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Will Trump’s Tax Victory Lead to Historic Defeat?

The U.S. government already spends less on education and science than at almost any other time in history. Trump’s tax plan will cut those investments even lower.

December 5, 2017

Credit: Ganesh Kumar - www.flickr.com

Donald Trump and the Republican Party are pushing a hefty ($1.5 trillion) tax cut through the U.S. congress.
Democrats are up in arms because it will make the rich richer at middle class households’ expense.

Deficit hawks are up in arms because it could add $1 trillion to the U.S. national debt over the next decade.
Parliamentarians are up in arms because, despite the bill’s awesome implications, there’ve been no debates, no public consultations and no hearings on the Hill.

Trump is triumphant, because it gives him a big win to gloat about on Fox & Friends and a legislative legacy for the history books.

They’re all missing the big picture. Society and the economy are transforming in ways that make the Left vs. Right debate about the proper size and role of government pointless.

Higher taxes won’t save the middle class from automation. And lower taxes won’t save today’s corporations from obsolescence.

The big picture

The world is shifting out of the Industrial Age and into the Knowledge Age. Granted, the shift is happening at different speeds in different places, but it is happening.

The purpose of the economy is shifting from growth to sustainability. The nature of money and markets is shifting from centralized to distributed.

The basis of national economic competitiveness is shifting from production to learning. And data is becoming a basic input of economic growth, alongside land, labor and capital.

Trump’s bet, apparently, is that the best thing the U.S. government can do is stand idly by (or, better, play golf).

The U.S. government already spends less on education and science—i.e., on the future—as a share of the economy, than at almost any other time in history.

His tax plan will cut those investments even lower. An unfettered U.S. private sector, Trump implies, will figure out fastest how to re-assert American Industrial leadership in a Knowledge Age.

Private sector path-finding

Maybe he’s right. Exhibit A for private sector path-finding: Elon Musk. Driverless cars. Space travel. Energy storage. Hyperloops. “A blend of financial laboratory, corporate labyrinth and buttock-clenching thrill ride, Musk Inc has pushed the boundaries of what was thought possible,” noted The Economist.

But Mr. Musk is by far the exception. The vast majority of today’s companies, American and otherwise, have dropped anchor rather than brave the biggest storms in living memory.

One data point: investment in IT as a share of GDP, after rapidly rising between 1950 and 2000, began to fall in the early 2000s (as the authors of a pessimistic new book I’m reading at the moment, The Innovation Illusion, point out).

Most companies will not invest their Trump tax windfall into building a brave new future. Their habit, rather, is to hoard the cash or give it back to shareholders.

Betting against Trump?

The alternative view is that to shift a country’s economy out from the Industrial and into the Knowledge Age will require collaboration—and leadership—from all sectors of society, including government.

That is the bet China is making. China has recently announced Made In China 2025, a $300 billion government stimulus aimed at helping Chinese industry to leapfrog past the United States in ten high-growth, high-technology industries.

These include new energy and electric vehicles, new information technology (like 5G cellular), industrial robots, wide-body aircraft and space vehicles, autonomous ships and agriculture, bio-pharmaceuticals and next-generation medical devices.

The knee-jerk critique from free-marketeers is that government shouldn’t “pick winners.” But that critique oversimplifies how China decided its 2025 agenda.

Policy-czars in Beijing consulted extensively with academics, experts and private companies to finalize a list of ten high-growth, high-profit, high-leverage opportunities in science and technology.

Beijing’s moonshot

This is Beijing’s moonshot. The country’s political leadership is signaling to Chinese university and private sectors: Here is the agenda to make sure that China sets foot first in the Knowledge Age. Help us get there, and you can expect strong policy and financial backing. And those sectors are quickly aligning behind the bold vision.

Beijing’s argument is that these technologies aren’t simply commercial opportunities—they are key to China’s ambitions for global leadership in the 21st century future.

Global leadership in artificial intelligence may become a “master technology” to accelerate scientific, economic, and social progress.

Leadership in electric cars will dramatically reduce air pollution. Leadership in agriculture science could improve living standards and food security for billions of persons. Leadership in genomics and bio-sciences could improve population health and worker productivity, and lower public health costs.

Better transport technologies will speed up the domestic economy and help China control major global trade routes.

Who will win the future?

Will Trump’s $1.5 trillion tax cut (which shrinks federal funding for science and education) help American science and industry to achieve similar goals—faster?

Such policy seems less like leadership, and more like fatalism. I won’t be surprised if, when the history of the 21st century is written, those with a bold vision for a new world surpass those without one.

They usually do.

Takeaways

Trump is triumphant because his tax bill gives him a big win to gloat about on Fox & Friends and a legislative legacy for the history books.

Higher taxes won’t save the middle class from automation. And lower taxes won’t save today’s corporations from obsolescence.

The US government already spends less on education and science than at almost any other time in history. Trump’s tax plan will cut those investments even lower.

The world is shifting out of the Industrial Age and into the Knowledge Age. The shift is happening at different speeds in different places, but it’s happening.

Global leadership in artificial intelligence may become a “master technology” to accelerate scientific, economic, and social progress.