Trump Policies Would Torpedo US Growth
With the Trump administration sending its budget blueprint to Congress that would slash trillions of dollars in non-military federal spending, the Information Technology and Innovation Foundation (ITIF) warned that key aspects of the plan are premised on erroneous assumptions, empirical inaccuracies, and misguided leaps of logic, and adopting these particular proposals would severely harm US innovation, productivity, and competitiveness.
ITIF, the science and technology think tank, concluded in its analysis that the country has suffered for more than a decade from chronic underinvestment in foundational areas such as science, technology, education, and infrastructure. Crippling key functions of the federal government that support business innovation and competitiveness, as the budget blueprint would do, would only compound the damage.
The budget outline is reportedly based on recommendations from the conservative Heritage Foundation.
“The administration and Congress need to recognize the difference between wasteful spending and critical investment,” said Robert D. Atkinson, ITIF’s president and the report’s co-author. “There are certainly federal programs that can be cut with little to no impact on economic growth. However, many federal programs compensate for serious market failures and play a pivotal role in ensuring the United States is succeeding in global economic competition.
“Unfortunately, Heritage dwells in a fictional world where market outcomes are by definition optimal, even if the winners aren’t on US shores, and where government programs are by definition failures, even when there is evidence to the contrary,” Atkinson added. “In the real world, we need to adopt a more nuanced, less ideological approach to put the US economy, businesses, and workers in a position to flourish.”
The US has suffered from private and public underinvestment for more than a decade, Atkinson concluded.
The ITIF report breaks down the budget’s approach in two major areas: trade and competitiveness, and energy and R&D. On the first, ITIF says the plan pretends that the United States and its industries are not in competition with other nations, because whatever the market produces is ideal by definition. “This simplistic worldview ignores the fact that if the United States loses traded-sector output to other countries, then it will also lose jobs and face more expensive imports,” the report said. “Conservative governors and mayors recognize these facts and promote state-level economic development programs to maximize the benefits of economic competition.”
Federal programs like the Export-Import Bank, Manufacturing Extension Partnership, and the US Interagency Trade Enforcement Center complement these efforts, the report noted, and cutting them would diminish US competitiveness.
The ITIF report points out that the budget plan also ignores market failures like the lack of investment in technology commercialization. While many of these investments do pay off, there is less than optimal private-sector activity because these investments are viewed as too long-term or risky. Programs like the Small Business Innovation Research (SBIR) and Small Business Technology Transfer initiatives, which the Trump budget would cut, counter this market failure. A recent study found that for every dollar the Air Force spent on its SBIR program, it returned $3.60 in sales and 50 cents of additional outside investment or venture capital.
With regard to energy and R&D, ITIF argues that by calling for the elimination of all climate-related programs and for massive cuts to basic R&D, the buddget proposal disregards the scientific consensus on climate change. ITIF argues that if the United States fails to accelerate its progress toward cheaper, cleaner energy, then the pressure for a regulatory and tax response to reduce reliance on dirty energy will grow. Federal support for clean-energy innovation in the near term, according to the ITIF report, will limit the need for such costly and heavy-handed responses later.