Are Trump’s Budget Cuts Good For Innovation?

Donald Trump might just succeed in bringing jobs and innovation back to America despite himself.

Even a stopped clock is right twice a day.
– Marie von Ebner-Eschenbach

Ian McGugan points out an interesting innovation paradox in the April 2017 edition of The Globe and Mail’s Report on Business Magazine. While as a society, we worry about the aging population and our collective ability to support them with a declining workforce participation rate, we also fret about robots taking our jobs. Are there not enough jobs or not enough people, which is it folks?

This concern about the impact of innovation is nothing new.  Throughout economic history, there have always been 2 constants when it comes to innovation:

  1. Fear
  2. Anticipated job cuts.

Economic history teaches us that that both of these feelings are usually misplaced and that technological innovation leads to an increased level of employment and wealth.  As Matt Ridley outlined in the Rational Optimist, over the recorded history of man, trade, socialization and economic specialization allowed humans to build up surpluses of goods that could be sold (or traded) at a profit, allowing humans to transition from a life of sustenance to one of wealth.

Wash. Rinse. Repeat.

The surplus of goods eventually became capital that was available for experimenting with and developing (i.e. innovation) new automated production and manufacturing processes which accomplished two things:

  1. Reduced the amount of manpower required to produce a given product.
  2. Reduce the cost of a given good or services, allowing it to become more affordable to the general public.

As a result, the general public had more disposable income, which allowed them to demand a wider variety of goods and services.   The increase in demand forced a reallocation in the supply of labor from the industries disrupted by innovation to the production of new goods and services.

This happened with the development of the plow, the Guttenberg press,  water and steam powered weaving looms, electricity and the Internet.  Despite initial fears, overall there was an increase in GDP associated with these and other innovations.

So where does Donald Trump figure into all this?

Donald Trump’s Dumb Luck?

President Donald Trump’s budget cuts, laid out in his March 2017 budget blueprint, might actually stimulate innovation. This despites claims by pundits and opponents that it could set back scientific and technological breakthroughs.

Technology experts argue that historically, government funding played a critical role in the development and commercialization of new technology. Funding cuts to federal agencies which support research and development could hurt American innovation and manufacturing,  putting future opportunities for job creation at risk.

But does government spending really promote innovation?  Or in other words, is innovation driven from the top down, or bottom up.  According to Nassim Taleb’s book Antifragile, and echoed by Matt Ridley in the Rational Optimist, top down innovation, guided by bureaucrats, academics and politicians creates fragile economic systems with little impact on GDP, while bottom up innovation, driven by real business problems and on the ground tinkering, is what creates real change and lasting economic value.

What if Donald Trump’s economic policies remove the meddling of government from the innovation process and unleashes the time proven power of bottom up innovation and job creation?

Can you say 4 more years?