Economics 202

In a New York Times article, Thomas Edsall examines a question raised by MIT’s Daron Acemoglu:  “Why can’t America Be Sweden?”  Acemoglu is an economist, and economics is far from an exact science, so Mr. Edsall is able to find numerous arguments from other sources to counter those raised by Acemoglu.    

Acemoglu contends that money is the great motivator, and that “the United States must maintain an economic system that provides great rewards to successful innovators.”  But what do we really know from our history about whether or not this is true?  

First, there is the issue of competition.  History has shown that when companies get too large and too wealthy (e.g. monopolistic), they actually put a damper on creativity and innovation, merely content to drive up prices to make themselves wealthier.  An excellent example may be drawn from the 1990’s when IBM was forced to divest itself of its personal computer operations.  That spurred a rapid and sustained surge in growth in the personal computer market from which companies like Microsoft, Dell, Apple, Hewlett Packard, and many others benefited  immensely, and due to the competition, many consumers were also able to benefit from lower prices.

A few years before that, I spent five weeks in Europe (Austria, France and Germany), and was amazed to see innovations everywhere:  people in France had desktop microcomputers with which they could dial up their banks to manage their accounts, televisions all over Europe displayed images with much better resolution than televisions in the U.S., and there were also many innovative kitchen appliances that had yet to find their way into American houses.  This was before the Euro, and ATMs everywhere were able to reliably accept many different currencies and return their value to the user in different currencies, when my experience with similar machines in American laundromats, which only had to deal with American currency, was frequent failure!  Oh yes!  And the French were routinely using smart cards (similar to our credit cards, but which didn’t need to be inserted into a scanning device)!  There were many other innovations as well, but I don’t wish to belabor the point.

Asked for examples of American innovation, Acemoglu mentioned Google, Amazon, Facebook Wal-Mart and other successful companies, but he apparently failed to adequately define what factors contributed to their success.  I am reminded of Ronald Reagan’s failed SDI project.  When President Reagan announced to the public that he was initiating a project to place satellites in orbit armed with missiles that could shoot down Soviet missiles aimed at the U.S., I immediately realized that it would be a waste of money.   All the Russians had to do was fire a single missile with a nuclear warhead and detonate it high over their own country where it could do no harm, and the satellite would be blinded; permitting other missiles to be launched with impunity.  

But I also realized that President Reagan was misguided in yet another way.  In part, his SDI project was predicated on JFK’s project to put a man on the moon, which spurred the American and other economies with microwave ovens, TANG, digital watches and clocks, transistor radios and many other technical innovations.  But the essence of JFK’s project was focused on getting men to the moon and back to earth alive, and to sustain life on that trip it was necessary to reduce the weight of the vehicle and provide instrumentation, foodstuff, and the means to preparing the latter.  SDI had nothing to do with keeping men alive and comfortable.  

Similarly, the success of companies mentioned by Acemoglu can be attributed to the desire to create useful and affordable products for people; in the case of companies like Google and Facebook, the ongoing financing — largely through advertising — was necessary but secondary.  

One final note…

A non-profit organization located at Cambridge University in the UK has invented an innovative and inexpensive tool for teaching computer science to children.  This invention, called “Raspberry Pi” has only been on the market for a little over a year, and demand for the product has grown exponentially during that time — perhaps everywhere but in the U.S. And at the rate that demand for the Raspberry Pi has grown worldwide, we might reasonably anticipate that the U.S. will lose the edge it has held in the computer field for more than half a century; then, perhaps Acemoglu will be able to explain how a non-profit organization beat his beloved profiteers.  







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