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Spengler

National Security and Economic Growth: A New Plan

November 2nd, 2013 - 4:08 pm

I’ve already heard some complaints from free-market friends who worry that our proposals sound too much like industrial policy. But we explicitly reject industrial policy: governments should pick winners or fund businesses. But governments should fund basic research in defense, and let entrepreneurs bet on the civilian spinoffs. That’s what the Reagan Administration did. As a young consultant to the National Security Council, I executed a study at the behest of Dr. Norman A. Bailey on the economic impact of the Strategic Defense Initiative. Reagan well understood the link between defense technology and growth as well as the entrepreneurial transmission mechanism. In a Feb. 19, 1985 speech presenting National Technology Awards, Reagan stated:

Our administration has made a firm commitment to technological progress. Both of them are probably true, but one we view as nothing less than a commitment to human creativity and imagination. While we’re cutting back, wherever possible, unnecessary government spending, we’re continuing our strong commitment to basic research and development.

We have cut personal income tax rates; we plan to cut them again. This could spur savings, and higher savings could, in turn, boost the capital formation so important in funding new high-technology ventures. And we’ve rolled back needless government regulations to help provide the freedom needed by those at the frontiers of technology to experiment with new hypotheses and techniques.

In space, we’re opening the way to private enterprise; the space shuttle program is already working closely with private industry. And in 1985NASA is scheduled to deploy eight commercial communications satellites. Space technology will continue to grow even more rapidly as we pursue our plans to launch a permanently manned space station — and to do so within a decade.

In defense, we’re putting technology at the service of a decade’s old dream: the elimination of nuclear weapons. Our Strategic Defense Initiativerepresents, perhaps, the most dramatic and wide-reaching research effort to explore the means for making nuclear weapons obsolete.

Let me make one thing plain: The Strategic Defense Initiative is not a bargaining chip. It’s an historic effort on behalf of our national defense and peace throughout the world, and we intend to see it through.

The story of American technology is long and proud. It might be said to have begun with a blacksmith at his bellows, hammering out fine tools, and the Yankee craftsman using simple wood planes, saws, and mallets to fashion the fastest sailing ships on the ocean. And then came the railroad men, driving spikes across our country.

And today the story continues with the workers who built the computer in a child’s room; the engineers who designed the communications satellite that silently rotates with the Earth, shining in the sunlight against the blackness of space; and the men and women of skill and determination who helped to put American footprints on the Moon.

I support Republicans who want to restrain the federal budget. I had a lot of sympathy for Sen. Ted Cruz and his colleagues when they threw themselves in front of the train in an attempt to delay Obamacare. Austerity is not a governing platform for any party, however. The plain fact is that if we can’t get the U.S. economy out of its “new normal” doldrums with economic growth languishing in the 1%-2% range, and we can’t raise the labor force participation rate from the alarming 63% level to which it has sunk under Obama, we can’t fix the budget problems. Our economy won’t be able to bear the retirement and medical costs of the next thirty years without unacceptable pain.

Dr. Kressel and I propose to start a dialogue about the twin demands of national defense and economic growth. We can do once again what America did during the Reagan years. We still have the world’s best universities, the best scientists, and the most agile capital markets. But we don’t have unlimited time. We have a lead, but our lead is slipping, and if we don’t innovate, countries who learn to copy our present range of technologies will overtake us.

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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.
1 year ago
1 year 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?
1 year ago
1 year ago Link To Comment
Yes, the "not" was missing -- thanks.
1 year ago
1 year 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.
1 year ago
1 year 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.
1 year ago
1 year 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
1 year ago
1 year 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.
1 year ago
1 year 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.
1 year ago
1 year ago Link To Comment
Are you serious sir? Are you serious at this point in the evolution of the Socialist Republic of America? We can do nothing as long as Barack Obama, Valerie Jarrett, and the rest of that herd of swine are in charge of our government. Wake up!!!
1 year ago
1 year ago Link To Comment
Holy Prophet APF
I don't know about well-defined, but there is certainly a very large threat openly and directly threatening us now: Islam. But the chances of any technological spinoff from resisting them is nil, except maybe in the area of espionage tech.
..........
Disagree here. The USA has finally launched a giant strategic technological war against Islam. But but this newly launched war has not come from the US Government. This strategic war has come from the American culture itself--and actually from both sides of the American culture. On the one hand the final end result of the fracking/horizontal drilling/big data imaging --will be oversupply of oil. On the other hand increased uptake of natural gas as a transportation fuel will steadily chop into demand for oil. All within the next ten years. However, further out--15 years and beyond-- are the category killers for hydrocarbons. lftrThorium reactors described in the comments below--which will cut the cost of electricity to 1/4-1/10 current cheapest coal. These cost savings will enter the transportation hub by means of Tesla--but probably more importantly--the
Tesla imitations produced by the Major automotive companies. (imho Tesla big breakthrough was to develop cars that could run over 200 miles before recharging. Which makes them suitable for local driving.)As mentioned, it will be more than 15 years before electric cars hit the market in volume. Shell oil put out their projections for the future. They too see oil as a transportation fuel declining but only after 2035. However, they think that hydrogen as well as electricity will play a role in displacing oil as a transportation fuel in the long term--while short term natural gas will do that job. http://oilprice.com/Energy/Energy-General/Shells-Predictions-for-the-Future.html

The end result will be the collapse of the oil prices, a fundamental redirection of world wide capital flows as profound as that of the 1970's when US oil production peaked and OPEC hit the world with the first OPEC oil strikes. (This has already begun--and imho has backstopped the Fed's profligate QE's.) The gulf oil sheiks won't have the spare capital to fund 30,000 radical madrasses in Pakistan and elsewhere around the globe. Rather what they'll do is fund their excesses until they have no more money and then they'll borrow till they go into debt. Then they'll sell their assets to pay their debts.

(All Russophiles take note: Putin's Russia will run into the same problems as the Muslims when the price of oil collapses. Remember tell all Russian bosses that Russia must diversify...stop throwing entrepreneurs in jail. Allow patent protection.)

Generally all strategic warfare is economic in nature. Time and money are inter related. The cold war as envisioned by George Kennan in 1948 was a play for time. His strategic observation was that communism as an economic system was bogus. It would collapse of its own weight and internal contradictions if it were not allowed to expand. All of Americas wars from the Korean war to the Viet Nam wars to the central american wars--were just holding actions--a play for time. Designed merely to give internal contradictions of the Soviet Union time to cause the Soviet Union to self destruct. Which happened in 1990.

In the case of the Radical Islam, its simple enough to say that since the initial OPEC strikes of 1973, radical islam on the part of both the sunni salafists and the shia khomeinists--has been funded by oil.

Knock down the price of oil and all these people will be much more peaceable.

1 year ago
1 year ago Link To Comment
This scheme is indistinguishable from the type of top down thinking that has us in it's grip. Same game, better players. The Reagan model bequeathed, and properly so, two Bushes, a Clinton, and Obama. Let us look for our model before the Leviathan of 1933, and better still 1913.
1 year ago
1 year ago Link To Comment
Ah, you so get it. There's simply no reason for a federal government that's more that 10% of the GDP in size. 5% for defense and the rest for corruption and graft. That'd do it. Let the STATES do their job.
1 year ago
1 year ago Link To Comment
Yeah, I'm just dying to go back to subsistance agriculture!
1 year ago
1 year ago Link To Comment
Yes sir!
1 year ago
1 year ago Link To Comment
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