If you wait for Apple stock to climb to $600 from $6 before you buy it, if you wait for it to prove itself, you'll lose out. I'm beginning to suspect that economic policies are similar. What is proven by history may well be obsolete today. Romney and Obama offer proven policies. The problem is, they were proven in earlier stages of economic development.
Romney argues for cuts to capital gains tax.The theory behind this is that we don't have enough capital and any policies that created more capital would result in more jobs and wealth. Maybe. But that's hard to reconcile with a few facts. For one thing, banks and corporations sit atop trillions in cash. Would even more capital result in more investment and more jobs? Further, investment itself seems different. An economy of the 1910s and 1920s in which the most exciting new companies are car companies that require massive investments of capital seems very different from an economy of the 2000s and 2010s in which you can start a company with just a laptop. Cuts in capital gains tax will reduce government revenues. I'm not sure it'll spur economic growth.
Obama's emphasis on education seems to offer a more plausible solution for job growth. But that, too, is a proven strategy that today seems more effective at creating debt than jobs. In 1900, fewer than 5% of 14 to 17 year olds were formally enrolled in education. In this environment, spending more on education seemed to obviously create growth in incomes and jobs. And in fact real incomes rose about 6X during the 20th century. But by 2000, fewer than 5% of 14 to 17 year olds were not formally enrolled in education. In this environment, it's less clear that spending even more on education will get us similar gains. Education seems like a great investment but like capital, it might no longer be what really limits.
For me, the really fascinating and profitable question is, What sorts of policies will make communities more entrepreneurial? And by communities I don't just mean cities, states, and countries. I think that this is a question that corporations need to ask of themselves as well.
Thomas Edison didn't just invent the light bulb and phonograph and movie projector and 1090 other things. He "invented" the first Industrial R&D Lab in the US. He hired people to invent things. Before that, inventors were just on their own and nothing was done to regularly encourage new products and product enhancements. After Edison, we got intentional about technological and product invention. Now companies regularly turn out new products.
Around 1900, communities around the US were opening an average of one new high school per day. Universities, too, were proliferating at this time. Learning that knowledge work was key to success in this new economy, we got intentional about creating knowledge workers, no longer leaving education to just the wealthy and the inquisitive few.
What if communities became as intentional about creating new entrepreneurs? What if their emergence was no longer left to chance, to individual initiative, to people who felt like overcoming obstacles and indifference? What if instead a growing percentage of people were expected - just as R&D people or students today - to do this as their job?
I just don't think that the question is, How do we encourage more capital investment or more graduates? I'm not convinced that either limits our progress for now. If we had a dramatic gain in either, I'm doubtful that things would dramatically change. But if we had a dramatic gain in the number of entrepreneurs - or even in the portion of employees who were given a more entrepreneurial role - I think that we'd see huge gains in jobs created, incomes, and wealth. It seems to me like the right question, even if we have less "proof" that it will work as well as earlier policies that helped to create more capital and knowledge workers.
Oh, and one last assertion. Higher levels of entrepreneurship will generate higher returns to capital and higher wages for knowledge workers. There is still plenty of gain to be had for those two. It just isn't obvious that they still lead the economic development parade.
My friend Norman sent me the link to this article by Clayton Christensen in which he argues that capital doesn't matter nearly so much as we make it out to matter: