Taxes and Government Investment

Two recent articles in the Washington Post and the New York Times have argued for the importance of taxpayer funded research as the lifeblood of innovation in American society. In this election year that comes on top of an economy struggling to right itself, the differences in philosophy concerning the role of government in the economy is of paramount importance. Though I am generally a proponent of fiscal conservatism, I do not walk lock-in-step with the anti-tax, limited-to-the-point-of-incompetent-government crowd. Being a teacher as well, I am not inclined to accept that government employees cannot do things well, though questions of efficiency are always valid. In an article titled "Tax. Spend. Create Jobs" John E. Schwarz of the Washington Post explained that the Democrats have yet to create a compelling narrative about the way the economy performs under Democrats versus the way it does under Republicans. Because the Democrats are more likely to invest in research and infrastructure improvements, the credit should go to the side that believes the government should play a more active role in the economy.

This idea is mirrored in a piece titled "Ideas Need Sowing" by Clair Cain Miller of the New York Times. Miller describes concerns by people such as Judy Estrin, a chief technology officer for Cisco Systems, who worry about decreasing innovation in American business. She recently published her ideas in a book called "Closing the Innovation Gap," where she laments a lag in new product development among many business. She points to ideas such as the iPod which are actually close to a decade old. One of the problems that both Schwarz and Estrin see is a lack of investment in innovation. Venture capitalists have never been big on investing in the early stages of research, and up until this decade, the federal government was there instead as the impetus. Of note is the idea that the growth of innovation in business is often supported by strong financing from the government at the university and institute levels. The business world is often reluctant to fund projects without immediate promise of return, whereas the government will, or at least has in the heyday of American business.

Thus, much of our innovation from aerospace to communications to computers to the internet to medicine was initially funded at the federal level. When that funding dries up due to the anti-tax crowd, so does American innovation.