Will There Be a “Silver Bullet” for the U.S. Economy?
Is the United States reducing its odds of discovering the next technological and economic game-changer?
July 20, 2011
During the 1990s, 21 million new jobs were created in the United States. After reaching a peak of 7.8% in June 1992, the unemployment rate declined steadily to 4% by the end of 1999, and during the latter half of the decade, the economy grew at a healthy average annual rate of 4%.
In contrast, today more than 14 million Americans are out of work, the unemployment rate stands at 9.2%, and the economy is growing so haltingly that a lapse into recession is a distinct possibility. In this dismal economic environment, the country will need to create 21 million additional jobs by 2020 — duplicating the gains of the 1990s — to lower the unemployment rate to 5%, which is where it stood in 1997.
While smart, pro-growth economic policies certainly played a role in the prosperity the United States enjoyed in the 1990s, the country’s good fortunes were due in large part to the Internet boom that fundamentally remade the U.S. economy.
Indeed, the tech boom of the 1990s is a prime example of what philosopher, author and investor Nassim Nicholas Taleb famously terms a “black swan” — an event that is widely unforeseen (as was the first literal black swan ever witnessed) and has profound and unpredictable impacts. While black swans often take the form of negative shocks, such as the September 11 attacks and the 2008 financial collapse, the term also encompasses nearly all major scientific breakthroughs and artistic trends.
In much the same way that the unforeseen Internet boom invigorated the U.S. economy in the 1990s, today the United States desperately needs a positive black swan that will give rise to previously unimaginable industries, create new jobs and change the way Americans live and do business.
Possible black swans
One such breakthrough would be the rapid discovery and commercialization of nuclear fusion, the energy that powers the sun. A goal of scientists for the last several decades, it is considered the “holy grail” of energy sources because it would be essentially inexhaustible, would release no greenhouse gases and would be safe. By making fossil fuels as obsolete an energy source in the future as whale blubber is today, it would have profound economic, societal and geopolitical benefits.
Another possible black swan is the widespread commercialization of nanotechnology — science, engineering and technology conducted at the scale of nanometers. (As a point of reference, a sheet of newspaper is about 100,000 nanometers thick.) While the technology carries with it a host of environmental, ethical and societal concerns, it could conceivably have a myriad of beneficial applications.
For example, some scientists predict nanotechnology could usher in the “next industrial revolution” by enabling the manufacture of stronger, smaller and more sophisticated products. Nanotechnology could also be used to engineer human tissues, replacing conventional approaches such as organ transplants. Or it could help clean the environment via nanomaterials that would bind to pollutants in the air and water, making it easier to absorb and clean up contaminants. The possibilities are endless.
Winning the future
The point of these admittedly fanciful, highly speculative examples is not to predict the next black swan that will remake the U.S. economy. Doing so is an intrinsically foolish endeavor, as unpredictability is one of black swans’ defining traits.
Rather, these examples emphasize the fact that as the United States enters an age of austerity, it must resist the temptation to “eat its seed corn” by slashing funding for education, research and development and other types of spending that pay long-term dividends.
As was the case with the Internet, which grew out of an experimental program begun by the Department of Defense in the 1960s, it is precisely these types of investments that will eventually give rise to seemingly far-fetched advances such as nuclear fusion or cutting-edge nanotechnology applications — game-changers that will have widely beneficial economic impacts.
In a recent interview published on The Globalist, former Federal Reserve Chairman Alan Greenspan remarked, “History tells us that it is those societies that have the most advanced cutting-edge technologies that have the highest standards of living. That’s always been the case.”
He continued, “If the United States is now slipping in this regard, it is basically because of our increasingly dysfunctional primary education system.”
Unfortunately, in its drive to slash deficits, the country is making its public education system even more dysfunctional. For example, 70% of U.S. school districts faced budget cuts in the previous school year, and 84% are expecting cuts in the coming school year, according to the Center on Education Policy.
As far as research and development is concerned, overall federal R&D spending is actually expected to decline in 2011. Meanwhile, competitors like China, Korea, India, Russia and Brazil are quickly increasing their R&D expenditures.
The United States certainly cannot bank on a black swan like the 1990s IT boom leading the country out of its economic malaise. However, it can improve the odds of the next technological and economic breakthrough only by increasing spending on education, research and development and other long-term investments.
While luck is an integral element of any such positive black swan, luck favors the prepared.
Today the United States desperately needs a positive black swan that would fundamentally remake the economy.
While luck is an integral element of any positive black swan, luck favors the prepared.
As the United States enters an age of austerity, it must resist the temptation to "eat its seed corn" by slashing the types of spending that pay long-term dividends.