While the twentieth century had the arms race, the competition in this century will be a brains race, and it looks like America is falling behind.
"Although the United States continues to possess the world’s strongest science and engineering enterprise, its position is jeopardized both by evolving weakness at home and by growing strength abroad," said a recent National Academy of Sciences report.
The report found that U.S. funding of "research in most physical sciences, mathematics, and engineering has declined or remained flat — in real purchasing power — for several decades." The report also argued that leadership in high-energy physics, a U.S. franchise since the Manhattan Project built the atomic bomb, is shifting overseas.
Beginning in 2007, the most powerful particle accelerator on Earth will be outside the USA for the first time in decades. Similarly, U.S. scientists complain that fusion reactor tests and underground physics labs needed to stay ahead in the most cutting-edge areas are all overseas.
Photo: bayat, Creative Commons, Flickr
I strongly believe that China might stumble over the near-term, providing the U.S. with a small window of opportunity. The U.S. has to to solidify its presence as a superpower in the 21st century by increasing its investment in the brain race. It’s obvious that America will lose its long-term superpower status if it doesn’t increase its investment in the sciences, but that’s not the point I’m trying to make here. I’m more interested in arguing that a major investment in science can be used to help soothe America’s near-term economic burdens.
The U.S. trade deficit in 2007 remained at more than $700 billion, or 5% of GDP. This massive trade deficit implies that foreign investors must add $700 billion of American securities to their portfolios. For decades foreigners have been buying U.S. bonds and keeping U.S. interest rates low. It’s hard to quantify the impact of foreign investors, but a 2006 study by Professors Francis and Veronica Warnock at the University of Virginia found that U.S. long-term interest rates would be about 90 basis points higher without foreign buyers.
If the next century will be defined by a brains race, why would foreign investors fund the U.S. trade deficit when Uncle Sam is wasting resources on reactive policies like stimulus checks and corporate bailouts, instead of proactively investing in sciences that will shape the future? Why would foreign investors continue to fund America’s excesses and help keep American interest rates low when Uncle Sam continues to politicize science at the expense of stem cell and alternative energy research?
If the U.S. fails to demonstrate a commitment to the future of science, foreigners might wonder why they are funding a trade deficit built on past glories, which will place upward pressure on U.S. rates. With U.S. yields rising due to foreigners running for the exits, the Fed’s interest rate cuts become impotent, exacerbating the impact of the current economic slowdown.
"It is unthinkable that the global economic system will continue indefinitely to allow America to import more goods and services than it exports," writes Martin Feldstein at the New York Sun. "At some point, America will need to start repaying the enormous amount that it has received from the rest of the world," he adds. What if America repays the world by developing cutting edge science? If America can develop and share cutting-edge technologies, foreign investors may forgive years of U.S. debt.
If I were president of America I would initiate a new Manhattan Project, and fund it by issuing Science Bonds similar to the War Bonds seen during the two world wars. Foreign investors would be allowed to invest in the scheme. These Science Bonds will serve two primary purposes:
1. Demonstrate to foreigners that America is serious about investing in the future of science
2. The Science Bonds can absorb the excess money supply provided by the trigger happy printing presses at the U.S. Treasury, limiting inflation
This proactive policy aimed at lowering inflation and encouraging innovation will boost the confidence of foreigners funding the U.S. trade deficit. This will keep U.S. interest rates low, strengthening the resilience of the U.S. economy during these gloomy times. The point is simple: We don’t just need science to deal with science issues, we need to acknowledge that science can help us solve our financial troubles.
Bill Gates famously said that we should all be nice to nerds because chances are you’ll end up working for one. Maybe the U.S. Treasury should be nice to the science nerds by giving them the tools they need to help America’s economy.