MIT economist Simon Johnson wants to ramp up federal investment on science and technology—and make sure taxpayers get a cash dividend in return

There is no shortage of creativity in the American economy—as long as we get away from the myth that denigrates public investments and puts private business on a pedestal.

That’s the message from MIT Sloan Economist Simon Johnson’s new book, “Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream,” which he presented during a talk and Q&A here at EPI this week.

Johnson, in a book co-authored with his colleague Jonathan Gruber, traces the history of America’s rapid economic ascent after World War II in part to heavy doses of public spending and incentives for scientific discovery and technological innovation.

He says the government’s abandonment of this commitment has not only chipped away at America’s economic and cultural leadership globally but also cost workers and firms enormously in terms of lost productivity, wages, and profits.

Johnson highlighted a decline in federal spending on research and development from a 1964 peak of 2 percent of gross domestic product (GDP) to just 0.7 percent today.

“Converted to the same fraction of GDP today, that decline represents roughly $240 billion per year that we no longer spend on creating the next generation of good jobs,” Gruber and Johnson write in the book.

The authors offer a number of creative solutions to the problems they identify.

First, they would like to return research and development spending to its 1983 level, around 1.2 percent of GDP, which would amount to $100 billion per year.

Second, Gruber and Johnson propose flipping the Amazon headquarters’ totally lopsided and unproductive bidding process on its head, using federal funds and an independent commission to identify dozens of metropolitan areas ripe for large-scale science and tech spending.

Third, in order to ensure the benefits of productivity growth, which have accrued primarily to the very rich in recent decades (see chart below), are broadly shared, they call for the introduction of an “innovation dividend.” This would be a regular cash payment offering returns on the initial public investments directly to the taxpayers that ultimately funded them.

“Let’s aim to create a cash transfer for Americans based on, we argue, the real estate appreciation that will come from the creation of these new jobs,” Johnson said during his EPI book talk.

Productivity-Pay Gap

The gap between productivity and a typical worker’s compensation has increased dramatically since 1973: Productivity growth and hourly compensation growth, 1948–2017

Year Hourly compensation Net productivity
1948  0.00% 0.00%
1949 6.24% 0.74%
1950 10.46% 8.77%
1951 11.74% 11.07%
1952 15.02% 14.66%
1953 20.82% 18.17%
1954 23.48% 20.47%
1955 28.69% 25.67%
1956 33.89% 27.23%
1957 37.08% 30.12%
1958 38.07% 32.48%
1959 42.46% 37.48%
1960 45.37% 40.32%
1961 47.83% 44.49%
1962 52.31% 49.66%
1963 54.85% 55.26%
1964 58.32% 59.85%
1965 62.26% 64.60%
1966 64.69% 68.64%
1967 66.67% 71.12%
1968 70.48% 76.33%
1969 74.39% 77.41%
1970 76.29% 79.19%
1971 81.65% 85.19%
1972 90.84% 90.68%
1973  90.95% 95.65%
1974 86.61% 92.46%
1975 86.46% 95.98%
1976 89.34% 100.75%
1977 92.81% 103.51%
1978 95.64% 104.96%
1979 93.23% 103.56%
1980 88.31% 102.39%
1981 87.59% 107.64%
1982 87.92% 106.87%
1983 88.48% 109.81%
1984 87.02% 116.72%
1985 86.38% 119.80%
1986 87.45% 122.96%
1987 84.66% 126.36%
1988 84.00%   131.30%
1989 83.72% 130.03%
1990 82.35% 132.23%
1991 82.00% 133.99%
1992 83.19% 141.99%
1993 83.45% 141.47%
1994 83.88% 144.41%
1995 82.75% 147.50%
1996 82.86% 153.80%
1997 84.85% 159.82%
1998 89.26% 167.48%
1999 91.97% 173.81%
2000 92.94% 181.72% 
2001 95.59% 186.46%
2002 99.48% 193.07%
2003 101.56% 200.72%
2004 100.55% 208.97%
2005 99.71% 215.29%
2006 99.87% 221.08%
2007 101.44% 217.07%
2008 101.38% 213.46%
2009 109.28% 219.48%
2010 110.98% 232.25%
2011 108.45% 235.24%
2012 106.49% 241.25%
2013 108.38% 239.89%
2014 109.10% 245.04%
2015 112.44% 246.44%
2016 114.38% 243.47%
2017 114.70%  246.25% 

 

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The data below can be saved or copied directly into Excel.

Notes: Data are for compensation (wages and benefits) of production/nonsupervisory workers in the private sector and net productivity of the total economy. “Net productivity” is the growth of output of goods and services less depreciation per hour worked.

Source: EPI analysis of unpublished Total Economy Productivity data from Bureau of Labor Statistics (BLS) Labor Productivity and Costs program, wage data from the BLS Current Employment Statistics, BLS Employment Cost Trends, BLS Consumer Price Index, and Bureau of Economic Analysis National Income and Product Accounts

Updated from Figure A in Raising America’s Pay: Why It’s Our Central Economic Policy Challenge (Bivens et al. 2014)

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