🚀 Faster, Please!: Week in Review+ #5
Billionaire taxes and Elon Musk, China's economic future, the value of the SAT, and more ...
My free and paid Faster, Please! subscribers: Welcome to Week in Review+. No paywall! Thank you all for your support! For my free subscribers, please become a paying subscriber today. (Expense a corporate subscription perhaps?)
It was a week chock full of Substack goodness, and I covered a wide range of subjects in the essays, Q&As, and micro reads on Monday and Thursday (as well as a paywall-free issue on Wednesday). Good stuff. Enjoy!
Melior Mundus
In This Issue
Essay Highlights:
— Imagine an America with steep billionaire taxes — and without Amazon, Pixar, SpaceX, and Tesla (March 28, 2022)
— Why my model for optimistic, techno-capitalist thinking is ... a famous nuclear strategist (March 30, 2022)
— China's top-down innovation policy is failing. America and the West shouldn’t try to mimic it. (March 31, 2022)
Best of 5QQ:
— Brookings Institution scholar Mark Muro on the geography of tech
— Naomi Schaefer Riley on SAT and ACT college tests, and MIT’s reversal
💥 Special Bonus: Brookings Institution scholar Mark Muro on AI and tech geography
Best of Micro Reads:
— STEM Immigration Is Critical to American National Security - Jeremy Neufeld, Institute for Progress
— Strengthening Supply Chain Resilience: Reshoring, Diversification, and Inventory Overstocking - David Mericle, Goldman Sachs
Best of The Essays
🧐 Imagine an America with steep billionaire taxes — and without Amazon, Pixar, SpaceX, and Tesla | Do “billionaire” taxes on wealth and investment income have a negative effect on high-impact entrepreneurship and economic growth? (A newsy topic given President Biden’s recent tax proposals.) At minimum, it seems fair to say that they can. Example: An analysis by University of Chicago economist Steven Kaplan, who looked at whether Tesla and SpaceX would have survived the 2008 Global Financial Crisis if Elon Musk had pocketed less cash when PayPal was bought out. Here’s a summary:
And Musk himself apparently agrees:
By the way: Much the same math applies to Pixar and Amazon. (I have slides for those, too.) So, there are trade-offs from such taxes. Of course, if you’re a labor activist who doesn’t like Amazon, an astronomer who doesn’t like SpaceX and all the satellites it puts in the night sky, or an old-school cartoon buff who loves the traditional 2-D animation that Pixar killed, maybe a world without those companies is a better world. Me, not so much.
☀ Why my model for optimistic, techno-capitalist thinking is ... a famous nuclear strategist | In my (free, paywall-down) essay of a couple of weeks ago, “Forget about Left Wing and Right Wing. How about an Up Wing America?,” I wrote that my model for optimistic techno-solutionism is the postwar think-tanker and nuclear theorist Herman Kahn. To some, the author of the 1960 book On Thermonuclear War and inspiration for the 1964 black comedy Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb (and its eponymous character) seems an odd choice.
Let me explain: In the mid-1960s, Khan shifted his scholarship from persuading Washington there could be a future after nuclear confrontation to mapping out future scenarios as part of a burgeoning field then referred to as “futurology.” In contrast to the eco-pessimist nature of the era’s futurists, Kahn co-wrote several books outlining optimistic, techno-capitalist tomorrows for humanity. This from 1976’s The Next 200 Years: “New and improving technologies aided by today's fortuitous discoveries [will] further man's potential for solving current perceived problems and for creating an affluent and exciting world. Man is now entering the most creative and expansive period of history. These trends will soon allow mankind to become the master of the solar system.” That’s the sort of attitude and thinking that powers Faster, Please!
📉 China's top-down innovation policy is failing. America and the West shouldn’t try to mimic it. | This may yet become the Chinese Century, but that long march toward global superpower dominance seems to have stalled. As my AEI colleague Derek Scissors said recently, “The era of rapid growth is ending.” To counter that, China must boost the productive capacity and power of its economy. While productivity growth is crucial for just about any economy, including America’s, this is especially the case for China with a population set to shrink and age rapidly over the coming decades even as its working-age population has been shrinking since the middle of the last decade. This leaves higher worker productivity as the key to fast economic growth going forward. But Chinese productivity growth has been slowing or maybe even turned negative.
There’s good reason to think if Chinese productivity growth going forward is slower than the consensus forecast, then economic growth will be slower, as well. If China only grows around 2 percent to 3 percent a year — rather than the consensus of 4 or 5 percent — then the country's future looks very different. From the Lowy report: “China would still likely become the world's largest economy. But it would never establish a meaningful lead over the United States and would remain far less prosperous and productive per person than America, even by mid-century.”
Best of 5 Quick Questions
🏙 Mark Muro is a senior fellow at the Brookings Institution, a think tank in Washington, DC, and the policy director of Brookings Metro. Muro and Yang You recently authored “Superstars, rising stars, and the rest: Pandemic trends and shifts in the geography of tech” for Brookings.
Is there a US case of government policy intentionally and successfully building a tech hub? Silicon Valley certainly benefited from government but there was no top-down plan there.
“Top-down” plans don’t work and really aren’t what anyone is calling for. What is needed, by contrast, are major federal investments surged into promising regions to catalyze and support bottom-up, public-private strategic partnerships. In many cases that is the only somewhat intentional effect of federal R&D flows into university complexes as in Madison, St. Louis, or Austin. Among these the growth of the Research Triangle in North Carolina probably has been the most intentional and successful. But I think we’re seeing more intentional effo
🎓 Naomi Schaefer Riley is a senior fellow at the American Enterprise Institute and the author of six books. Her work appears in outlets such as The New York Times, The Wall Street Journal, and The Washington Post. In a recent Bloomberg Opinion article, "Dropping the SATs Opens the Door to More Legacy Students," she and James Piereson argued that eliminating standardized testing requirements for admission into elite universities could give legacy applicants further advantages.
MIT recently announced that it will begin requiring SAT/ACT test scores for applicants after suspending the requirement during the pandemic. Are other elite schools likely to follow suit?
Some elite schools may follow suit but it is noteworthy that MIT was the first domino to fall because it is a STEM school. Other universities have easier ways of admitting less qualified students and still getting them to graduate — they funnel them into humanities majors, where the courses are typically less demanding and the grades can be more easily inflated. According to researchers at the University of Texas at Austin, “More than a third of black (40%) and Latino (37%) [STEM] students switch majors before earning a degree, compared with 29% of white STEM students.” So unless MIT is going to start graduating a lot more humanities and social science majors, the school is going to have to ensure that the students it admits are qualified to graduate in STEM fields.
Week in Review: Bonus
In addition to my “5 Questions” for Mark Muro earlier this week, we had a separate mini-chat about AI and the geography of America’s tech sector:
How does AI play into superstar cities? Are there cities that will benefit more than others? Can cities get ready, assuming this is as transformative a technology as we think? What can be done?
Well, AI is a perfect example of a transformative technology that could have huge value for firms and people in virtually all metropolitan areas. The problem is, it's also a perfect example of an early-stage, highly technical emerging technology of exactly the kind that becomes highly concentrated out of the gate and, by the way, never really fully decentralizes later.
And I think that's the problem here. In general, with web 2.0, I think we've seen the emergence of a highly centralized technology economy, and the AI economy could very much go down exactly the same pathway. So I think a lot of places should rightly worry that they will be peripheral in the AI economy as well.
And is there a way not to be peripheral?
This is where I think we at least have to try to counter these dynamics of extreme concentration with at least some federal push with R&D. And the NSF has an interesting program that's consciously trying to place AI institutes in often Heartland or Southern communities — based on universities; that's the prerequisite. The first thing is being conscious of how lock-in occurs and how you may need to try to adjust or nudge the spatial story, and then R&D is one of the critical tools we have.
Best of Micro Reads
🌐 STEM Immigration Is Critical to American National Security - Jeremy Neufeld, Institute for Progress | National security has often been a catalyst and cover for Washington doing hard things that needed to be done. And if geopolitical threats provide the political will to get serious about immigration, so be it. That said, there is a legitimate linkage between national security and immigration, as Neufeld explains: “America’s ability to attract the world’s leading minds has long been an asymmetric advantage.” And the Pentagon seems to agree when a recent report noted that “the most important asset our defense industrial base possesses isn’t machines or facilities, but people… Greater attention must be paid to workforce concerns… to maintain and develop the intellectual capital necessary to create and sustain war-winning weapon systems for the modern battlefield.” Lots of great charts in this piece, too. Here’s one:
⛓ Strengthening Supply Chain Resilience: Reshoring, Diversification, and Inventory Overstocking - David Mericle, Goldman Sachs | One of the most insightful pieces of Wall Street research that I’ve seen in some time. It addresses how business is attempting to make itself more resilient in a post-pandemic world where the potential for military conflict seems to be growing. For companies, enhanced resilience could take three forms, according to GS: reshoring foreign production to the US, diversifying supply chains, and overstocking inventories. Of the three, inventory overstocking is the approach that’s furthest along. GS:
Earnings call transcripts show that the share of companies that report plans to target a permanently high level of inventory has increased sharply, especially in durable goods sectors. Our manufacturing sector analysts corroborate this and report that companies in their coverage are targeting inventory-to-sales ratios roughly 5% higher than before the pandemic on average.