It has been seven and a half months since we two Matts penned our last report to you. Amidst all the ongoing tragedies of the pandemic, in some ways this period of time seems like seven and a half days—and, in others, seven and a half lifetimes.
Our unprecedented pause was caused by attending to the unprecedented challenges facing the Tuck School—and, most importantly, by attending to our loved ones. We hope that all remains healthy and safe with our readers.
In the spring, as the emerging pandemic was shutting down large swaths of the global economy, we articulated a three-part plan—here in our SRR and in Foreign Affairs—for “How to Avoid a Coronavirus Depression.” To counter the broad and deep collapse in consumers’ demand for services and goods, countries needed to invest in stopping the spread of the coronavirus, make fiscal transfers to backstop businesses hit by collapsing consumption, and make every effort to avoid a financial crisis.
All things considered, in 2020 nations and the world overall did avoid a depression, thanks mainly to historic fiscal and monetary stimulus in the spirit of our plan. And as we write today, vaccines whose efficacy seemed fanciful in the spring are now being produced and dispensed with great hope (fingers crossed) that the beginning of the pandemic’s end is upon us.
And so, in resuming our monthly missive, we want to turn our attention from the immediate to the longer term. The Financial Times is kindly running an op-ed column in today’s print edition (and online here) by one of us (Matt S) that reflects on how great nations summon the will to invest in tomorrow even during their darkest todays. It juxtaposes two scientific landmarks from earlier this month, an optimistic one for China and a disheartening one for the United States. The piece, “To the Moon and Back, Chinese R&D Is Leaving America Behind,” is reprinted below.
Happy reading, happy winter holidays (for those of you in the Northern Hemisphere), and we look forward to our next missive to you next month.
Many people around the world, especially in the US, are focused on the prospect of Covid-19 stimulus packages. But for the long-run health of the world’s nations, the most important pieces of recent economic news may have come from two unexpected places: Puerto Rico and the moon.
On the first morning of December, the Arecibo radio telescope of the US National Science Foundation in Puerto Rico collapsed. In seconds, the instrument’s 900-tonne constellation of radio receivers and girders crashed into the massive radio dish hundreds of feet below. Since its completion in 1963, Arecibo has been among the world’s most powerful radars. It anchored earth’s search for extraterrestrial life; its examination of the heavens contributed to foundational discoveries and Nobel Prizes. But there are no current plans for its rebuilding or replacement.
One of the most important opportunities for building economic prosperity comes from basic research. New knowledge generates social returns that can far exceed private returns as ideas can often be shared freely.
That same day, but on the moon, China landed a spacecraft. The Chang’e-5 spent two days gathering lunar dirt and rocks before planting and unfurling a Chinese flag, and then blasting off. On Sunday, it docked flawlessly in the moon’s orbit with its return-journey vehicle. Chang’e-5 was China’s third successful moon landing since 2013. If the mission ends as planned, China will be only the third nation to return moon materials back to earth for research.
One of the most important opportunities for building economic prosperity comes from basic research. New knowledge generates social returns that can far exceed private returns as ideas can often be shared freely. Scholars consistently estimate that the social return to research and development is at least 30 per cent. One result of this is that private markets alone generate too little investment in research. So the proper solution to this positive externality is for governments to support it. Indeed, the US’s founding fathers recognised this by writing the so-called “patent and copyright clause” into the constitution.
Once upon a time, the US government invested heavily in research. US federal R&D spending surged after the Soviets launched Sputnik, peaking in 1965 at 11.7 per cent of federal spending and at 2.2 per cent of gross domestic product. Frontier discoveries from that time led to the internet and GPS, the global navigation system. But in the decades since putting a person on the moon, US government investment in ideas has waned. In constant dollars, Nasa spending had fallen by more than half by the early 1970s; it has been flat ever since. By 2019, total federal R&D spend constituted just 2.8 per cent of all federal spending and just 0.6 per cent of GDP—the lowest in over 60 years.
In the decades since putting a person on the moon, US government investment in ideas has waned. In constant dollars, NASA spending had fallen by more than half by the early 1970s; it has been flat ever since.
Meanwhile, Chinese investment in research has surged. In launching its “Made in China 2025” plan five years ago, Beijing created more than 900 innovation funds that collectively planned nearly $350bn of new R&D investments. This year, the US National Science Foundation’s biennial review reported that from 2000 through 2017, Chinese R&D spending grew at an average annual rate of around 17 per cent. This left the US increasingly “seen globally as an important leader rather than the uncontested leader” with China “rapidly closing the innovation gap.” Indeed, an NSF official commented at a press briefing that preliminary 2019 data suggests that China has now surpassed the US in total R&D spending.
Great nations summon the will to invest in tomorrow even during their darkest todays. In the spring of 1862, the US Civil War was widening in scope and horror. Yet on May 5, Vermont senator Justin Smith Morrill reintroduced the Land-Grant Agricultural and Mechanical College Act. This passed the Senate on June 10, the lower house on June 17, and was signed by President Abraham Lincoln on July 2. It allowed US states to sell portions of their federal lands to fund new colleges for research in agriculture, science and engineering.
At that time, America was graduating only about 300 engineers a year, mainly from six institutions. By 1870, 21 US colleges offered engineering degrees. By 1911, America was graduating about 3,000 engineers a year, versus fewer than 2,000 in Germany. Land-grant colleges helped power the US’s economic rise into the 20th century. Today, the Morrill Act is seen as a seminal US investment in research.
Amid the tragedy of the pandemic, the world’s two great economic superpowers continue to clash with each other in a trade war and other skirmishes. But last week, as the scientists of one nation mourned the collapse of one of its signature instruments, scientists of the other celebrated the prospect of discoveries soon to come. Will history view that moment as a harbinger?