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June 9, 2009

Woe

"During the past decade, innovation has stumbled. And that may help explain America's economic woes." So opines faux economist at Business Weak, Michael Mandel. Lacking a "government-constructed "innovation index" that would allow us to conclude unambiguously that we've been experiencing an innovation shortfall," Mandel points to the epitome of irrational exuberance, the stock market. "If an innovation boom were truly happening, it would likely push up stock prices for companies in such leading-edge sectors as pharmaceuticals and information technology." Facile to a fault, Mandel confuses innovation with the house of cards built upon an unsustainable premise: that business cycles have been banished, and growth is forever.

Mandel points to government thoughtlessness on the same topic:

A December 2006 paper by the Brookings Institution, co-authored by Peter R. Orszag, now head of the Office of Management & Budget, observed: "Because the U.S. is at the frontier of modern technological and scientific advances, sustaining economic growth depends substantially on our ability to advance that frontier."

In other words, the only path to even attempting to maintain what cannot possibly be sustained is to throw away the old stuff and buy new stuff, all to keep the growth engine running.

It is especially ironic, given Mandel's grossly mistaken diagnosis about innovation's role, that it was in fact financial innovation that caused the artificial ballooning that led to the economic wreckage now before us.

There is no part that technological innovation plays in "America's economic woes," either to hinder or help. Financial crises have repeatedly recurred as part of the business cycle. Nothing new there. This one is simply of greater magnitude, as accelerating hubris and heedlessness failed to see the flashing warning lights to the limits to growth.

The supposed watchmen, the government, contentedly slumbered while the balloon filled to its popping point. The Federal Reserve actively helped fill the balloon with its stimulations. Awakened with a start, unwilling to accept that illness takes time to heal, over-reactive panic was the response. Obama, by mindlessly printing money, is planting the seeds for the next financial crisis this country will invariably face.

Thoughtful economists have long predicted America's decline, as a current account deficit of the magnitude this country has managed for literally decades eventually must catch up with it. The bill is now coming due, and there is no innovation to cure it, save the ingenuity of thrift, which is the painful medicine being swallowed by millions while Obama floats the corporations in Republican style.

Gene Quinn at IPWatchdog thought it odd that Mandel didn't have anything to say about the USPTO.

[H]ow is it possible that an article that questions American innovation could never once mention the crisis facing the Patent Office?

Mandel at least did not confuse product innovation with patents, as Quinn seems to. The foulness at the PTO has a time lag to its consequences. It takes years, perhaps a decade, for companies to realize that return on investment for research is not forthcoming because patent protection is unavailable. That time has not yet come, but it certainly will if the patent office cannot rise from its curmudgeonly stupor.

Posted by Patent Hawk at June 9, 2009 11:23 AM | Patents In Business

Comments

"financial innovation" ??

Try liberal social engineering projects like the Community Reinvestment Act that created perverse incentives for banks and mortgage companies to make loans to people who would ordinarily not qualify. The bad loans were then packaged and sold off by Wall Street, all the while being blessed by the crooks at Fannie and Freddie.

Posted by: Just sayin' at June 10, 2009 5:37 PM