We need to recognize that the first step—rather than further government "medicine"—is to stop poisoning the patient, and return to capitalism.
2016 is shaping up as an election in which one of our parties will emphasize the need for growth and the other will call for greater economic equality. These concepts are often seen in substantial tension with one another. In my view, however, if the government encourages innovation we can have both growth and greater equality in the relatively short run.
As I wrote in yesterday’s Washington Times for the celebration of Liberty Month:
In this age of accelerating technology, there is no more important policy than to encourage innovation. Innovation is the primary source of economic growth. New innovative businesses, like Google and Uber, transform our lives for the better. And innovation builds on innovation, compounding growth from generation to generation. As the Nobel Prize winning economist Bob Lucas once said: “Once one thinks about exponential growth, it is hard to think about anything else.”
Innovation in the modern era also tends to make us more equal. Innovation creates a stream of new ideas that are rapidly enjoyed by the great mass of people. Material goods are scarce, because individuals can by and large not enjoy the same material simultaneously. But ideas can be enjoyed by all. To be sure, some innovations are patented, but these patents expire. And, as better innovations come along, the old patents rapidly become less valuable. That is one reason that smart phones have so rapidly become available to people of modest means. Thus, the greater the supply of innovations, the great the common pool from which almost everyone can benefit quite rapidly.
We thus need to ask all Presidential candidates what they will do to promote innovation. I had quite a few suggestions. Deregulate at both the local and federal level, particularly eliminating those regulations that help incumbents fence out innovators. Permit more immigration of the highly talented so they can collaborate more easily with our greatest innovators. End the too-big-to-fail financial regime that encourages people to go into finance rather than create the next Google. Follow Alex Tabarrok’s suggestion and create more discriminating patent laws that do not create patent thickets that slow down innovation.
In short most of my recommendations are to get government out of the way. The one area I think we need more government is in spending for basic research of the kind that cannot be easily patented.
I see an upside for our politics more generally in focusing on innovation:
Focusing politics on improving innovation also has a political benefit that transcends economics. Unlike government transfers from one group to another or social issues that split us along cultural or religious lines, innovation benefits us all. It is a politics of union rather than division.