The world is on track to consume two to three times the amount of primary energy it does today by century's end, driven largely by urbanization and energy demand growth in China, India, and other developing countries. Energy efficiency will only go so far in dampening global energy demand growth, as the billions on the planet without abundant access to energy begin to benefit from the same energy services that industrialized nations do. In order to convey how indispensable nuclear is, The Breakthrough Institute has compiled a list of the most urgent questions on the future of nuclear power.

The energy and climate challenge of the 21^st century is easy enough to describe. For a world of 9 or 10 billion people to live at the per capita wealth and (highly efficient) energy consumption equivalent of present-day Germany, we will need three to four times as much energy as we consume today. If carbon dioxide levels in the atmosphere are to stop increasing, then nearly all of that future energy consumption must come from technologies that produce zero emissions.

Contrary to the libertarian beliefs of many tech investors, rising living standards often depend in large part on a robust state role, explains venture capitalist and economist William Janeway. The public sector has been indispensible in advancing transformative innovations, and must remain so by making massive investments in science and technology, often sustained over decades, and using its power of procurement to create new markets for nascent products.

Over the last few decades, humans achieved one of the most remarkable victories for social justice in the history of the species. The percentage of people who live in extreme poverty — under $1.25 per day — was halved between 1990 and 2010. Average life expectancy globally rose from 56 to 68 years since 1970. And hundreds of millions of desperately poor people went from burning dung and wood for fuel (whose smoke takes two million souls a year) to using electricity, allowing them to enjoy refrigerators, washing machines, and smoke-free stoves.

A surprising number of people seem to be freaking out about an imminent takeover by robots. It’s true that only at the fringe is anyone suggesting a Matrix-style dystopia where the machines rise up and enslave us. But the commonly-expressed conviction that technological innovation will immiserate broad segments of society is only somewhat less irrational.

The last decade was a lost one for the American middle class. It came on the heels of three decades of frozen wages. We have entered the Great Stagnation.

So goes the drumbeat. But when you look around, everyone seems richer. "If our obvious material affluence seems difficult to square with various narratives of economic decline," writes Brookings economist Scott Winship in a major new essay for Breakthrough Journal, "that's because it doesn't."

Nostalgia for the boom economic growth years of the 1950s and 1960s is misplaced. Americans of all classes have grown materially richer every decade since. The lower growth rates today are a function of the slower metabolism of large economies, not a sign that American capitalism is fundamentally broken. Higher rates of economic growth might be desirable, but whether or not they materialize, the stagnation discourse misrepresents the country's economic health. We will be better at solving unemployment and poverty by starting from the recognition that rising prosperity remains the norm of American economic life.

I wrote recently about the American Economics Association panel called "What do economists think about major public policy issues?" Actually, I only talked about one of the two papers presented there; the other was by Luigi Zingales, and was entitled "Comparing Beliefs of Economists and the Public."

Zingales either performed a survey or reviewed a survey (I can't remember which) that compared economists' and non-economists' positions on policy issues. The paper found quite a bit of disagreement, but here's the really interesting part: When normal people were told the position of the economists, they changed their positions in the opposite direction.

Conversations about innovation in the United States are rife with the adversarial language of exceptionalism. Take, for example, a recent article by Gary Shapiro, the CEO of the Consumer Electronics Association, in Forbes. In his eyes, America’s success as an innovation powerhouse can be traced to a “can-do attitude” that “treats failure as a learning experience,” a free and democratic society that “rewards savvy risk takers,” and an educational system that pushes students to question, not memorize. In a move that would make Steve Jobs proud, never once is any involvement in innovation by the federal government mentioned – American successes come from these exceptional Americans. By contrast, “the Chinese have a long tradition of copying others, not… having a culture that even recognizes [intellectual property], and a bias towards conformism.”

What’s the latest threat to opportunity in America? Toll lanes. Or so Dan Sarewitz argues in a recent piece at The Breakthrough about new high occupancy/toll (HOT) lanes on the Washington DC Beltway. He claims, “market rationality imposed on roadways that all people depend on for their livelihoods and social lives means that poor people will be increasingly required to travel more slowly than those with more money.”

Writing in the New York Times last week, Erik Brynjolfsson and Andrew McAfee argue that “a wonderful ride” began to unravel in the late 1990s when employment growth became “decoupled” from productivity growth.

Their contention is that something fundamental has changed in the economy over the past decade, illustrated in the following graph by the increasing gap between gains in productivity and employment, described ominously as the “jaws of the snake.”

A closer look at the data shows, however, that the “jaws of the snake” have been open for more than 30 years. More fundamentally, rather than a “great decoupling” between trends in employment and productivity, it is clear that productivity and employment have been diverging for a very long time as the composition of the economy has changed.

Advances in real-time data acquisition, processing, and display technologies means that it is possible to design a toll-road that can continually change prices to control how many cars are on the road and how fast they are going.  These “hot lanes” have just been opened along a part of the Washington, DC Beltway, the 10-lane, traffic-infested artery that to normal humans is a metaphorical boundary between the real, outside-the-Beltway world and the weird, political one on the inside.  (For those of us who live around Washington and must drive on it, however, the Beltway is a very concrete indeed, a daily flirtation with delay and frustration, homicidal instincts, and death itself.)

At a cost of two billion dollars, a private sector partnership (which gets to keep the tolls) has built a 14-mile-long, 4-laned section of highway, parallel to the main lanes of the toll-free Beltway, and has guaranteed to the state of Virginia that it will always keep traffic moving at no less that 45 mph along its length.  They do this by continuously monitoring the number of cars (which must be equipped with EZ-Pass transponders) and their speed, and by raising toll prices as necessary to keep the number of cars on the road at a level that will allow the speed to stay at or above the guaranteed minimum.  The dynamic toll prices are displayed on huge signs near the entrances to the smart-highway lanes, so drivers get to decide at the last minute whether they want to spend the money to go faster or not.  As the traffic on the toll-free Beltway lanes gets worse, some drivers will be willing to spend more to go faster.  The worse the traffic is, the more they’ll have to spend.  (In the early days of this new technology, numerous accidents were caused by drivers trying to decide how much they were willing to pay, but no doubt this initial problem will sort itself out as people get used to driving-while-economically-rational.)

Of course economic rationality benefits some more than others.  As long ago as 1973, the philosopher Ivan Illich recognized that speed was an issue at the intersection of technology and justice. In his extended essay “Energy and Equity,” Illich observed presciently, if somewhat obscurely, that the quest for speed in transportation was an unrecognized domain in which technological advance itself led to increasing inequity of distribution of social and economic opportunity:

The self-driving car has been invented, but is it likely to be widely adopted by as a mode of transport? Will we really buy self-driving cars? Or will we hire them like taxis, or even hop on and off them (or in and out of them) like buses? What would have to change in the way we live our everyday lives in order for us to adopt this strange interloper? And what sort of other things and services might we need to support travelling around in driverless cars?

Some of these questions go so far into the future that we can't possibly know the answers. So let's start with what we do know, and that is, perhaps surprisingly, the technology behind a self-driving car.

The concept of the self-driving (or, more alarmingly put, the driverless car) relies on the clever assembly of many existing technologies. There are several versions of the driverless car in existence, so let's focus on one of them. Google's car is perhaps the most widely covered. Developed through their long collaboration with Stanford University, it cleverly combines a raft of technologies that most of us, in one way and another, are fairly familiar with.

The car uses data gathered from Google Street View with artificial intelligence software, inputs from video cameras installed inside the car, a light detecting and ranging sensor (LIDAR) on the roof, a radar sensor on the front and positioning sensors on the rear wheels. Interestingly, the self-driving car looks suspiciously similar to any other car (only with a few extra gadgets). This is likely to change as the physical constraints presented by these technologies are overcome by the skills of designers that reconfigure interior car spaces as meeting rooms, cafes or perhaps even playrooms.

In a musty garage at 367 Addison Ave., Palo Alto, Calif., in 1938, two chaps — William Hewlett and David Packard — built an audio oscillator, the HP200A.  Later, they sold eight of them to Walt Disney Studios to certify the sound systems in theaters that would feature the first major film released in stereophonic sound, “Fantasia.”  The results: The birth of Silicon Valley and the creation of an enduring myth about innovation.

Soon, others piled on.  Apple.  Cisco.  Intel.  Bill Gates.  Steve Jobs.  They “represent” millionaire inventors and entrepreneurs who made their fortunes not by getting their hands dirty with government assistance, but by rolling up their sleeves, sequestering themselves in their mythic garages, and spinning brilliant products that would change the modern world.

But here’s the problem:  none of it is really true.

As Argonne National Laboratory director Eric Isaacs remarked in Slate.com in May, “As Americans, we tend to embrace the notion that a brilliant inventor doesn’t need much more than a garage, a sturdy workbench, and a dream…our inventor-heroes have been popularly viewed as single-combat warriors working feverishly in a basement or some other threadbare den of solitude.”

The reality, of course, is that even Messrs. Hewlett and Packard benefited from critical assistance via the federal science enterprise in garnering their vast technological fortune.  “It’s certainly true that Hewlett and Packard began building their first commercial audio oscillators inside that historic garage. But the prototype of those oscillators was built in the laboratory of Stanford University electrical engineering professor Frederick Terman,” Isaacs wrote. “And Packard later wrote that many of those early devices were built using technical equipment at an engineering lab owned by a friend, an engineer and entrepreneur named Charles Litton. So while that Palo Alto garage may be a legendary landmark for the IT industry, Hewlett-Packard would not have been possible without its founders’ access to state-of-the-art engineering labs.”

With the 2012 election completed Washington faces a daunting overhang of substantial economic, fiscal, and governance problems. Reform must begin now.

Yet from where will the impetus for progress come? In a different era, the federal government might have launched decisive initiatives on its own to restructure the economy, address the budget, and renew governance. Today, however, the polarization of Washington raises serious questions about the likely quality of such interventions.

There is, however, hope in another quarter.  As befits a federal republic, cities, metropolitan areas, and their states are stepping up to develop new solutions and point the way to renewal. Attuned to the localism of the economy, metro areas—the true drivers of the national economy—and their states are working hard to deliver a new growth model focused on inciting innovation and advanced industries, providing crucial infrastructure, and improving education and skills training.

Which is why the Metropolitan Policy Program at Brookings has made the needs of “bottom up” state and metro creativity the core preoccupation of Remaking Federalism / Renewing the Economy--a new federal reform agenda that is launching this week and that calls for an entirely new approach to the work of the federal government. Our assertion: The reform debate in Washington cannot be just a technical exercise of balancing the budget but must entail a full discussion of national priorities that takes into account the critical role and needs of the nation’s metropolitan engines of growth.

In 1981, George Mitchell, an independent Texas natural gas entrepreneur, realized that his shallow gas wells in the Barnett were running dry. He had millions of sunk investment in equipment and was looking for a way to generate more return on it. Mitchell was then a relatively small player in an industry that by its own reckoning was in decline. Conventional gas reserves were limited and were getting increasingly played out.

News networks inside and outside the US have given an overwhelming amount of attention to Hurricane Sandy, the latest big storm to strike the eastern coast of the United States. Some people elsewhere in the world—particularly in southeast Asia, where such storms are common, and much more deadly—may well wonder what the fuss is about. And they have a point.

There is a reason for the world to care about storms like Sandy. The total economic impact of a cyclone hitting the US—particularly the northeastern US—is greater than almost anywhere else in the world. And a blow to the US economy has knock-on effects elsewhere. The map below, in which the sizes of the countries are distorted relative to total economic impact, shows that economic losses have been greatest in the United States, Japan, and China from 1980-2008:

It is a claim that you hear often in discussions of the role of research and development in the economy: “Federal investments in R&D have fueled half of the nation’s economic growth since World War II.” This particular claim appeared in a recent Washington Post op-ed co-authored by a member of the US Congress and the chief executive of the American Association for the Advancement of Science. It would be remarkable if true. Unfortunately, it is not.

Let’s take a look at some numbers to illustrate what follows from the claim. From 1953 to 2007 (the period of available data from the AAAS) the United States invested a total of $3.9 trillion in federal R&D. Over the same period US GDP grew from about $2.4 trillion to $13.9 trillion, representing an annual growth rate of 3.3% (data in 2007$ and available here in XLS). If we attribute half of that growth to federal R&D, or 1.65% of that 3.3% annual GDP growth rate, then that would imply a 2007 GDP of about $6 trillion in the absence of such federal investments. In other words, from 1953 to 2007 the economy grew by a cumulative $153 trillion more than it would have otherwise, representing an implausibly staggering 40 to 1 return on the federal R&D investment.

Unfortunately, such claims and the economics that follow are part of an overly simplistic story that we tell ourselves over and over. In 2007, Leo Sveikauskas of the Bureau of Economic Analysis surveyed the economy-wide returns on R&D (here in PDF) and found far more sober results: “Returns to many forms of publicly financed R&D are near zero . . . Many elements of university and government research have very low returns, overwhelmingly contribute to economic growth only indirectly, if at all, and do not belong in investment.” The exceptions that he cites include federal R&D in health, agriculture and defense.

Many would reject the idea that the contributions to economic growth of federal R&D are “close to zero” as being as improbable as R&D accounting for half of all economic growth. Whatever the actual rate-of-return, the existence of such diverse, even incommensurate, claims illustrates that the role of federal R&D in economic growth is very poorly understood. More fundamentally, the mistaken focus on federal R&D as a sort of control knob that might be used to modulate economic growth masks the fact that the broader mechanisms of economic growth remain poorly understood.

Making discussion of these issues more difficult is a persistent post-World War II mythology that has married the political self-interests of the federal science lobby with a convenient misreading of economic theory.

In my column last week at The Breakthrough Institute on Robert Gordon's analysis of US per capita economic growth, I identified what I believe to be an error in his calculation of post-1950 growth rates. Such an error matters because Gordon's recent discussion paper has been called “the summer’s most talked about working paper in economics” and argues a data-based case for US decline. My view is that such discussions should at least start with a solid empirical basis and re-checking assertions grounded in data claims is fair game (not all agree, however).

Over that past month there has been much discussion of a new paper by Robert Gordon, a prominent economist at Northwestern University, which carried the provocative title: Is US Economic Growth Over? Faltering Innovation Confronts the Six Headwinds.” (See for instance, Annie Lowrey here, the Economist here and David Keohane here).

In what Tim Harford called “the summer’s most talked about working paper in economics,” Gordon argues that the economic growth of the past century may represent an aberration from the normal state of society, which experiences little economic growth. Look far enough back in time Gordon says and the world had minimal, if any economic growth, and looking ahead, we may be returning to that dismal state. Gordon explains that he is raising “the audacious idea that economic growth was a one-time-only event."

Last month, the Census Bureau released its latest data on wealth, updating earlier figures from 2005 to 2010. The numbers confirm findings from a Federal Reserve Board survey showing unprecedented declines in the net worth of the typical American household. The Census figures indicate a drop of 35 percent between 2005 and 2010 in median wealth-the wealth of the household right in the middle-from $103,000 to $67,000. The estimates from the Federal Reserve show a decline of 28 percent between 2004 and 2010. From 2007 to 2010, median net worth declined by an astonishing 39 percent in three years.

This loss of wealth surely hurt many people counting on these funds to pay for retirement, children's schooling, and other needs. Others counted on being able to sell their homes to take advantage of opportunities in other parts of the country but are now underwater on their mortgage and stuck in place. Viewed in context, however, the wealth levels of middle-class Americans are in better shape than these dramatic figures would suggest, though they have not improved markedly over several decades.
 

"Roughly 80 percent of economic growth has come from technological change, and the government has acted repeatedly as a catalyst for that innovation. Publicly funded research and development has led to breakthrough new technologies, and the government has routinely served as an early and demanding customer for new high-risk technologies that lacked a market or proper incentives to garner private sector funding."

The True Roots of Liberal Policy Failure

Economists have long recognized innovation's central importance to economic growth, but have still not come to terms with the reality that general purpose technologies like electricity, microchips, and the Internet often emerge, not from market competition, but from long-term government investments. Breakthrough Institute's Economic Growth and Innovation program seeks to understand how economic growth and innovation happen in the real world and to consider the implications for policy makers.

For more about the program, click here.

Breakthrough Generation

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"May be the single most positive influence on my young adult life." 

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For questions or applications, contact generation [at] thebreakthrough.org.

WELCOME TO THE ANTI-DAVOS

Two days of focused conversation in service of a mission larger than anyone in the room: new thought for a new politics for a new century.

Every year Breakthrough's extended tribe of fellows, families, and friends descend on Northern California to have a single, extended conversation about a big topic, from modernizing liberalism to overcoming wicked problems.

I’ve found the interactions at Breakthrough Dialogue tremendously stimulating. No matter how convinced of my opinions I’ve been when I arrived, the Dialogue has made me feel that I should think things through again.

– Kathleen Higgins

With so much on the line for our environmental future, it is disturbing how rare it is to actually hear any new ideas. Agree or disagree with whatever you hear at Breakthrough Dialogue, no matter: you're unlikely to hear it anywhere else! Best discussion in town.

– Paul Robbins

DIALOGUE 2013: CREATIVE DESTRUCTION





DIALOGUE 2012: WICKED PROBLEMS



 

At the core of America's economic growth has always been a dynamic relationship between technology-driven change and political modernization according to Breakthrough Journal contributor Michael Lind's important new work, Land of Promise.

In a sweeping economic history of the United States released today, Lind, who is cofounder of the New American Foundation, traces how the competing Hamiltonian and Jeffersonian philosophies have shaped and defined the history of the United States for the past two hundred years and argues that it is Hamiltonianism that has laid the foundation for America's prosperity.

In response to evidence that the government played a critical role in creating the technologies of the shale gas revolution, some thoughtful conservatives have responded that it is the exception that proves the rule. "One success does not a champion make," writes American Enterprise Institute's Ken Green.

The main problem for our argument, Green writes, is that academic research shows no relationship between public R&D spending and economic growth. The government is what former Obama adviser Larry Summers said it was: "a lousy venture capitalist."

Now, in a cover story for the Sunday Insight section of the San Francisco Chronicle, Breakthrough Institute co-founders Michael Shellenberger and Ted Nordhaus point out an essential flaw in analyses purporting to show no relationship between public funding for innovation and economic growth. It takes decades for critical technologies -- especially "general purpose" technologies like microchips and the Internet -- to add to economic growth. Researchers have been comparing 1960s apples to 1990s oranges.

By Roger Pielke, Jr. Cross-posted from his blog.



Economist: I think you are way too optimistic that investments in technological innovation funded by a low carbon tax can lead to accelerated decarbonization of the economy. That is why I favor a high carbon price.

Me: But isn't the point of the high carbon price to stimulate innovation? The question is thus how to stimulate or motivate that innovation. I think a high carbon price is politically impossible, which is why I argue for starting low with investments in innovation as part of the package.

A healthy manufacturing sector is essential to America's economic prosperity in the 21st century. But you wouldn't know that reading last Sunday's New York Times, where former Obama Administration Council of Economic Advisors chair Christina Romer writes that there are no compelling reasons for US manufacturing policy.

According to Romer, the recent hubbub about manufacturing is due to the fact that people have a "feeling" that "making things" is important. In reality, she writes, consumers "value haircuts as much as hair dryers." To be sure, all of us need haircuts, some of us more than others. But Romer's argument that we should value all industries of the economy the same is just not true. It's reminiscent of economist Michael Boskin, another former CEA chair, who said it doesn't matter whether a country makes computer chips or potato chips.

The fact is that some industries are characterized by high productivity and economies of scale that reduce costs and drive economic growth throughout the economy. As Clyde Prestowitz writes of Romer's own example:
 

Production of hair dryers can be done in large factories that produce economies of scale. Such scale economies lead to lower prices, lower inflation, higher productivity and thus higher wealth creation for the whole economy. In addition, producers of hair dryers invest in research and development to foster innovation of new, more efficient, less energy using, and easier to produce dryers.

Investment in new product and process innovations is what drives economic growth over the long-term. And as we discuss in "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," manufacturing is absolutely central to innovation, something that many economists like Romer and economic commentators like Matt Yglesias don't seem to understand. The manufacturing sector comprises two-thirds of the nation's industry investment in research and development (R&D) and employs nearly 64% of the country's scientists and engineers.

The Great Recession and the Democratic sweep in 2008 returned Keynesian economics to the center of political debate. But Rob Atkinson, founder of the Information Technology and Innovation Foundation, argued in a recent Breakthrough Journal essay that progressive economics, with its focus on economic distribution, had left behind a coherent economic growth agenda. Dean Baker, co-director of the Center for Economic and Policy research, rejected Atkinson's "potshot" in a reply also published in the Journal. The two aired their differences in a debate in Washington, DC. At stake: the future of progressive economics.

Watch the video below:

In his State of the Union address, President Obama laid out his election-year vision for restoring America's global competitiveness. U.S. manufacturing figured prominently:
 

Think about the America within our reach...an America that attracts a new generation of high-tech manufacturing and high-paying jobs...we have a huge opportunity, at this moment, to bring manufacturing back.

Last weekend, the New York Times ran a long and important piece on why one particular high-tech product, Apple's iPhone, is manufactured in Asia and not the United States. The article is part of a renewed debate about how the United States can reinvigorate its manufacturing sector, or whether it even should.

A key part of the article is that there is a dearth of middle-income jobs in U.S. manufacturing. A combination of labor-saving technological improvements and the off shoring of more labor-intensive manufacturing has led to a sharp reduction in factory jobs that were once a pathway to the middle class for many Americans. Manufacturing employment on the factory floor may simply never reach levels of previous decades.

Nevertheless, as we have written previously, advanced manufacturing remains critical to U.S. prosperity in the 21st century for three key reasons:
 

• Advanced manufacturing drives productivity and innovation. Two-thirds of R&D investment occurs in industry and manufacturing is a core component of the nation's innovation ecosystem that is key to creating new technological industries.



• Advanced manufacturing generates output and employment throughout the economy. It has the largest economic multipliers of any industry and large manufacturing facilities sustain entire communities. Even if manufacturing never supports as many direct jobs on the factory floor as it has in the past, restoring advanced manufacturing is thus essential to America's long-term employment challenges.



• Manufacturing is critical to improve the nation's trade balance and tackling our $500 billion cumulative trade deficit. Manufactured goods still comprise 57% of U.S. exports and closing the trade deficit will be difficult, if not impossible, without manufacturing playing a key role.

In his State of the Union Address, President Obama stressed the need to continue vital public investments in the building blocks of economic growth and competitiveness: research and innovation, education, and infrastructure. "Don't gut these investments in our budget," Obama declared. "Don't let other countries win the race for the future. Support the same kind of research and innovation that led to the computer chip and the Internet; to new American jobs and new American industries." In a November 2011 report, "Taking on the Three Deficits," the Breakthrough Institute and ITIF argue that to close the budget, trade, and investment deficits, the government must strengthen productive public investments, even as it reduces consumptive spending elsewhere. Distinguishing between investment and spending is vital to America's future economic prosperity.

In his State of the Union address, President Obama noted that "American manufacturers are hiring again." While we applaud the administration's affirmation of the importance of manufacturing, a reality check is necessary. Yes, manufacturing has rebounded slightly from the depths of the recession, but much more work needs to be done to ensure U.S. manufacturing competitiveness in the 21st century. To create a new era of advanced manufacturing in America, the government must go beyond tax incentives to "bring manufacturing back," and increase its investments in next-generation manufacturing technology and the advanced technology industries that will lead the 21st century global economy. Read more about the importance of advanced manufacturing in this Breakthrough Institute report.

The Great Recession has given way to a less-than-great recovery and the pressure is on for Washington to respond. In an upcoming debate, two leading economic thinkers will go toe to toe on whether Keynesian economics offers a credible economic growth agenda.

In the first issue of Breakthrough Journal, ITIF President Rob Atkinson takes traditional Keynesians to task for pushing for additional demand-side public pump priming and for what he sees as their focus on distribution of the economic pie rather than the growth of the pie. In a response, Dean Baker, co-director of the Center for Economic and Policy Research, rejects Atkinson's critique and calls it a "potshot" that dismisses research showing that economic growth is in fact demand-driven.

The two have agreed to hash out their differences in a public debate co-sponsored by ITIF and Breakthrough Journal. Is traditional stimulus spending and assistance to individuals a useful but inadequate response to the Great Recession? Does the slow recovery suggest something more is needed to restore U.S. competitiveness, such as corporate tax reform that encourages innovation and investments in high-end manufacturing, more rigorous trade enforcement, and government support for R&D? Where do today's Keynesians and innovation economists find common ground? Join us for a thought-provoking and candid exploration of progressive economic policies at a historic crossroads.

Debate: Progressive Economics and the Great Recession
Date and Time: Wednesday, February 1, 2012, 9:30-11:00 AM
Location: ITIF, 1101 K Street NW (Suite 610A) Washington, DC 20005

Participants:

Robert D. Atkinson
President, Information Technology and Innovation Foundation (Presenter)

Dean Baker
Co-Director, Center for Economic and Policy Research (Presenter)

John Dimsdale
Washington, D.C. Bureau Chief, American Public Media (Moderator)

Please RSVP for the debate here.
 

In an article for the new issue of Atlantic Magazine, Planet Money's Adam Davidson leads us through the major changes that have transformed the manufacturing sector in the United States and asks whether manufacturing can ever again be an economic touchstone for middle class Americans.

Davidson notes how advances in productivity and heightened international competition have led manufacturing employment to crater, even as output increases:
 

Factories have replaced millions of workers with machines. Even if you know the rough outline of this story, looking at the Bureau of Labor Statistics data is still shocking. A historical chart of U.S. manufacturing employment shows steady growth from the end of the Depression until the early 1980s, when the number of jobs drops a little. Then things stay largely flat until about 1999. After that, the numbers simply collapse. In the 10 years ending in 2009, factories shed workers so fast that they erased almost all the gains of the previous 70 years; roughly one out of every three manufacturing jobs--about 6 million in total--disappeared. About as many people work in manufacturing now as did at the end of the Depression, even though the American population is more than twice as large today.

The increasing use information technology, robotics, and high-precision tools means that factory workers must have greater skills than those of previous generations:
 

Before the rise of computer-run machines, factories needed people at every step of production, from the most routine to the most complex...skilled workers now are required only to do what computers can't do (at least not yet): use their human judgment.

Monday's dismal manufacturing report and Tuesday's deal to slash spending have spooked the markets, which fear lower growth. While Obama and the Democrats say they will now focus on increasing jobs, the question is what can actually be done to grow the economy?

In a Wall Street Journal column, David Wessel provides a good reality check to reporters and analysts that believe manufacturing is on the up and up in America. In the past two years, Wessel notes, manufacturing has added 334,000 jobs, a positive sign. But that growth pales in comparison to the massive loss of manufacturing jobs over the last decade:
 

Manufacturing is up lately in part because it was pushed down so far during the recession. That 334,000 increase in factory payrolls follows a decline of 2.3 million in the two years before that. Only two million jobs to go before manufacturing employs as many as it did four years ago.

In the past 10 years, in fact, manufacturing lost 5.5 million jobs. As the Information Technology and Innovation Foundation's Rob Atkinson notes at the Innovation Policy Blog, the loss of manufacturing jobs in this recession, at 15 percent of all manufacturing jobs, was the largest ever, so it makes sense that those jobs would rebound somewhat.

Wessel also makes the important point that in an era of steadily advancing automation and technological sophistication, manufacturing may never generate the same amount of jobs on the factory floor as it did in prior decades, certainly not as a percentage of GDP. But that doesn't mean that manufacturing is less important to the U.S. economy. Indeed, as we wrote in "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," even as manufacturing's share of employment and GDP has declined, manufacturing has become even more important to sustaining America prosperity.

This is because manufacturing is the most capital-intensive and productive sector of the economy, and is key to developing and commercializing new technologies. As Wessel writes, "Research and development--the key to maintaining the U.S. edge in innovation--sometimes migrate abroad when production does, a good reason to strive to keep production at home." Manufacturing also has the largest employment and output multipliers of any sector of the economy, creating many indirect jobs and making it a key catalyst of broad economic growth. Lastly, a healthy manufacturing sector is central to the United States' ability to reduce its large and persistent trade deficit. And as Atkinson notes, our massive trade deficit in goods production has increased since the end of the recession.

For these reasons, its imperative that the United States embark on a proactive effort to strengthen the international competitiveness of its manufacturing sector, in particular by helping manufactures adopt new productivity-enhancing process technologies. As ITIF has documented, other nations such as Germany and Japan invest much more in manufacturing technology acceleration programs to boost productivity. For more information on what kinds of policies are needed to improve U.S. advanced manufacturing competitiveness see this "Charter for Revitalizing American Manufacturing," created by leading innovation and manufacturing experts.

Amidst an emerging consensus among economic and innovation experts that the government must do more to support a robust advanced manufacturing sector, the Obama administration announced on Monday that it is creating a new cabinet-level Office of Manufacturing Policy to provide greater direction for federal efforts to boost manufacturing.

The new office will be co-chaired by U.S. Secretary of Commerce John Bryson and National Economic Council director Gene Sperling, giving the position and the manufacturing issue cabinet level attention for the first time.

In the past two years, numerous reports by think tanks, academics and industry groups have documented the precarious state of U.S. manufacturing and have urged the government to do more to secure U.S. manufacturing competitiveness.

In March of this year, the Information Technology and Innovation Foundation (ITIF) made the case for a "National Manufacturing Strategy," showing that in the last 10 years output actually declined absolutely in 15 of 19 manufacturing sectors tracked by the federal government. Another ITIF report finds that Germany invests 20 times more as a percentage of GDP than the United States in manufacturing technology and innovation, and Japan 40 times more. Both countries' share of global manufacturing output is stable or growing, while the United States' share has declined. They argue that a comprehensive U.S. manufacturing strategy should focus on the "4 T's": taxes, trade, technology, and talent.

In November, the Breakthrough Institute and Third Way released a report, "Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," which found that manufacturing is important not just for jobs on the factory floor. Indeed, with advanced automation becoming an increasing feature of high-tech manufacturing, fewer factory jobs are to be expected. Nevertheless, a robust manufacturing sector is core to a healthy economy, because it is central to technological innovation, creates many jobs in manufacturing supply chains and regional communities throughout the country, and is key to closing the nation's large and persistent trade deficit.

Just this week, the Council on Competitiveness, a group of company CEOs, university Presidents, and labor leaders, released a report on U.S. manufacturing competitiveness, citing many of manufacturing's same contributions to national economic vitality. In particular, the study dismantles the myth, highlighted in prior work, that manufacturing can be separated from design and innovation:

"Conventional wisdom emerged that as long as high-value added work--e.g. engineering and design--remained in the United States...the economy would grow and large-scale production could be left to its own devices.

This model is not sustainable...without strong public and private support for the complete life-cycle innovation and production process, the United States cannot maximize the return on its innovation investments--a return measured in jobs, growth and tax revenue."

Fortunately, the U.S. government is finally starting to pay attention. The creation of an Office of Manufacturing Policy is a positive step forward and builds on earlier efforts in the Obama Administration to make advanced manufacturing more of a national priority. Last June, the Administration announced that it would invest $500 million in a new Advanced Manufacturing Partnership among industry, academia and government, which is focused in part on developing next-generation manufacturing technologies that improve productivity and enhance manufacturing competitiveness. After a decade in which the U.S. manufacturing sector lost 5.5 million jobs and as foreign competitors increase their investments in advanced materials and manufacturing technology, such efforts are long overdue.
 

By Mark Caine, Research Officer at the London School of Economics, Co-ordinator for the Hartwell Group, and 2010 Breakthrough Generation Fellow

Ideas Whose Times Have Come

Something profound is happening in the world of energy and climate policy.

In the wake of another tepid COP conference that, once again, failed to put the world even "on a path to solve the climate problem", previously heterodox ideas are entering mainstream thinking.

From the inadequacy of the Kyoto protocol and the immediate imperative for adaptation to an innovation-centric climate policy, no-regrets action on non-CO2 forcers, and energy access for all: a set of pragmatic ideas that the Breakthrough Institute, Breakthrough Senior Fellow Roger Pielke Jr., the authors of The Hartwell Paper, and others have advocated for years -- often to an onslaught of cynical opposition -- are now being promoted as front-line strategies to manage our complex set of energy and climate challenges.

Take the Kyoto protocol, which despite its well-documented structural flaws has been treated for years as the only game in town--the plan A for which "there really is no plan B". Now, realizing that the modest agreement reached at Durban is little more than a face-saving maneuver that means, at best, an eight year punt on universally binding emissions reductions, commentators are beginning to sing a different tune.

"Kyoto was built to fail," reports left-of-center UK paper The Guardian. The process has faltered, writes John Broder in the New York Times, because it taken on "too great a task." Political analyst Andrew Charlton reports from down under that there is, in fact, a plan B, consisting primarily of policy prescriptions that will sound remarkably familiar to anyone who has read Fast, Clean, and Cheap, The Hartwell Paper, The Climate Fix, or a growing body of books and academic articles advocating innovation-centric energy policies combined with robust adaptation measures and a commitment to universal energy access.

Perhaps more than any, this last issue has sailed from the margins to the mainstream. A key tenet of the 2010 Hartwell Paper, the imperative to empower the world's poor through the provision of universal energy access -- and bring energy poverty to the center of energy and climate debates -- has become a cause celebre at the UN Foundation. Did you know that 2012 is the International Year of Sustainable Energy for All? Finally, something everyone from Ban-Ki Moon to nu metal band Linkin Park can agree on!

In all seriousness though, the global community's newfound support for universal energy access is a heartening development--not least for the 1.3 billion people lacking electricity and the 2.7 billion people burning dung and sticks to cook and heat their homes. To be sure, the emissions implications of empowering these people using available technology remain inconclusive: the IEA's rosy estimate of a .7% increase in global CO2 emissions defines 'access' for rural denizens at a paltry 250 kWh/year, 1/55th of the US average and 1/32nd that of ultra-efficient Japan (World Bank data). Yet any steps to bring modern energy to the energy-poor are justifiable in their own right on basic principles of equity, not to mention their contingent benefits for public health, education, economic opportunity, and enhanced resilience to future climate impacts.

Post-"Post-pollution"

In his New York Times review of the shifting dynamics in the energy and climate debate, Andrew Revkin cites both Roger Pielke Jr. and the authors of The Hartwell Paper, crediting them for helping spread this "post-pollution" emphasis on climate resilience, energy modernization, and strategic public and private investment in clean energy innovation. Revkin is nearly alone amongst journalists in tracing back the roots of these approaches, but a frequent lack of attribution is predictable. Indeed, the broad, uncoordinated adoption of these "post-pollution" framings and policy approaches may have been inevitable, a reflection less of their progenitors than their sensibility.

As these framings and policy ideas become more widely accepted, the challenge for those of us who have long advocated these positions, including the Hartwell Group network which I work to coordinate, will begin to shift. As once-heterodox problem definitions and policy approaches from the Breakthrough Institute, the Information Technology and Innovation Foundation (ITIF), the Hartwell Group, and others enter mainstream discussion, what can we offer going forward?

Arguably, the most important thing we must do now is deliver top-quality research and analysis on the hard questions of innovation that are not yet being addressed in most climate policy discussions. Though many have accepted rapid innovation as a necessity, few have actually opened up the "black box" of innovation to understand what specific kinds of innovation we need, how to fund and scale them, and how to overcome persistent challenges such as rent-seeking behavior, energy efficiency rebound and backfire, and the "valleys of death" that plague the innovation and commercialization process. Understanding the need for innovation is not the same as knowing how best to do it.

The Breakthrough Institute has already taken up this effort, backing up its long-standing support for innovation as an energy and climate solution with detailed analysis of the mechanics of how innovation works and, by extension, how to spark, accelerate, direct, fund, and scale it. And the Hartwell Group is working to coordinate a network of international scholars and analysts to further develop key recommendations for actionable and pragmatic climate solutions.

This work alone won't solve the myriad complex, interconnected energy and climate challenges that face us. But it will help lay the foundation for a safer, more prosperous, and more equitable future--a future in which the essential functioning of the earth system is preserved and all people have access to safe, reliable energy and protection from the vagaries of extreme weather, whatever its cause.

In case you missed it, the Council on Foreign Relations just listed the Breakthrough Institute report, "Taking on the Three Deficits: An Investment Guide for American Renewal," as a "must read" report in their round up of "the best online analyses and inquiries on foreign policy."

Written with the Information Technology and Innovation Foundation, the report shows that the United States faces not one but three interrelated deficits challenges. As the report notes:

"An oftentimes myopic focus on the budget deficit has obscured the fact that America actually faces three deficits--the budget deficit, the trade deficit, and the investment deficit--that, if left unchecked, could total over $41 trillion in the next 10 years. Reducing all three deficits, not just the budget deficit, is critical to future economic prosperity."

The only way to reduce the three deficits, we argue, is to increase productive public investments in innovation, productivity, and competitiveness, while making targeted cuts to areas of consumptive government spending.

More economic experts are embracing the idea that the only way to both climb out of our economic doldrums and close the budget deficit, is through growth-enhancing public investments.

In last week's Washington Post, Fareed Zakaria argues that federal investment is central to long-term economic growth. Yet over the last two decades America has failed to make long-term investments to sustain economic prosperity. In "Taking on the Three Deficits," we estimate that America's "investment deficit" now totals $2.5 trillion and may grow to $5 trillion by 2020. "If we want the next generation of growth," Zakaria writes, "we need a similarly serious strategy of investment."

You can read the full "Taking on the Three Deficits" report here.

By Dean Baker

In his criticism of progressive economics, Rob Atkinson selectively ignores details that do not support his criticism and advances a mistaken view of the Center for Economic and Policy Research (CEPR). First, Atkinson's basic economic story is more than a bit confused. He touts Germany and Japan as successes in contrast with the United States's failure. CEPR has praised certain aspects of Germany's labor market policy and its short-work policy, which have allowed Germany to lower its unemployment rate despite an economic downturn. That said, it's not clear that Germany and Japan have actually been successes in the way that Atkinson claims. German and Japanese productivity growth has consistently trailed that of the United States over the last 15 years. Though the gap is not huge, it certainly diminishes the contrast.

In "The Manufacturing of Decline," Vaclav Smil makes some valid observations about US manufacturing and trade, but he perpetuates two myths -- that US manufacturing is in decline and that reducing the trade deficit should be a policy objective -- in order to justify industrial policy.

To argue that manufacturing is in decline, Smil relies primarily on "manufacturing output as a share of GDP" and "manufacturing export intensity." Manufacturing as a share of GDP peaked in 1953 at 28.3 percent, but in absolute terms, US manufacturing output has increased year after year, every year (excepting declines during cyclical recessions). So if the manufacturing sector in the United States has been growing absolutely, talk of deindustrialization and manufacturing contraction is wrong.

A new report was released this week from authors at the Breakthrough Institute and the Information Technology and Innovation Foundation (ITIF). The report, "Taking on the Three Deficits: An Investment Guide to American Renewal," acknowledges the threat not just of America's budget deficit, but its trade and investment deficits as well. The cumulative effect represents a profound existential challenge to the United States, and the authors of this new report offer a pragmatic policy framework for America to emerge as a global leader in the 21st century.

Click here to download the report (PDF).

Executive Summary

America faces three cumulative deficits, each of which must be addressed to ensure continued economic prosperity:

The Budget Deficit is the difference between federal revenues and spending. The budget deficit for FY2011 stands at over $1.2 trillion, and the cumulative national debt will reach $10.4 trillion this year. The debt may rise to more than $18.3 trillion by 2021, according to Congressional Budget Office (CBO) estimates.

The Trade Deficit is the annual difference between U.S. exports and imports. For years, the United States has imported more than it exports, leading to large and persistent trade deficits. In 2010, the United States generated a $500 billion trade deficit. Since 1975, the United States has accumulated a total trade deficit of $8 trillion, and the cumulative trade deficit could grow to $18 trillion in 10 years. The trade deficit creates a drag on economic growth and represents a hidden tax on future generations of Americans who will have to pay it off by running trade surpluses that stem from expanded exports and/or reduced consumption of goods and services.

The Investment Deficit is the shortfall of investments in scientific research, education, productive infrastructure, and new technologies that are needed to maintain our current standard of living and provide a critical foundation for long-term economic prosperity. These investments drive economic growth by accelerating innovation and boosting productivity, yielding positive returns on investment for the entire economy. Yet public investment in these building blocks of national prosperity has declined for decades, leading to stagnating growth and a widening investment deficit that may increase to over $5 trillion in the next decade.

Overall, America's three deficits total almost $21 trillion and are projected to grow to over $41 trillion in 10 years. The budget deficit alone makes up less than half of the total combined deficit, and both future economic growth and government revenues are influenced by the magnitude of the trade and investment deficits. Thus, addressing all three growing deficits is critically important to ensuring continued economic prosperity.

Figure 1: Estimate of America's three deficits in 2011 and 2021 projection

By Matthew Stepp. This post was originally published as a submission to the National Journal discussion "What's At Stake in the Deficit Debate?"

What is the political and policy landscape in the debt/deficit debate? Unfortunately these haven't changed much at all in recent months, which will hurt our ability to address America's energy and environmental issues.

That's one of the key messages from a forthcoming report by the Information Technology and Innovation Foundation and the Breakthrough Institute titled, "Taking on the Three Deficits: An Investment Guide to American Renewal." The report argues that what's needed is a fundamentally different framework that counters the predominant approach that all government expenditures are "on the table" to close the budget deficit, estimated to grow to $18 trillion by 2021. While such a strategy makes policymakers appear bold in their approach, in practice it would actually be counterproductive. Across-the-board budget cuts would ultimately reduce economic growth and lead to a higher budget deficit over time.

The reason is simple: America isn't tasked with eliminating just one deficit; it actually faces three interrelated deficits. In addition to the worsening budget deficit, America faces a persistent and growing trade deficit, representing a hidden tax on future generations who will have to pay it off with reduced consumption of goods and services. America also faces a deepening shortfall in public investments in the building blocks of innovation such as R&D, education, and infrastructure. All told, America isn't challenged with just an $18 trillion cumulative budget deficit by 2021 - it's challenged with an estimated $41 trillion three deficits by 2021.

Stagnant and out-dated policy debates in Washington are the reason that advanced, high-tech products are mostly manufactured outside of the United States, according to a new paper jointly issued by two think tanks. The report, from the Breakthrough Institute and leading moderate think tank Third Way, argues that American manufacturing could experience a resurgence with a focus on complicated and technology-intensive manufacturing products.

"The Kindle has revolutionized how people read, but even though it was born in Silicon Valley, Amazon makes it in Taiwan," said Director of Third Way's Economic Program and the report's co-author, Ryan McConaghy. "When looking for the precision needed to build the e-reader, Amazon had to look abroad for experienced manufacturers because the technology was no longer available here. It's a huge missed opportunity."

"Manufacturing Growth: Advanced Manufacturing and the Future of the American Economy," released today, argues that the United States needs to radically rethink its approach to manufacturing to incentivize and enhance next generation "advanced manufacturing" and worker training.

By Michael Shellenberger

One year ago, scholars from the American Enterprise Institute, Breakthrough Institute, and Brookings Institution called on Congress to reform energy subsidies so they specifically fund innovation and not simply greater production of old technologies. "The death of cap and trade doesn't have to mean the death of climate policy," wrote David Leonhardt in The New York Times. "The alternative revolves around much more, and much better organized, financing for clean energy research. It's an idea with a growing list of supporters, a list that even includes conservatives -- most of whom opposed cap and trade."

Since then, the list of supporters for post-partisan energy innovation has grown further. Duke Energy CEO Jim Rogers endorsed a step-wise increase in energy R&D funding, telling Time magazine, "If we can't get a consensus on carbon policy, let's put the money into research and let's drive down the cost of solar and wind and make them competitive. Think about how much it would change the debate if solar and wind were as cheap as coal?" Republican Presidential candidate Mitt Romney put out a policy paper stating that government has a role to play in innovation, and wrote that "history shows that the United States has moved forward in astonishing ways thanks to national investment in basic research and advanced technology."

In late September, Senator Lisa Murkowski (R-AK) gave a speech warning of the high cost of imported oil, and proposed using funds from expanded domestic energy production for innovation. Citing research by the Breakthrough Institute, Sen. Murkowsi said, "It's certainly in our interest to promote new technologies that can lower the cost of energy. But, clearly, it's against our interest to focus on sources of energy that will depend on continuous, long-term subsidization."

Now, Senator Lamar Alexander (R-TN) has embraced a core idea in Post-Partisan Power: shift today's subsidies away from production and toward innovation. "I would try to swap the money we're spending on permanent subsidies for energy and invest it instead in research," Alexander told Grist.org's Amanda Little. "Second, I'd like to focus these funds on the most promising areas of clean energy. I've devised a plan for seven mini Manhattan Projects for energy independence: solar, batteries, green building, capturing carbon, fusion, making fuels from crops we don't eat, and finding better ways to deal with nuclear fuel."

Sen. Alexander also points to the promise of small modular nuclear reactors, a technology singled out in Post-Partisan Power for their safety and their potential to be much cheaper than today's large plants, as well as solar panels and electric cars. And once again Sen. Alexander stresses that any effort to move to clean energy by increasing the price of fossil fuels is dead. "Making gas more expensive would be a terrible way to introduce electric cars to the country," he said.
 

In the debate over climate legislation in 2009 and 2010, it was conventional wisdom that a price on carbon was the sine qua non of effective climate policy. All Very Serious People knew that you could not reduce carbon emissions or drive clean energy innovation without a price on carbon, either through a carbon tax or a cap and trade system.
 

Textbook Economics: Increase the tax, reduce the quantity. See how simple it is?

Indeed, leading venture capitalist John Doerr used to travel around the country hammering home the three top things that the government needed to do to catalyze a clean energy revolution. In order, they were: 1) put a price on carbon, 2) put a price on carbon and 3) put a price on carbon.

How the times have changed. In a piece posted over the weekend, Tyler Cowen, a prolific blogger and card- carrying economist at George Mason University, writes that there are a number of reasons--10, in fact--why the case for a carbon tax is not as airtight as its advocates claim:


 

1. Other countries won't follow suit and then we are doing something with almost zero effectiveness.

2. It may push dirty industries to less well regulated countries and make the overall problem somewhat worse.

3. There is Jim Manzi's point that Europe has stiff carbon taxes, and is a large market, but they have not seen a major burst of innovation, just a lot of conservation and some substitution, no game changers. Denmark remains far more dependent on fossil fuels than most people realize and for all their efforts they've done no better than stop the growth of carbon emissions; see Robert Bryce's Power Hungry, which is in any case a useful contrarian book for considering this topic.

4. Especially for large segments of the transportation sector, there simply aren't plausible substitutes for carbon on the horizon.

5. A tax on energy is a sectoral tax on the relatively productive sector of the economy -- making stuff -- and it will shift more talent into finance and other less productive sectors.

6. Oil in particular will become so expensive in any case that a politically plausible tax won't add much value (careful readers will note that this argument is in tension with some of those listed above).

7. A carbon tax won't work its magic until significant parts of the energy and alternative energy sector are deregulated. No more NIMBY! But in the meantime perhaps we can't proceed with the tax and expect to get anywhere. Had we had today's level of regulation and litigation from the get-go, we never could have built today's energy infrastructure, which I find a deeply troubling point.

8. A somewhat non-economic argument is to point out the regressive nature of a carbon tax.

9. Jim Hamilton's work suggests that oil price shocks have nastier economic consequences than many people realize.

9b. A more prosperous economy may, for political and budgetary reasons, lead to more subsidies for alternative energy, and those subsidies may do more good than would the tax. Maybe we won't adopt green energy until it's really quite cheap, in which case let's just focus on the subsidies.

10. The actual application of such a tax will involve lots of rent-seeking, privileges, exemptions, inefficiencies, and regulatory arbitrage.

Economists like to say that a carbon tax would "maximize economic efficiency," but this is only true if we could somehow institute a harmonized global carbon price. Such an outcome was always a fantasy but is especially so today given the cantankerous state of international climate negotiations.

As readers of this blog know, the Breakthrough Institute has long argued that there are political limits to raising the price of carbon, especially in the developing world. Yet in order to have any significant effect on demand for low carbon energy technologies, the price of carbon would need to be higher than any political economy has been willing to bear. Moreover, a strictly price-based comparison between clean and dirty energy ignores many of the other non-market barriers that must be solved for clean energy to adopted on a meaningful scale, such as regulatory and infrastructure hurdles, issues with intermittency, technology risk, and other barriers. A carbon price may encourage a switch to already available mature technologies, but it won't do much to encourage the development of new innovations that will be necessary to displace fossil fuels.

What's the alternative? As Cowen notes, "maybe we won't adopt a green energy until it's really quite cheap." For the last seven years, the Breakthrough Institute has articulated, and continues to enhance, a strategy that is focused explicitly on making clean energy cheap by driving radical innovation in clean energy technologies. And that innovation, as history shows us, is catalyzed first and foremost by epic public investments.

Fortunately, energy innovation has moved into the mainstream. Even John Doerr, the carbon price devotee, has become a proselyte to the energy innovation agenda, and as part of the American Energy Innovation Council (AEIC) has called for a tripling of federal investment in energy innovation to $16 billion per year.

To be sure, the old guard will continue to clamor on about the immutable centrality of a carbon tax. Witness New York Times Columnist Tom Friedman's incoherent broadside against federal investment in clean energy in favor of carbon price fetishism.

Yet with leading economists and business leaders openly discussing the inadequacy of carbon pricing and the need for major investments in clean energy R&D, demonstration, and deployment, it's clear that while carbon pricing will undoubtedly be revived in the future, the energy innovation agenda is here to stay. After years of failed efforts with regulation-centered energy policy, many more groups are shifting their intellectual capital toward the difficult work of structuring energy innovation policies to catalyze a clean energy revolution. And that's something that any serious climate advocate should support.

By Alex Trembath and Devon Swezey.

Yesterday, the American Energy Innovation Council (AEIC)--composed of industry titans like Microsoft Chairman Bill Gates, Bank of America Chairman Chad Holliday, and leading venture capitalist John Doerr--released a follow-up to their 2010 report "A Business Plan for America's Energy Future." The new report, "Catalyzing American Ingenuity: The Role of Government in Energy Innovation," doubles down on the Council's earlier calls for increased and sustained public investment in clean energy technology, and offers new ideas about how greater energy innovation investment can be paid for in a new era of fiscal austerity.

In the wake of the high-profile bankruptcy of California solar company Solyndra, government critics are attacking federal investment in clean energy innovation, arguing that such decisions should be left to the "free market." But in their new report, these business leaders and entrepreneurs argue that government investment in energy innovation is key to realizing a clean energy future.

Doug Elmendorf, Director of the non-partisan Congressional Budget Office charged with assessing the costs of congressional policy actions, suggested yesterday that Congress increase federal spending to boost the economy in the short-term, even as it eyes fiscal consolidation in the medium-to-long term.

In testimony before the Joint Select Committee on Deficit Reduction--the new "supercommittee" responsible with coming up with $1.2 trillion in budget cuts by the end of November--Elmendorf argued that "there is no inherent contradiction between using fiscal policy to support the economy today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential."

As the Washington Post's Sarah Kliff writes, it won't be easy for the bipartisan supercommittee to find ways to increase spending given their mandate to cut it by over $1 trillion. Yet according to Elmendorf and a number of other economists that is clearly the best approach for the economy.

In his remarks, however, Elmendorf didn't specify what type of spending Congress should be boosting. Indeed, one of the major problems with the current budget debate is that too many policymakers fail to distinguish between different forms of spending. In particular, policymakers need to distinguish between productive public investments that spur innovation, productivity, and competitiveness in the long-term and other forms of spending that may produce some short-term benefit but have less of a lasting impact on economic growth. Still other spending programs are clearly wasteful, and their elimination would have very little impact on either economic recovery or future prosperity.

Increasing productive public investments is key to putting the U.S. economy on the path toward long-term prosperity, and understanding the difference between investment and spending will help policymakers make growth-enhancing investments even as they cut spending elsewhere. Stay tuned for a new report by Breakthrough and other colleagues outlining ways for policymakers to think about this difference, and why a successful strategy for restoring U.S. prosperity requires that we maintain and increase key productive investments today.

By Jesse Jenkins, Devon Swezey, and Alex Trembath

Wednesday's news that the California solar cell manufacturer and DOE loan guarantee recipient Solyndra will be declaring Chapter 11 bankruptcy has government critics grumbling about clean tech boondoggles and failed government programs. But Solyndra's failure, while unfortunate, is hardly an indictment of federal energy technology policy. Failure is to be expected with emerging, innovative companies, whether they are financed by the government or the private sector. The success of the Department of Energy's Loan Guarantee Program (LGP) should thus be judged not by any one investment but by the performance of the entire portfolio.

Critics have seized on the news of Solyndra's bankruptcy to condemn the Department of Energy's Loan Guarantee Program, which provided a $535 million loan guarantee in 2009. The National Review's Greg Pollowitz writes that Solyndra's failure shows "why the government should not play venture capitalist." Yet the fact is that, when judged by its entire diverse portfolio of investments, the LGP has performed remarkably well. Indeed, with a capitalization of just $4 billion, DOE has committed or closed $37.8 billion in loan guarantees for 36 innovative clean energy projects. The Solyndra case represents less than 2% of total loan commitments made by DOE, and will be easily covered by a capitalization of eight to ten times larger than any ultimate losses expected following the bankruptcy proceedings.

The broad success story of the LGP shows why federal investment in clean energy is necessary to help early-stage clean energy technologies achieve scale and reach commercialization. The inherent uncertainty in investing in novel technologies, coupled with the high capital costs and long time horizons, prohibits most venture capital funds from investing in large-scale clean energy projects. Financing tools and direct investment from the federal government can help bridge this well-known "Commercialization Valley of Death," and the LGP is an effective way of doing that.

By Michael Shellenberger and Ted Nordhaus

Monday's dismal manufacturing report and Tuesday's deal to slash spending have spooked the markets, which fear lower growth. While Obama and the Democrats say they will now focus on increasing jobs, the question is what can actually be done to grow the economy?

For Vaclav Smil, the famously pessimistic polymath, the answer is clear: the U.S. must manufacture its way out of decline.

Smil, virtually unknown in the United States, is no armchair pundit. The author of 32 books on risks, catastrophes and much else, Smil is a legend to energy wonks like Bill Gates and was the first non-American to win an AAAS Award for Public Understanding of Science and Technology.

Twenty-three years ago, Ronald Reagan addressed the nation to defend federal investments in research and development, even amidst dire budgetary constraints, prefacing the innovation hawks of today. The following is excerpted from Reagan's 1988 national address:
 

Federal funding for science is in jeopardy because of budget constraints. That's why it's my duty as President to draw its importance to your attention and that of Congress.

...The remarkable thing is that although basic research does not begin with a particular practical goal, when you look at the results over the years, it ends up being one of the most practical things government does... Major industries, including television, communications, and computer industries, couldn't be where they are today without developments that began with this basic research.

...one thing is certain: If we don't explore, others will, and we'll fall behind. This is why I've urged Congress to devote more money to research. After taking out inflation, today's government research expenditures are 58 percent greater than the expenditures of a decade ago. It is an indispensable investment in America's future.

...Some say that we can't afford it, that we're too strapped for cash. Well, leadership means making hard choices, even in an election year. We've put our research budget under a microscope and looked for quality and cost effectiveness. We've put together the best program for the taxpayers' dollars. After all, the American tradition of hope is one we can't afford to forget.

It's not often that we agree with Ronal Reagan's policy prescriptions. But even Reagan recognized the difference between productive government investment and government spending, and called for increased investments in science and innovation even at a time of tight fiscal concerns. Reagan's speech stands in stark contrast to the ideology of modern-day Congressional Republicans, who continue to push cuts to critical federal investments in energy innovation, wholly disregarding the critical role that federal investments in innovation have played in driving the nation's economic growth.

By Alex Trembath and Devon Swezey

Yesterday, New York Times columnist Paul Krugman published a blog post repeating his insistence that a carbon price is the key (if not the only) incentive needed to unleash "the magic of the marketplace" and drive innovation in clean energy technology. It was reminiscent of the conventional wisdom of the climate community over the past decade, and reflective of Mr. Krugman's own typically neoclassical views on the economics of climate change. Unfortunately, Mr. Krugman (and most climate policy advocates) continues to get the story wrong on clean energy innovation.

In the spring of 2010, Krugman wrote a widely-read piece in the New York Times Magazine called "Building a Green Economy," which pondered why, if anti-environmentalists are so adamant in their free-market faith, do they not support a price on carbon dioxide emissions. A carbon price, in Krugman's estimation, would serve as a signal to the market, driving innovation in cleaner technologies to the point where they achieved price parity with fossil fuels.

This week's Economist ran a story on Australia's new carbon tax scheme. It included

 

This morning the Brookings Institution's Metropolitan Policy Program released a comprehensive new report, "Sizing the Clean Economy," which takes a detailed look at the United States' ongoing transformation toward a low-carbon future. The report, co-produced with Battelle Technology Partnership, presents the most detailed data available on jobs and establishments in the clean economy, and finds that the clean economy accounts for 2.7 million jobs, more than both the biosciences and fossil fuel sectors, and a little over half the size of the IT sector. (Also check out the new interactive map that accompanies the report)

The global clean energy industry is set for a major crash. The reason is simple. Clean energy is still much more expensive and less reliable than coal or gas, and in an era of heightened budget austerity the subsidies required to make clean energy artificially cheaper are becoming unsustainable.

Clean tech crashes are nothing new. The U.S. wind energy industry has collapsed three times before, first in the mid 1990s and most recently in 2002 and 2004 when Congress failed to extend the tax credit that made it profitable. But the impact and magnitude of the coming clean tech crash will far outstrip those of past years.

By Teryn Norris, originally published at leadenergy.org

A few years ago, the high-tech giant Google helped reframe the national energy and climate policy debate when it launched its "RE<C" program, or "renewable energy cheaper than coal." The idea was clear: instead of primarily focusing on making fossil fuels expensive through climate policy, Google believed the U.S. should focus on driving down the price of clean energy through technological innovation -- or "making clean energy cheap," as the Breakthrough Institute puts it.

Today, in the midst of a raging national debate about energy and economic policy, Google took its analysis a big step further by releasing a new report and interactive website that offers one of the most comprehensive assessments ever performed on the economic impact of clean energy technology innovation.

After 20 years of dominance, the pollution paradigm--the idea that we could solve climate change similar to the way we've addressed conventional pollution problems--irretrievably failed in 2010. At the end of 2009, the collapse in Copenhagen spelled the end of efforts to enact legally binding emissions caps at the international level. In the United States, cap and trade failed for the fourth time in ten years and is politically dead for decades.

Carbon pricing and emissions trading schemes are also in retreat in other nations around the world, including Canada and Australia. Recognizing both the political difficulties associated with carbon pricing and its failure to reduce emissions where it has been tried, more scholars and opinionmakers in other countries are advancing an innovation and investment-centered climate agenda developed over the years by the Breakthrough Institute and its allies.

Popular fears that America is in decline rise and fall with the business cycle. While the American decline after 1945 was in some ways inevitable, the US trade deficit and the significant relative retreat of manufacturing was not. While America is indeed in worrisome straits at the moment, no unprecedented steps are required for America to regain competitiveness. Indeed, America can manufacture its way out of decline.

In our affluent, but unequal society, poverty is a relative, not an absolute condition. High levels of inequality coexist with rising living standards among all Americans. Meanwhile, rising wealth and asset ownership has produced a society in which the fortunes of the poor are increasingly tied to those of the elite. As a result, traditional New Deal social policy is not fit to deal with the current challenges facing a changing America. The sooner we confront these changing structural forces, the sooner we can create a new social contract befitting this new economic age.

Despite its evident failings, the neoclassical economic doctrine still remains the north star of most economic policy makers. While progressives blame right wing media outlets, in truth, the persistence of neoclassical ideology owes as much to the failings of the Left as it does to the successes of the Right. Keynesianism, the purported progressive solution, has failed to come to terms with the realities of the globalized, innovation-powered, 21st century economy in which we live. The reality is that neither neoclassical economics nor Keynesianism is fit to deal with America's present economic crisis.

By Roger Pielke Jr., cross-posted from Roger Pielke, Jr.'s Blog

As I suggested last week, UK Prime Minister David Cameron has settled debate over UK emissions reduction targets in favor of adopting stronger targets far in the future. It seems that he is also interested in continued economic growth.

Meantime, back in the present Cambridge Econometrics reports that the UK has missed it 2010 emissions reduction target, despite the dramatic effects of the economic downturn. The report sees the UK continuing to miss its near-term targets, with the difference between target and performance increasing over time. Environmental groups continue to confuse the effects of a shrinking economic downturn with progress on reducing emissions. Looking ahead, the UK economy is currently positioned to have economic growth or a continued reduction in emissions, but not both. Emissions in 2010 increased sharply.

Cambridge Economietrics explains the basic dynamics at work here:

[T]here is now a firm policy commitment (made by the previous government and now endorsed by the Coalition government) but as yet no firm policies in place ...

Targets without policies. Doesn't sound too promising, does it?

In a slew of recent events, Bill Gates has continued his vocal support for significantly increasing federal investment in energy research and development. At a climate change meeting this morning in Seattle, Gates said that the government isn't doing nearly enough to invest in energy R&D, and should more than double its current commitment. He singled out the Advanced Research Projects Agency for Energy (ARPA-E) for praise, but noted that it's too small and that it's funding was almost cut in recent budget negotiations.

Gates also stressed the difference between the energy and IT sectors, and why federal investment in energy R&D is so critical:
 

"The decisions you make now are based on some prediction about government policy way out there, decades in the future...Those kinds of things are so risky that there's a tendency to underinvest. When it comes to software and chips, the life cycles are two to three years, you understand who wants to buy them, and it's not subject to all this regulation."

Last week, Gates spoke at the Wired Business Conference in New York, where he noted that the need for radical innovation in energy technologies necessitates a shift in emphasis away from deployment of existing technologies and toward research and early commercialization of innovative ones. Any solution, Gates said, needs to be big, noting that rooftop solar PV will have a smaller impact than utility-scale solar:
 

"If you are going for cuteness, go after the those things at the home. If you want to solve the energy problem go after the big things in the desert."

Last year Gates, along with other business leaders, created the American Energy Innovation Council to lobby the government to increase federal energy R&D investment to at least $16 billion annually.

The Heritage Foundation recently released a report proposing a near dismantling of the Department of Energy's research budgets in the name of budget deficit reduction.

In a new report, the Breakthrough Institute, ITIF, and Americans for Energy Leadership pick apart the Heritage proposal and demonstrate that it displays a fundamental lack of understanding of technological innovation and therefore serves as a poor guide to America's energy, economic, and fiscal policy.

In particular, there are three major misconceptions in the Heritage proposal:

1. The proposal fails to meaningfully reduce the deficit now or in the future.

Even though the proposal advocates cutting DOE research budgets in the name of deficit reduction, the Department of Energy represents a tiny portion of the federal budget and contributes little to the deficit and national debt. Moreover, the proposal fails to distinguish between government spending and productive public investment in science and technology, which drives innovation and economic growth.

2. Heritage fails to understand where technological innovations come from.

Heritage wrongly assumes that "when it comes to energy policy, the free market works" and is best suited to develop new technologies. In fact, the energy sector is anything but free, and has always been characterized by extensive regulations and subsidies, natural monopolies, and other divergences from the free-market ideal held by Heritage. Moreover, Heritage ignores the long history of public support for innovation and assumes the private sector will invest sufficiently in energy innovation. For decades, the energy sector has consistently underinvested in R&D, and market failures plague the energy innovation process at each stage of development, from lab to market launch. There is a broad expert consensus that public investment and public-private partnerships are essential to moving new, innovative technologies into the marketplace.

3. The proposal ignores the immediacy and enormity of U.S. energy challenges.

While Heritage pays lip service to energy security, its recommendations would undermine many of the best efforts underway to achieve it. The Department of Defense has recognized the critical role that innovative clean energy technologies will play in enhancing their strategic and tactical abilities, as well as the nation's energy security. DOD also views the DOE as a strategic partner in its effort to reduce its own vulnerability from relying on fossil fuels. If Heritage had it their way, DOD would lose a key partner in the long-term effort for greater force effectiveness and security through better energy management.

The full report can be downloaded here

A point by point rebuttal to the Heritage proposal, released last week by BTI, ITIF, and AEL, can be viewed and downloaded here.


See also:

Know Your Heritage: The Heritage Foundation's Incoherent Attack On Public Investment in Energy Innovation

By Matt Hourihan, cross-posted with permission from the Innovation Policy Blog at ITIF

In yesterday's New York Times, Connecticut Department of Environmental Protection chief Daniel Esty and Harvard Business School professor Michael Porter issued a call for an "emissions charge" (i.e. a carbon tax) to address the nation's oil dependence and climate risks, joining a long line of others who continue to do the same. Specifically:

The best way to drive energy innovation would be an emissions charge of $5 per ton of greenhouse gases beginning in 2012, rising to $100 per ton by 2032. The low initial charge, starting next year, would make the short-term burden on consumers and businesses almost negligible.... Our proposal would apply to all greenhouse gas emissions, so that everybody, and every fossil-fuel-dependent form of energy, would be included...Yes, these costs would be passed on to consumers, but this is what motivates changes in behavior and technological investments.

It's the neoclassical view that's reverberated throughout the debate for years: get the prices right, get government out of the way, and let the market do its thing. Andrew Revkin has a point when he refers to the piece's "retro feel."

The United States manufacturing sector is in crisis and its decline is not natural or desirable, according to a new report by the Information Technology and Innovation Foundation released on Tuesday.

The report, "The Case for a National Manufacturing Strategy," argues that the declining manufacturing sector is due to a loss of international competitiveness, in part because the United States has long lacked a manufacturing strategy to make the United States an attractive location for advanced manufacturing, strategies that many other nations have enacted.

There remains a lot of debate about whether a healthy manufacturing sector matters to the U.S. economy, or even whether the sector is actually in decline. The ITIF paper, written by ITIF Senior Analyst Stephen Ezell and President Rob Atkinson, notes that this lack of consensus has stifled efforts to address America's manufacturing challenges:
 

"Until there is a consensus that manufacturing is important, that it is not healthy, and that a national manufacturing policy is needed, it will be difficult to create a platform for reframing the conversation. Meanwhile, other nations are putting in place manufacturing strategies that include key components such as tax incentives and large investments in research, skills development, infrastructure, and technology transfer and technical assistance. Every day we do nothing we risk falling further behind."

Last week the Heritage Foundation released a policy "backgrounder" report calling for a near-dismantling of the Department of Energy's research budget, including key energy innovation programs that are investing in scientific breakthroughs needed to make clean energy technologies more reliable and affordable. The report suggests that innovation spending increases at DOE are dangerous contributors to the national deficit and inferior financing mechanisms to private sector investment in energy technologies.

The Heritage proposal calls for (1) fully eliminating the Office of Energy Efficiency and Renewable Energy, slashing the $3.2 billion budget, and eliminating proposed advanced nuclear energy technology programs from the Office of Nuclear Energy; (2) eliminating the Innovative Technology Loan Guarantee Program and reducing other applied programs like the Office of Nuclear Energy; (3) cutting $1.59 billion from the Office of Science, including the elimination of two of the four Energy Innovation Hubs, elimination of the 46 Energy Frontier Research Centers (EFRCs), elimination of the Workforce Development for Teachers and Scientists Program, and a broad range of other cuts to basic energy sciences; (4) eliminating the power marketing administrations; and (5) cutting the administration's FY2012 budget request for ARPA-E from $650 million to $300 million. However, the white paper contains numerous inconsistencies and inaccuracies about federal investment in energy innovation.

The Breakthrough Institute, along with our colleagues at ITIF and Americans for Energy Leadership, have produced a Counterpoint that documents the misleading statements and inconsistencies in the Heritage report. The full Counterpoint is reproduced below, and you can download a PDF copy here.

The U.S. Energy Information Administration has released updated figures on the levelized cost of different energy sources. Here's the latest in our irregular Friday Factoids series, provided as usual without comment...

According to the U.S. Energy Information Administration, the statistics and forecasting agency of the U.S. Department of Energy, a substantial price gap remains between the levelized cost of new renewable electricity sources and conventional fossil fuel power plants, though that gap has narrowed since the EIA published its 2010 numbers last October. Their cost estimates are for new power generation equipment constructed in 2016 and reported in 2009 constant dollars (see graphic below).

Electricity from new onshore wind power, for example, is still a bit more expensive than electricity from new conventional coal-fired power plants, and 47% more expensive than electricity from a conventional natural gas-fired combined cycle power plant, according to EIA estimates. Wind power built offshore a whopping 150% more costly than onshore wind, says the EIA.

"The first step in winning the future is encouraging American innovation. ... We'll invest in biomedical research, information technology, and especially clean energy technology, an investment that will strengthen our security, protect our planet, and create countless new jobs for our people."

With those remarks at the heart of his State of the Union address - and a 2012 Budget proposal to back them up - President Obama drew a line in the sand and articulated a vision of American economic renewal fueled by key investments in the kind of public-private partnership that brought us the railroads and jet aviation, microchips and the Internet, countless biomedical breakthroughs and a portfolio of clean energy alternatives.

As we wrote in January, "Obama's [State of the Union address] was a rejection of proposals to cut federal spending across the board, as he finally made the case before the American people about why public support for innovation is critical for the country's long-term prosperity."

It was a plan to "win the future" and restore American prosperity that embraced the crucial distinction between government spending - consumptive, transitory, and sometimes even wasteful - and public investment - that small portion of our federal budget that catalyzes the enduring innovation, entrepreneurship, and economic growth that makes this nation strong. We hailed the speech as "Obama's breakthrough" moment.

But that was January...

Today, we're veering closer to a very different vision of America's budgetary future, one that seems to embrace the logic of "across-the-board" spending cuts proffered by Republicans, including decreasing budgets for major national research agencies and clean energy innovation programs.

Budget Deal Cuts Investment in Innovation

Late on April 8th, President Obama's negotiators gave his imprimatur to a compromise to fund the government through the remainder of the 2011 fiscal year that would see federal investments in energy innovation fall by nearly 11% (or $325 million) below 2010 levels while stripping over $1 billion from the budgets of the nation's major non-defense research agencies.

These cuts amount to a veritable funding cliff, when one considers the nearly simultaneous expiration of the temporary investments flowing to innovation agencies in 2009 and 2010 under the American Recovery and Reinvestment Act.

If this is the opening battle in the war to win America's future, it is a clear defeat.

Carbon prices won't drive the level of energy innovation required to mitigate climate change and fuel sustainable global development, according to a new report by the Information Technology and Innovation Foundation (ITIF).

One of the most influential pieces of conventional wisdom in the energy and climate debate is that a price on carbon is the key to unleashing the breakthrough innovation required to make clean energy technologies much cheaper. Venture capitalist John Doerr captures this view well, saying in 2009 that "no long-term signal means no serious innovation at scale."

But the new ITIF paper, co-authored by Research Analyst Matt Hourihan and ITIF President Rob Atkinson, finds that the idea that carbon prices can spur breakthrough innovation is built on flawed assumptions about the nature of technological change and wholly inconsistent with real-world evidence of the sources of breakthrough technology innovation.

By Sara Mansur and Devon Swezey

Updated Below (3/24/2011)

Grist environment writer Christopher Mims has written a widely read post comparing Japan's Fukushima nuclear reactor complex to solar photovoltaic energy in Germany. The post, "Germany's Solar Panels Produce More Power Than Japan's Entire Fukushima Complex," implies that solar PV may be an adequate substitute for aging nuclear reactors in both Germany and Japan.

But an analysis of the electricity generated by Germany's solar PV industry and Japan's Fukushima Daiichi reactors finds that Germany's entire solar PV capacity, installed at a cost of at least $86 billion, generated only half the amount of electricity generated by the Fukushima plants in 2010.

Mims writes:

"It's worth noting that just today, total power output of Germany's installed solar PV panels hit 12.1 GW -- greater than the total power output (10 GW) of Japan's entire 6-reactor nuclear power plant."

There are two problems with this.

First of all, the total installed capacity of Japan's Fukushima six-reactor Daiishi plant is actually 4.5 GW. The total power output of Japan's entire Fukushima complex, which consists of ten reactors--six at Daiichi and an additional four at Daini--is 8.8 GW. So Germany's peak solar PV output of 12.1 GW is nearly three times greater than Japan's Daiichi reactor complex.

Does that mean that solar in Germany is somehow equivalent to three of Japan's nuclear complexes? The answer is no, and this leads to the second problem with Mims' post.

The 12.1 GW that Mims cites is the total power generated at one peak time of day. But Mims' numbers don't tell us anything about what we really care about, which is electricity generation.

As Mims himself notes, solar power production varies with weather and the time of day--it doesn't supply 12.1 GW of power continuously. Rather, looking at total electricity generated over a year gives us a much more accurate, apples-to-apples comparison of each technology's contribution to a country's energy needs.
 

As both Republicans and Democrats in Congress appear willing to cut funding for key energy innovation programs, a bipartisan group of Senators have spoken out in support of maintaining funding for an innovative energy technology agency that invests in game-changing research.

Senators Lamar Alexander (R-TN), Lisa Murkowski (R-AK), and Jeff Bingaman (D-NM), have all rallied around the Advanced Research Projects Agency for Energy (ARPA-E), hoping to shield it from major budget cuts in the following months.

Speaking at ARPA-E's recent Washington D.C. summit, Senator Alexander, one of most respected Republican Senators on energy issues, discussed the importance of maintaining investments in energy research:
 

"Obviously we're going to have to work to reduce spending, but we have to be smart, not cheap. We need to make certain we leave room for the basic research that drives our high standard of living. Most of the focus is on reducing spending, but sooner or later we're going to have to set priorities. One of my priorities is research and development...It is my belief that ARPA-E is one of the bright stars in innovation in the world today, and certainly for our country."

Alexander advocates ending energy subsidies for mature energy technologies--including both oil and some older renewable energy technologies--in order to free up funding for expanded investments in energy research and advanced technologies--a concept broadly consistent with the advanced energy strategy that the Breakthrough Institute and our colleagues at Brookings and AEI called for in Post-Partisan Power.

"The cost of early research is extraordinarily high, often prohibitively so. The most significant strides we've taken in innovation in this country have, as a result, been largely the product of substantial federal investment in R&D. The early discoveries, the early inventions have rarely arisen exclusively in a private-sector environment. But with a concerted national effort, these innovative ideas can find the funding--and the resources--to become viable. Government R&D investments have resulted in the early phases of countless critical innovations. Companies like Dow have then worked with the government to take on some of the risk, to further develop the products, and to ultimately commercialize them.

Other countries are now following that model. They are spending substantial sums of money in focused R&D, providing the space for innovation that has no equivalent in the private sector. Those investments attract businesses like Dow. We want to be at the center of innovation--and the center of innovation is increasingly moving offshore.

The United States should substantially increase it's R&D budget, and should focus specifically on industries--like clean energy--where success in innovation has the greatest potential to result in valuable products, high-paying jobs, and sustainable economic growth."

-- Andrew Liveris, CEO of Dow Chemical, in "Make it in America: The Case for Re-Inventing the Economy"

As the Congressional Republicans continue to push cuts to critical federal investments in innovation, two more prominent voices have joined a growing group of innovation hawks on both sides of the aisle seeking to preserve or even increase federal funding for science and technology.

The first is noted political commentator Mort Kondrake, who wrote recently in Roll Call that the GOP is threatening to "torch America's seed corn" by cutting federal technology investment. Kondrake, a long-time contributor to Fox News and Executive Editor of Roll Call, notes that the Republicans' budget bill would cut funding for scientific research agencies by more than 33 percent, at a time when countless science and technology experts argue that we must increase such investments to spur economic growth. As Kondrake notes, the GOP budget proposal would abandon the long, bipartisan history of federal investment in American innovation:
 

Republican priorities represent not just a repudiation of President Barack Obama's proposed increases for science -- 10 percent for energy, 13 percent for the NSF, 15 percent for NIST -- but of a bipartisan process started in 2005 to secure a doubling of hard science research.

Cross-posted with permission from the Innovation Policy blog, a project of ITIF.


By Matt Hourihan

There are times when the nation’s political leadership in Washington is perfectly in sync with the realities of the day, and there are times when much of that leadership is out to lunch. Exhibit A: the current energy debate. Even as global demand and instability threatens to challenge affordable supply, and as overseas states are investing heavily in clean technology, many of the nation’s leaders are contemplating gutting domestic investment in clean energy.

Amid this context, enter the 2011 ARPA-E Energy Innovation Summit, a gathering of some of the best and brightest in clean energy innovation intended to showcase often-astounding advances in energy technology. The Advanced Research Projects Agency-Energy – one of the single most important agencies in the federal innovation portfolio – has recently been fighting for its budgetary life, surviving a recent push to de-fund the program, and still facing significant uncertainty over future appropriations. Yet few programs are doing what ARPA-E is doing: supporting cutting-edge energy research in the private and academic sectors in search of revolutionary game-changers to fundamentally alter our energy landscape.

ARPA-E was modeled after DARPA – the cutting-edge Defense Department research agency – to be an agile, dynamic innovation engine at the recommendation of the National Academies. It’s early yet (the agency’s research programs are multiyear endeavors), but if just a handful pay off, the potential upside is enormous. Already, certain awardees are leveraging public funding to entice private investment at a 4-to-1 ratio. Agency Director Arun Majumdar summed up the program’s mission on the first day: “What ARPA-e does best is identify the opportunities and create the competition. And eventually, the market will pick the winners.” (video)

Even given its relative youth and small size, the agency has attracted plaudits for its ability, as when CO Sen. Mark Udall remarked of ARPA-E at the summit, “You're a model of efficiency. That’s government at its best.” On top of this well-earned reputation, multiple expert recommendations have said ARPA-E is critical to American cleantech competitiveness and urged a boost to its original $400 million budget. And last year Congress saw fit to reauthorize the agency for three more years in the America COMPETES Act, albeit at lower levels than has been recommended.

Nevertheless, some leaders want to zero out the agency, and even those who nominally support it remain unwilling to invest adequately. AK Sen. Lisa Murkowski acknowledged as much, warning that “Many programs are never funded at their authorized levels, let alone higher. At what level Congress will support funding for ARPA-E remains uncertain.”

Suffice to say, we hope those leaders out to lunch will finish up soon and get back to investing in the future.

Cross-posted from Breakthrough Senior Fellow Roger Pielke Jr.'s blog

Do Nations Compete for Jobs and Industry?
by Roger Pielke Jr.

The image above comes from The Economist and shows the share of profits in the mobile phone industry, with the growing bright blue wedge representing Apple taking a big bite out of Nokia's profits. The Economist writes:

UNTIL 2007 Europe appeared to have beaten Silicon Valley in mobile technology for good. Nokia, based in Finland, was the world's largest handset-maker--and raked in much of the profits. But everything changed when Apple introduced the iPhone in 2007, the first smartphone that deserved the name.

Obviously there are relative winners and losers in the marketplace, but apparently many economists don't think that countries are in competition for jobs or industry. Writing in the NY Times yesterday, Gerg Makiw dismisses the notion of countries in competition with one another, as suggested by President Obama in the State of the Union:
 

Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team.

To see why, let's start with a basic economic transaction. You have a driveway covered in snow and would be willing to pay $40 to have it shoveled. The boy next door can do it in two hours, or he can spend that time playing on his Xbox, an activity he values at $20. The solution is obvious: You offer him $30 to shovel your drive, and he happily agrees.

The key here is that everyone gains from trade. By buying something for $30 that you value at $40, you get $10 of what economists call "consumer surplus." Similarly, your young neighbor gets $10 of "producer surplus," because he earns $30 of income by incurring only $20 of cost. Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties.

This example is not as special as it might seem. The gains from trade would be much the same if your neighbor were manufacturing a good -- knitting you a scarf, for example -- rather than performing a service. And it would be much the same if, instead of living next door, he was several thousand miles away, say, in Shanghai.

Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States. But the essence of economic exchange belies that description. Other nations are best viewed not as our competitors but as our trading partners. Partners are to be welcomed, not feared. As a general matter, their prosperity does not come at our expense.

Rob Atkinson of ITIF has a great post up which critiques such conventional wisdom among economists that nation's are not in competition for jobs and industry. Here is a lengthy excerpt from Rob's post:

In a recent column, Innovation Conservative David Brooks calls out both Democrats and Republicans as perpetuating "mirages" for advocating cuts to discretionary spending as deficit reduction measures, and argues that those advocating for increased investments in productive areas need to band together to address entitlements, as growing entitlement spending will impose constraints on those investments in the future.

In his State of the Union, President Obama explained why America must invest in energy, information technology, and drug innovation to grow its way out of the deficit. Republicans said that innovation is best left to the private sector, and reducing the deficit will help it to do so. Who's right?

From 12 noon - 1:30 pm EST on Monday (Feb 7) Breakthrough Senior Fellow Fred Block -- author of the new history of federal investment in innovations like pharmaceutical drugs, computers, and GPS, State of Innovation -- and the Information Technology and Innovation Foundation's Rob Atkinson will debate the distinguished conservative scholars, Jerry Taylor from the Cato Institute and David Kreutzer from the Heritage Foundation.

The topic is resolved: "The Federal Government should increase investment in innovation to accelerate economic growth and reduce the deficit." The debate will be moderated by the National Journal's chief economics correspondent, Jim Tankersley. To register click here. (Full details below.)

Growth in U.S. R&D investment will slow this year, while China is expected to eclipse Japan for second place among all nations in R&D investment, according to a new analysis released by Battelle and R&D Magazine.

The United States is still far and away the global leader in terms of total investment, and is expected to invest $405 billion in 2011. The Battelle team predicts that increases in U.S. R&D investment will slow to 2.4% in 2011, however, equal to the median global rate.

China has increased R&D investment by 10% each year for the last 10 years, sustaining this rapid growth rate through the global recession. Battelle estimates that China will invest $154 billion in R&D in 2011, passing Japan's $144 billion.

While the United States continues to lead in overall funding, in the last decade R&D has become increasingly globalized, as foreign governments boost their investment in R&D and innovation capacity, and multinational corporations have decentralized R&D activities across both advanced and emerging economies.

With last night's State of the Union address, President Obama has shifted the debate from the partisan climate wars to an expansive energy innovation policy which has the potential to draw support from across the political spectrum.

"In embracing breakthrough innovation for solar and nuclear power alike -- for economic competitiveness rather than climate reasons -- President Obama took a bold first step toward a national commitment to energy innovation that is in the long tradition of bi-partisan support for science and technology," wrote Breakthrough Institute co-founders Michael Shellenberger and Ted Nordhaus in a statement. "While the road forward will not be easy, at least it is one America has traveled before."

In a State of the Union speech framed centrally around restoring America's global economic leadership, President Obama argued forcefully for increasing federal investment in energy innovation, declaring that "breakthrough" technologies have driven decades of innovation that "created new industries and millions of new jobs."

Obama's speech was a rejection of proposals to cut federal spending across the board, as he finally made the case before the American people about why public support for innovation is critical for the country's long-term prosperity:

By Devon Swezey and Yael Borofsky

Tonight, President Obama is prepared to call for renewed federal investment in infrastructure, research, education, and clean energy technology in his State of the Union Address, according to his advisers. He is likely to argue that new productive investments in education and technology are central to generating jobs and laying a new foundation for economic prosperity. Indeed, the long, bipartisan history of American innovation is one of federal investment in new technologies--even in tough economic times.

But as Republicans in Congress continue their campaign to cut everything in sight (except for what might reduce the growing federal debt -- defense and entitlement spending), with seemingly little regard for the difference between spending and smart investment, it may be difficult for Obama to enact policies that could seriously address the deficit by growing the economy.

Over at the Huffington Post, Josh Freed, the Director of Third Way's Clean Energy Program, takes a look at what the Republican plan to cut 20% of all non-defense discretionary funding might look like if spread equally across clean energy programs. It's not pretty:

-- A $1.6 billion cut in the federal loan guarantee program would potentially cripple the much-needed nuclear renaissance at a time when China is planning a five-fold expansion over the next decade. Without loan guarantees, it's unlikely we'd be building first nuclear power plant in the US in almost 30 years, and creating as many as 3,500 jobs, in Georgia today.

-- $60 million less for ARPA-E's already meager $300 million budget, gutting funding for advanced energy storage, next generation nuclear power and micro-battery technology that could also be used by the US military.

-- Eliminating almost $500 million in grants to companies innovating in renewable energy, advanced vehicle technology, and battery storage. This could kill emerging clean energy businesses that have the potential to become the 21st century's Google, General Electric or Exxon.

-- Slicing $20 million from R&D investments to schools like Purdue University, Penn State, University of Wisconsin, and Iowa State University, which are developing the next generation of innovators and ideas that could spawn new businesses and jobs across the U.S.

As Freed notes, even well known and well respected conservative commentators like George Will are warning Congressional Republicans to exchange their budget hatchets for scalpels and preserve or even strengthen key science and technology investments.

Clean energy is certainly one of the global growth sectors that could help lead an industrial revival in the United States. But Republican budget cutting mania could hamper U.S. competitiveness in the sector even as other nations like China, Japan, and South Korea increase their investments. Will Innovation Conservatives be able to forestall such an outcome?

On Tuesday, President Obama signed into law the America COMPETES Reauthorization Act of 2010, a critical reauthorization of the landmark 2007 competitiveness bill that authorizes increased funding for critical science and technology agencies including the Department of Energy's Office of Science, the National Science Foundation, and the National Institutes of Science and Technology.

Unfortunately, the ambition of the bill is much reduced from its original incarnation just four years ago, even as international economic competition has grown ever more fierce. The final version of the bill, passed by Congress on December 21, authorizes $45 billion in science, research, and education funding over three years, less than the five year, $85 billion authorization first approved by the House of Representatives in May of last year.

Bucking the conventional wisdom that newly empowered conservatives are out to cut government spending at all costs, an influential group of conservative voices has emerged to urge Congressional Republicans to take a more measured approach toward federal programs and challenge them to increase federal investment in science and technology.

In yesterday's Washington Post, conservative columnist George Will exhorted new Republican legislators to "rev the scientific engine" by increasing federal investment in research, arguing that such investments are the "pre-requisites for long-term economic vitality":
 

"Republicans are rightly determined to be economizers. They must, however, make distinctions. Congressional conservatives can demonstrate that skill by defending research spending that sustains collaboration among complex institutions - corporations' research entities and research universities."

True fiscal conservatism, Will writes, means knowing that "making the government lean by cutting the most defensible--because most productive--federal spending is akin to making an overweight aircraft flight-worthy by removing an engine."

The following is the introduction to a new Breakthrough report, "Where Good Technologies Come From: Case Studies in American Innovation." Download the full report here.

Driving directions from your iPhone. The cancer treatments that save countless lives. The seed hybrids that have slashed global hunger. A Skype conversation while flying on a Virgin Airlines jet across the continent in just five hours.

Where did these everyday miracles come from?

As soon as the question is asked we know to suspect that the answer is not as simple as Apple, Amgen, or General Electric. We might recall something about microchips and the Space Race, or know that the National Institutes of Health funds research into new drugs and treatments.

But most of us remain unaware of the depth and breadth of American government support for technology and innovation. Our gratitude at being able to video chat with our children from halfway around the world (if we feel gratitude at all) is directed at Apple, not the Defense Department. When our mother's Neupogen works to fight her cancer, we thank Amgen, not NIH or NSF.

By Michael Shellenberger and Ted Nordhaus

Japan's blunt declaration last week that it was walking away from the Kyoto climate treaty marked the end of an era. Since Copenhagen, international climate negotiations have proceeded on two parallel tracks, with most major emitting nations simultaneously participating in efforts to extend Kyoto while also working to formalize the Copenhagen Accord - the face-saving agreement among major emitters wrought in the dying hours of the COP-15 meeting in Denmark.

In stating, unequivocally, that it would only make further emissions reductions commitments under the auspices of the Copenhagen Accord, not the Kyoto Protocol, Japan left no doubt about which framework will be the primary vehicle for future international efforts to address climate change.

The announcement set off a small diplomatic riot, largely because Japan had single-handedly destroyed two contradictory fantasies at once. The first, held by Europeans and greens, was that the 2009 Copenhagen Accord would someday merge with Kyoto and require mandatory emissions limits from the U.S. and China. The second, held by China, India, and other big developing nations, was that they could demand emissions reductions from rich countries but adhere to no obligations themselves.

While the Copenhagen Accord, like Kyoto, still maintains the pretense that it will culminate in a binding agreement among major emitters to reduce emissions, the same intractable conflicts among major economies that have thwarted international agreement to legally binding emissions caps are not likely to be resolved through the Copenhagen approach. In reality, the post-Kyoto world is a post-emissions cap world. Future climate action is more likely to resemble what Japan has been proposing since the 2007 Bali climate talks - developed nations primarily focusing on developing and deploying advanced energy technologies in order to reduce their own emissions while working sector by sector with developing economies to transfer the appropriate technologies that can facilitate growth with low carbon technology.

Four months ago, we warned that while the stimulus bill had created considerable momentum in the domestic clean energy sector by funding clean energy research, manufacturing, and markets, a looming clean tech funding cliff threatened to send clean energy markets into a deep freeze as stimulus funds expired with no new investments in line to replace them.

Now it looks like that funding cliff is in sight, and Wall Street is threatening to push us over it. As Bloomberg News reports, hedge funds have increased their short selling of U.S. renewable energy stocks--essentially betting on their decline--to an annual high. The investment decisions follow widespread skepticism that the federal government will continue to invest in nascent clean energy industries.

As Daniel Goldfarb of Americans for Energy Leadership writes, in the short term, the move could advantage international competitors in the clean tech space:
 

In an increasingly globalized world such a flight of capital from U.S. clean energy companies will mean a distinct advantage for American competitors who are moving rapidly to corner the market. By failing to commit to these crucial industries we risk wasting the money already invested in making our clean energy companies competitive.

The impending funding cliff also imperils the thousands of domestic jobs tied to clean energy projects and manufacturing supply chains. If they disappear, there's no guarantee they'll return as other nations forge ahead with concerted efforts to build competitive clean energy industries and supply the growing global market.

Ultimately, the news from Wall Street exemplifies the precarious nature of a clean energy industry that still requires major public subsidies to survive, particularly in a time of budgetary constraint. Over the long-term, the only way to catalyze a global clean energy revolution and reclaim American leadership in the global clean tech industry is a national commitment to an energy technology innovation strategy that can make clean energy cheap.

Just this week the President's top science advisors called for such a strategy. Congress should listen before it's too late.

The United States should more than triple federal investments in the development of cutting edge new energy technologies to accelerate the transition to a low carbon energy system, according to President Obama's top science and technology advisors.

Joining an increasingly broad and consistent set of voices, from academia, policy organizations, business leaders and researchers, the President's science and technology advisors forcefully argue that accelerated energy innovation is critical to the nation's future prosperity for economic competitiveness, environmental, and national security reasons alike.

The report, "Accelerating the Pace of Change in Energy Technologies Through an Integrated Federal Energy Policy," was written by the President's Council of Advisors on Science and Technology (PCAST) and released Monday.

U.S. Energy Secretary Steven Chu warned today that if the United States allows funding for energy R&D to decline it risks losing its leadership in energy innovation to China and other emerging economic competitors.

Speaking at the release of a new report on energy innovation by the President's science advisors, Chu declared that "federal support of scientific R&D is critical to our economic competitiveness."

The new report, published today by the President's Council of Advisors on Science and Technology (PCAST), urges the President and Congress to substantially boost federal funding for energy research, development, demonstration, and deployment--to $16 billion per year. Recognizing the major advances needed to make clean energy technologies viable alternatives to fossil fuels, the report recommends that the bulk (three quarters) of this new funding be directed earlier on in the innovation process, towards research, development, and demonstration (RD&D) activities

The PCAST report is a prominent addition to a growing chorus of expert voices calling for greater investment in energy innovation. Most recently, the Breakthrough Institute, Brookings Institution, and American Enterprise Institute released a "Post-Partisan" plan for energy innovation, calling for a $25 billion investment. And earlier this year, top business leaders, including Bill Gates and Norman Augustine, released a plan calling for $16 billion in RD&D.

For more on Chu's speech and the PCAST report, see this great coverage from TIME's Bryan Walsh.

Were the European Union to call for a deeper cut in carbon dioxide emissions, it would do little to stem the unrelenting increase in global emissions and is unlikely to have any effect on the international climate negotiations, according to the International Energy Agency.

While Europe's negotiating position in international climate talks remains a target of 20 percent emissions reductions below 1990 levels by 2020, some have pushed it to target an additional ten percent reduction. The EU has long maintained that it would boost its target to 30 percent if other industrialized countries followed suit.

What is the significance of an extra ten percent reduction in EU emissions by 2020? Not much, according to IEA Chief Economists Fatih Birol:
 

"We estimate extending Europe's plan to cut emissions from 20 to 30 percent would roughly equal China's two-week gas output."

Could the 10 percent EU additional emissions cut really equal only two weeks of emissions in China? We checked the numbers on that (h/t Roger Pielke, Jr.), and Mr. Birol is indeed correct.

"China's overriding priority will be to develop its economy, eliminate poverty and raise people's welfare, and our energy consumption and (greenhouse gas) emissions will experience reasonable growth for some time."

--Huang Huikang, the Chinese Foreign Ministry's special representative for climate change talks.

By Teryn Norris, originally published at Americans for Energy Leadership

David Leonhardt -- one of the country's leading economic reporters at the New York Times -- has a new article, "One Way to Trim Deficit: Cultivate Growth," which calls for increased federal investment in science, technology, and education as one of "the best ways to promote growth" and a primary strategy to reduce the budget deficit. He reports:

"If the economy grew one half of a percentage point faster than forecast each year over the next two decades -- no easy feat, to be fair -- the country would have to do roughly 40 to 50 percent less deficit-cutting than it now appears...

Even more important than the next couple of years is the second part of a pro-growth strategy: the long term. A good deficit plan doesn't simply make across-the-board cuts for years on end. It cuts funding for programs that do not spur economic growth and increases funding for those relatively few that do...

Beyond tax reform, both [proposed] deficit plans mention the importance of making investments that will lead to future growth. In particular, the Bowles-Simpson plan calls for a gradual 15-cents-a-gallon increase in the federal gasoline tax to pay for highways, mass transit and other projects. The plans also urge the government to prioritize education and science.

These are clearly among the best ways to promote growth. The United States created the world's most prosperous economy last century in large measure because it was the world's most educated country. It no longer is. Federal science dollars, meanwhile, led to the creation of the intercontinental railroad, the airline industry, the microchip, the personal computer, the Internet and numerous medical breakthroughs. Yet science funding is scheduled to decline as stimulus money runs out."

Leonhardt's case, which our allies and us have consistently advocated, is supported by a large and growing degree of evidence. For example, in an article for The Quarterly Journal of Economics titled "Measuring the Social Return to R&D," two Stanford economists concluded:
 

"the optimal share of resources to invest in research is conservatively estimated to be two to four times larger than the actual amount invested by the U.S. economy. The extent of underinvestment is substantial, and could well be much larger."

In other words, the federal government has been substantially underinvesting in science and technology, and securing robust long-term growth and deficit reduction requires new public investment in strategic growth sectors -- with clean energy technology being a prime example.