How to rebuild America’s economic foundations

The US must bring together talented people, from all kinds of backgrounds and education levels, in a way that encourages big new ideas and makes it easier to turn those ideas into products and companies. Photo: Bloomberg

The modern American economy was shaped by four major infrastructure initiatives, each of which was too big for the private sector to take on alone: the continent-wide railroad network, the interstate highways, the air traffic control system, and the internet.

Early development of all of them was supported by the public sector, and each dramatically reduced the cost of transport and communications, making it easier, cheaper, and safer to move goods, people, and information.

With the potential for a major new infrastructure push on the horizon, one obvious priority is to rebuild and renew crumbling parts of the existing systems.

But the United States can do even better, for productivity and job creation, by considering who and what needs to be better connected to the fast-moving scientific frontier.

Historically, innovation has generated faster growth and good jobs. But America has lost its innovative edge in basic science – and with it many of the high-paying jobs that go with creating knowledge and turning it into goods that consumers want.

The best way to regain that edge is to prioritize our public investments in a forward-looking manner, one that engages people and places across the US in the processes that generate new ideas and breakthrough products.

The central problem of America’s economic geography today is that a very high share of new opportunities is concentrated in a few large coastal metropolitan areas, particularly Boston, New York, Washington, DC, Seattle, San Francisco, and Los Angeles.

These places are doing well in terms of creating new ventures and relatively well-paid jobs, but they are also extremely crowded, with high real-estate prices that continue to rise. Many talented people find it hard to break into these labor markets, and lower-income residents are increasingly being pushed out.

Existing efforts to address the problem of extreme agglomeration have gone nowhere. Improving access to affordable housing in these “superstar cities” requires significant zoning modification – a glacial process, or even a political nonstarter, in places like Boston, Washington, DC, or San Francisco.

Policymakers could also work to improve transportation links between the rest of the country and these hubs of economic activity. But while high-speed trains work well in China and Europe, efforts to deploy them in the United States have gone precisely nowhere in recent decades.

Expanding air routes could help some places, but the most dynamic cities already have crowded air space and a great deal of noise pollution.

A better approach, which we recommend in our new book, Jump-Starting America, is to increase dramatically public investment in basic science – the bedrock of research and development – and to spread this effort around the country.

This strategy aims to boost productivity and strengthen national cohesion by connecting more people to more opportunities. Unfortunately, the US is not currently making the best use of one of its biggest advantages, relative to its international competitors: a lot of smart people are dispersed, for historical reasons, across many cities.

Our index of potential next-generation tech hubs identifies 102 places across the country that have large, highly educated populations, strong universities, relatively low housing costs, and easy commutes.

These places are located in 36 states and are home to 80 million Americans. They included places like Rochester, New York (a natural new hub for research in photonics), Ames, Iowa (agricultural research), Huntsville, Alabama (aerospace), Orlando, Florida (computer simulation), and Baton Rouge, Louisiana (water and flood management).

Scientific infrastructure requires well-functioning traditional infrastructure. For example, Rochester and the surrounding area would benefit greatly from an airport upgrade. But good roads and safer bridges do not necessarily lead to improved productivity or even more good jobs in modern America.

The main priority now is not to create the potential for physical movement of people and goods –America’s road, rail, and air systems can already do this (though fixing more potholes is always a good idea). What the US needs to do is bring together talented people, from all kinds of backgrounds and education levels, in a way that encourages big new ideas and makes it easier to turn those ideas into products and companies.

Creating new basic knowledge involves spillover effects: because no one person or company can capture the full benefits, all private-sector entities will tend to underinvest. Broader social benefits can be promoted by local and state government, and there is some terrific work underway, including in the cities mentioned above.

But below the federal level, governments’ ability to support productive investments is severely limited. Philanthropists are making some high-profile contributions, including through various foundations, but even the richest people do not have enough money to make a significant difference on a national scale.

The most productive and highest-impact use of federal infrastructure dollars would be to focus building (and rebuilding) on strong local pockets of technology development and smart people. This means selecting national scientific priorities, setting ambitious goals, strengthening local education systems, and building more labs in places that already have great talent and that are crying out for more good jobs.

Historically and today, this kind of innovation generates good jobs and plays a key role in ensuring national security in the broadest sense. Not only does an emphasis on basic research minimize the risks of disease and all forms of external aggression (physical and virtual); with appropriate attention to the geography of investment, it can also contribute to the shared prosperity that America urgently needs.

Copyright: Project Syndicate

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Jonathan Gruber is Professor of Economics at MIT. Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Basel