Why More Government Spending On Science, Technology Research Could Be Ahead

In the last four decades, the prevailing economic wisdom has emphasized tax cuts and low government spending, allowing the free market to solve most economic problems. But the Biden administration is looking to change that.

The Senate Spending Package: In addition to investing trillions of dollars in stimulus money and a potential infrastructure bill that would repair roads and bridges with millions of additional jobs, the Senate recently passed the Innovation and Competition Act, a $250-billion legislative package meant to facilitate research and development in the fields of science and technology, with a significant portion going to semiconductors, microchips and telecommunication technology.

RSM Economists Tackle Government Investments: While not guaranteed to pass — or succeed if it does — two economists say that, despite some concerns, the bill could benefit the American economy.

In a paper titled, “The Rebirth of Industrial Policy in the United States,” RSM economists Joe Brusuelas and Ethan Schmidt note a number of spaces where government investment could be used wisely, including the public health sector, in supply chains, research and development and in creating new growth models.

The economists suggested the governments of Mexico, Canada and the U.S. create a North American supply chain, allowing goods to more freely flow between the three countries, particularly during periods of climate or health crisis.

The economists said this is a particularly good moment for government spending because nonresidential investment is low, and the U.S. is coming out of a pandemic and recession that has highlighted some faultiness in the durability of its economy.

“As for U.S. economic policy, the dominance of the idea that corporations — and society — are best served by optimizing shareholder profits appears to be ending after a 40-year run,” they wrote. “There can be no argument that U.S. nonresidential investment has been in decline.”

The Downside Of Government Spending: To be sure, the economists note when government intervention has gone astray. In the 1980s and 1990s, Japan tried to corner the consumer electronics market by subsidizing its own producers. The result, Brusuelas said, was unfortunate.

“The Japanese missed the rise of high definition and its digital progeny with a loss of significant market share,” the economist wrote in an email to Benzinga. “And this does not even include the rise of the net and digital streaming, much less where we are going with 5G.”

Regardless, the economists noted that specific economic shocks necessitate help from subsidies and research that stems from government monies, particularly as it relates to the shipment and travel of goods.

“The pandemic and the increasing number of weather events have exposed the fragility of the global supply chain,” they wrote.