Public Goods and Government R&D

English: Economies of scale surd

Economies of Scale

So I just saw a review of a new book recently out called The Entrepreneurial State. The author Mariana Mazzucato has written a book on the feedback loops between technological progress, government and the private sector. In short she’s supporting the same conclusion I’ve mentioned in class numerous times, one I came to unilaterally in the past few years: government support of R&D is critical for the economy, it’s a quasi-public good. Only the government has the ability to raise the capital necessary to finance construction of the massive – and inherently risky – economies of scale needed for paradigm-shifting technological development.

The problem I see with her argument though is that she demonizes the uber free market people, without apparently mentioning the crowding-out of government R&D by entitlement spending. She is clear to address that the US leads the world in innovation and government spending on R&D, and addresses Europe’s shortfalls.

Yet if free-marketeers are such a concern, how is this the case? Europe’s big government should be far ahead of the US in terms of R&D spending, but it isn’t; rather Europe’s entitlement spending, similar the trend in the US, is likely crowding-out the rest of government public-good spending. In the US, NASA isn’t being sacrificed for “free markets,” it’s being sacrificed by Republicans and Democrats for more defense and entitlement spending respectively. Politicians are giving away cookies from the cookie jar without making the investments necessary to bake more cookies.

Either way the book appears promising and has subsequently been committed to the overcrowded labyrinthine dungeon of my Amazon wishlist; for those less interested in reading, she has a 17 minute TEDx¹ talk here. If you recall I criticized big pharma for their “R&D sunk cost” justifications of high prices, she further undermines their argument.

¹ She wins ugliest scarf and ugliest Powerpoint I’ve ever seen, she even appears to have color coordinated the two together? It figures, the economist who writes something in agreement with me turns out to be an oddball.

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