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Spengler

National Security and Economic Growth: A New Plan

November 2nd, 2013 - 4:08 pm

The distinguished venture capitalist Dr. Henry Kressel and I just published a proposal to restore American economic growth in The American Interest. You’ll have to subscribe to this excellent magazine to read the whole thing, but the introduction is posted on its website:

America faces a crisis of innovation, and our survival as the world’s industrial leader depends on its resolution. Overall research and development spending has stagnated as a proportion of national income since the 1950s, and our competitors are gaining on us. Even worse, the kind of fundamental R&D that produces game-changing innovations rather than incremental improvements has declined sharply relative to the size of the economy.

More is at stake than America’s future growth prospects. Scientific innovation and national security have comprised two sides of the same coin since World War II. Not for a generation have America’s security requirements begged for innovation as much as they do today. In place of a few large, well-defined threats that America faced in the relatively stable power balance of the Cold War, we now face a very large number of smaller and poorly defined threats in a chaotic world environment. The Bush and Obama Administrations had hoped to foster a new kind of stability, either by promoting democratic regimes in unstable theaters or by fostering multilateral cooperation and engaging prospective adversaries. Those hopes have faded. Reluctantly, America’s foreign policy community has come to accept the premise that we will confront a kaleidoscope of shifting threats in an indefinite span of instability.

Regrettably, the military that America built to beat the Soviet Union is in many ways poorly equipped to address the new threat regime, and unfortunately that legacy force has not changed as much as it might have over the past two decades. Even if policymakers chose to expand on the existing platform, the public’s perception of poor returns to commitments of blood and treasure during the past decade rules out this option as a viable political stance.

Tentatively and in piecemeal fashion, the American military is introducing a new generation of military technologies. Drones, battlefield robotics and similar technologies cast a wide net over the new threat horizon, but their practical application remains limited. Cyberwar has become a buzzword for defense planners, and in consequence the application of large-scale computation to the vast amount of information acquired by remote sensors (“Big Data”) has become a theme du jour for defense research and development, as the volume of prospective threat data swamps existing capacity to process information. But the new threat profile, in which a large number of adversaries with cheap weapons in the service of suicidal fanaticism create an ever-expanding set of low-level risks, presents significant problems for sensing and information processing. Extracting an ever-fainter signal from an ever-greater volume of noise challenges our existing understanding of the problem.

The roots of American growth are dry. Venture capital investing and emerging industries are a shadow of what they were a decade ago. Employment in the companies that make up the Russell 2000 index now stands at half its 2007 level. The S&P 500 has almost restored its employment level to pre-crisis levels, but medium-sized companies are not hiring. Virtually all the employment growth during the Great Expansion that Reagan set in motion came from emerging companies. That engine is stalled out and rusting. If we want to get growth back, we need both the high-tech driver as well as the incentives from entrepreneurs.

My co-author Dr. Kressel, a prominent physicist, was a key leader at RCA Labs for a generation where his teams invented the semiconductor laser, CMOS chip manufacturing, and several other technologies that helped define the digital age. For the past thirty years he has built a strong track record investing in emerging companies at Warburg Pincus, where he is the partner responsible for the technology practice.  He was there at the creation, so to speak, translating Defense Department mandates into tech breakthroughs that entrepreneurs later turned into trillions of dollars of market value and tens of millions of new jobs. There’s no-one better qualified to make this case.

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Top Rated Comments   
Reduced entrepreneurship is only half the problem. The other half is the poor literacy and numeracy of our country. The vast ignorance is appalling. You cannot innovate, if you are ignorant. You cannot be an entrepreneur, if you have no skills.

The Progressives have crippled this nation, and there is no way back. It takes only on generation to lose liberty, and a few generations to get it back. Most countries never get it back, if indeed, they ever had it.

We are just now entering the bondage phase of the Tytler cycle. I weep for my children.
47 weeks ago
47 weeks ago Link To Comment
All Comments   (34)
All Comments   (34)
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NIST Releases Cybersecurity Framework, Silent on NSA's Role

http://www.gpo.gov/fdsys/pkg/FR-2013-02-19/pdf/2013-03915.pdf
47 weeks ago
47 weeks ago Link To Comment
The commercialization of technology flows in cycles, in part due to excess liquidity from existing cash cows. Also, new industries flow 50 to 60 years AFTER the scientific clarification.

There is good, new science out there. The problem is getting capital to take the risks to bankroll it. Capital usually takes those risks when the rate of return from established industries falls and to make money, one needs to risk money.

A sign of a coming innovation cycle is when returns are dominated by financials, rather than honest profits from operations. Think Great Depression funding radio, TV, jets, nuclear. Think Junk Bond Era bankrolling PCs and the internet.

Today, capital has near zero or even negative retun. Money is desparately seeking return but will not invest until government and politics gets out of the way.

For that. Obama and the Democrats must be pushed from power.
47 weeks ago
47 weeks ago Link To Comment
David Goldman: you wrote: "But we explicitly reject industrial policy: governments should pick winners or fund businesses." Did you mean government should NOT pick winners or fund businesses?
47 weeks ago
47 weeks ago Link To Comment
Yes, the "not" was missing -- thanks.
47 weeks ago
47 weeks ago Link To Comment
"Employment in the companies that make up the Russell 2000 index now stands at half its 2007 level." Never heard that stat before. It reminds me of economists discovering after the Great Crash in the autumn of 1929 that 'freight car loadings' had fallen off in the spring of that year. Indicators smindicators - we didn't have any back then. Now we have so many that maybe we are failing to take notice of some quirky fact about employment in the Russell 2000 companies and wont see it coming any better the the former tycoons who jumped out the window back in 1929.
47 weeks ago
47 weeks ago Link To Comment
I like the optimistic attitude by the author, but as many posters below have pointed out we have huge obstacles to overcome for this rebirth to occur.

One obstacle not mentioned is that the top power brokers now have well tested and effective tools to keep tabs on everyone, all the time, and use this information to persuade judges, senators, candidates, editors, citizens groups and the like to get their thinking in line or destroy them.

If the U.S. electorate ever figured out what was really going on and could coalesce to deal with the crooks nothing will likely change.
47 weeks ago
47 weeks ago Link To Comment
Here's some interesting straws in the wind. Looks like some of the low information left are catching a clue.
Hans Blix has come out for thorium reactors
http://phys.org/news/2013-10-hans-blix-scientists-thorium-nuclear.html#ajTabs
Here some global warming scientists (including James Hanson) call for "safe nuclear" because wind and solar won't do the job.
http://phys.org/news/2013-11-experts-nuclear-power.html
47 weeks ago
47 weeks ago Link To Comment
Nothing will happen in this Country until this president and his corrupt leftist cronies are GONE, NOTHING. Even money that supported this president will not bring their overseas profits home, google, Apple to name two. Add to these incompetents obamacare and you scare the hell out of investment money to the point where Brazil and India look more attractive. Add to that again corruption in government circles today in America and it will be a long time before confidence is restored. As bad as things are today they will probably get much worse unless we see some more of the change that was promised, and it sure as hell won't be the Obama change.
47 weeks ago
47 weeks ago Link To Comment
Mr Goldman,
Don't omit the strong influence of our changing demographic and the emergence of the ill-educated underclass supplemented constantly by the illegals crossing up from the Rio Grande.
This ensures the increase and the continuity of the Democrat voter base.
No amount of entrepreneurial effort and capital investment effort and technical know-how can overcome the natural voting proclivities of such an expanding underclass.
They can be employed....but if they remain uneducable, and they will...they become a churning, stagnant workforce perpetually dependent upon the "benefits" proffered by the Democrats.
47 weeks ago
47 weeks ago Link To Comment
Que Six Million Dollar Man music.

Barack Obama: Fellow Democrats, we can transform a nation. We have the political power. We have the lies. We have the Six Hundred Million Dollar Dysfunctional Web Site. We have the capability to create the world's first Zombie Nation. America will be that nation. Much better for us than it ever was before. Dumber, weaker, poorer, more dependent, more unhealthy and more subservient.
47 weeks ago
47 weeks ago Link To Comment
Reduced entrepreneurship is only half the problem. The other half is the poor literacy and numeracy of our country. The vast ignorance is appalling. You cannot innovate, if you are ignorant. You cannot be an entrepreneur, if you have no skills.

The Progressives have crippled this nation, and there is no way back. It takes only on generation to lose liberty, and a few generations to get it back. Most countries never get it back, if indeed, they ever had it.

We are just now entering the bondage phase of the Tytler cycle. I weep for my children.
47 weeks ago
47 weeks ago Link To Comment
Reduced entrepreneurship is only half the problem. The other half is the poor literacy and numeracy of our country.

This is an important point. As a leader in IT projects, I've been repeatedly shocked at the subliteracy of emails from the younger guys. If you can't think critically and piece two thoughts together, how can you solve big problems?

A dumbass population is the socialist's best friend. It's a rich garden of compliancy and easy votes delivered to you by the union brothers and sisters of the NEA and AFT. Education has been in a "crisis" since the 1980s, and the only changes since have been to add to the failure. Better to have the school nurse administer strong drugs to students to keep them calm. They wouldn't want an agitated, eager to learn student messing up their lifestyle, now would they?
47 weeks ago
47 weeks ago Link To Comment
My bible study just moved from Joshua to Judges. In judges the pattern is very much like that described by Tytler--even though he was referring to the ancient Greeks. In fact my class mapped the two over on to one another. They map pretty well.

That said, there will be a revival in the USA. If you look at the book of Judges, that's just the way it works. And the capital will return to the USA. That's also the way it works. The deserts will bloom and all the world's deserts will be turned green in fulfillment of the ancient prophecies as well as because of advances in water and energy technologies and because that's the way it works. And Americas greatest days are ahead when thousands, then hundreds of thousands, then millions of people swarm off the planet like a great locust storm. Because the way to the deserts of the moon and Mars and beyond are through the deserts of earth. And because that's the way it works. Then the bad stuff sets in because that's the way it works.
47 weeks ago
47 weeks ago Link To Comment
"Revival" won't happen with dumbed-down public education and tax dollars being siphoned off via vouchers to support fundamentalist religious schools that teach creationism and that the world was created in 4004 B.C.
47 weeks ago
47 weeks ago Link To Comment
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