Friday, June 3, 2011

Why Johnny Can't Innovate: The American Economy's Most Surprising Deficit

I argued in a previous article why, despite America's current obsession with government budget issues, the real key to bringing back our economy lies in a) fixing our trade deficit and b) restoring our capacity for innovation.

Although the former problem has now grabbed significant public attention, most Americans seem to think that our national capacity for innovation is healthy and without problems.

After all, we're the home of Silicon Valley. So things must be going great, right?

Unfortunately, no, and for the same reason that, as I explained elsewhere, our manufacturing sector isn't healthy. While it's true that there's an enormous amount of innovation (and manufacturing) going on in this country, "enormous" is not, in and of itself, an adequate quantity.

To figure out how much innovation (or manufacturing) is enough for America, the quantity must be measured against how much we need to maintain our living standard. And we are, in reality, falling short in both areas.

As long as our manufacturing output is so small that we must run a trade deficit with foreign nations in order to satisfy our consumption desires, we aren't manufacturing enough.

As long as our innovation output is so small that American industry can't keep pace with its foreign rivals and continues to inexorably surrender market share and technological superiority to them, we aren't innovating enough. (read more)