Sunday, January 30, 2011

Innovation versus the Sputnik fallacy

Published in The Tennessean, Sunday, January 30, 2011

Innovation versus the Sputnik fallacy

by Richard J. Grant

In Lake Wobegon, are all the subsidies above average? Does everyone receive more in payments from the government than they pay in taxes?

Lake Wobegon's above-average students would recognize immediately that it is impossible to receive such across-the-board subsidies from Lake Wobegon's government alone. The extra resources would necessarily come from outsiders, perhaps from a neighboring county.

No doubt President Barack Obama had visions of America as one big Lake Wobegon when he warned us that, “This is our generation's Sputnik moment.” He fears that we might be falling behind in scientific research, noting that China has become “the home to the world's largest solar research facility and the world's fastest computer.” His solution is to subsidize innovation, whatever he imagines that to be.

It is of course quite likely, if we send more research dollars to the people of Lake Wobegon, that we could concentrate their minds on producing better solar panels and faster computers. This would all be so exciting that we would pay no attention to what is happening, or not happening, in the neighboring counties. While the visible achievements in Lake Wobegon would attract all the media attention, we could never see what the neighboring counties might have achieved with the resources that were taxed away.

This is the Sputnik fallacy. The Soviet Union did indeed put the first satellite into orbit. Its top priority was to seize any strategic advantage, and with its government-controlled economy, it could direct resources toward its missile program. But for what else is the Soviet Union remembered? We now know that the collectivization of its industry and agriculture necessarily led to oppression, inefficiency, and widespread poverty.

When Sputnik went into orbit, Americans recognized both a great engineering achievement and the danger of such a capability being possessed by an avowed enemy. What Americans might not have recognized at the time was that it would cost us far less, as a percentage of our wealth, to put a satellite into orbit than it cost the Soviets. And our German scientists were volunteers.

The United States government directed resources into the space program and military related research. In the context of an exceptionally free society and economy, it did not take long for the United States to surpass the Soviet Union in space-related capabilities. But if Americans had attempted to approach everything the way the Soviets did, then the story would have turned out much differently.

Throughout the 1960s, we were reminded of the many inventions and spinoff consumer products that emerged from the space program's research. These were visible and much publicized. We knew the space program was expensive, and most of us agreed on its importance, but we can never know for sure what kinds of inventions never happened or what we lost in their being delayed.

Perhaps our successes in space contributed to an overly optimistic view of government capabilities and to the rise of the Great Society programs for which we have paid so dearly. As we expand the role of government in research and other aspects of our lives we will pay more dearly still.

The country that won the space race is the one that was most successful at limiting the role of government in the lives of its citizens. It was the country where, by world standards, all the subsidies were below average.

Richard J. Grant is a professor of finance and economics at Lipscomb University and a scholar at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail:

Copyright © Richard J Grant 2007-2011

Richard J Grant archived at The Tennessean