might know, Stephen Hawking is our modern day Einstein. He is the Lucasian Professor of Mathematics at Cambridge University. This is an academic chair first held by Isaac Barrow, and then in 1669 by Sir Isaac Newton. His intellectual capacity and power can be rarely matched. His assistant once told of time when he was dictating volumes of notes and on the 46th page he recognized that there was an error 20 pages before and corrected it. Since the beginning of his academic career, Hawking has researched and studied about the laws which govern the universe.

At the lecture he concluded, ““Is man determined? Yes! But since we do not know what is determined, he may as well not be.”

To explain determinism, the PBS website explains:

“A far-reaching term, which most widely states that all events in the world are the result of some previous event, or events. In this view, all of reality is already in a sense pre-determined or pre-existent and, therefore, nothing new can come into existence. This closed view of the universe sees all events in the world simply as effects of other prior effects, and has particular implications for morality, science, and religion. Ultimately, if determinism is correct, then all events in the future are as unalterable as are all events in the past. Consequently, human freedom is simply an illusion.”

So if you remember from The Matrix: Reloaded, the Merovingian (wine drinking French-wannabe, trafficker of information, and had Monica Bellucci as his wife:) was a determinist in the purest sense. He was preaching causality... everything is cause and effect so human freedom is nonexistent, especially within the matrix.

This is where Bruce Almighty describes determinism in a Christian context better than PBS since they assume determinism is expressed in the "Calvinist doctrine of predestination, wherein those elected to a divine eternity and those condemned to an eternal hell are already established prior to birth" and assume the lack of free will in this Christian doctrine. I believe the PBS definition related to Christianity is incorrect. Foreknowing does not imply forecausing. Calvinist doctrine and mainstream Christian thinking allows for the dual existence of pre-determined salvation and human free will. This doctrine is similar to the Oracle's viewpoint in The Matrix: Reloaded.

"Candy?" asks the Oracle.

"You already know if I'm going to take it," states Neo.

"I wouldn't be much of an oracle if I didn't."

"But if you already know, how can I make a choice?"

"Because you didn't come here to make a choice, you've already made it. You're here to try to to understand why you made it."

(Neo takes the candy)

"I thought you would have figured that out by now," says the Oracle.

"Why are you here?"

"Same reason. I love candy."

So I guess you really shouldn't call the Oracle's perspective determinism. Let's say Calvinist or "Free Choicer" (excellent explanation by The Old Oligarch on May 28, 2003 Matrix Essays blog).

Back to Hawking, he continued by stating his fear for the long-term survival of our species, “My only fear is this. The terror that stalks my mind is that we have arrived on the scene because of evolution. Because of naturalistic selection, and natural selection assumes natural rejection, which means we have arrived here because of our aggression. And my hope is that somehow we can keep from eating each other up for another 100 years. At that point science would have devised a scheme to take all of us into different planets of the universe and no one atrocity would destroy all of us at the same time.”

Ravi Zacharias, a Christian apologist, commented on Hawking’s lecture, “Hawking was unavoidably caught on the horns of a dilemma. On the one hand, if there is no God he could feel the hold of determinism from which evolutionary theory could not escape—out of flux, nothing but flux. What followed from that deduction was even more troubling. For on the other hand, if evolution held true, he could not further ignore the aggression and violence through which man has evolved. Therefore, Hawking offered mankind’s only hope—that the savior of technology would come riding on the wings of science to rescue us from the clasping teeth of determinism.”

“We have educated ourselves into imbecility.” – Malcolm Muggeridge

Zacharias quoted Muggeridge and went on to explain how even the greatest of minds in the world today should not ignore the logical and rational existence of God. Basically, Zacharias was criticizing determinism and how flawed it is and a more logical explanation is having God govern and control the laws and powers of the universe.


Continued... deeper into the matrix.