Data on India's remarkable growth in average income.

Source:

HumanProgress.org

New Economic Institutionalization in the South After the Civil War

This is a continuation, following my previous post on A Short History of Reconstruction, Updated Edition by Eric Foner. Here I deal with Chapter 4 of the book which is titled "The Ambiguities of Free Labor".

With the abolition of slavery, the plantation economic system of the southern United States -- which had been based on slave labor, and which confounded race with social and economic status -- had to be rebuilt on a new foundation. We living today have seen how long it took Japan to develop its version of capitalism and more recently how different countries with their different cultures responded to the fall of Communism. The Russian experience seeking to find a new economic model to replace Russian Communism alone helps us to recognize the replacement of one set of economic institutions by another can be a long and difficult process!

The Republicans seemed so blinded by their "free labor" ideology that they completely underestimated the difficulty in getting plantation agriculture of the pre-war south converted into an economic system that depended on a labor market in post-war America. Foner points out that the outcome of such an institutional makeover is more easily seen retrospectively than during its course, and may differ from place to place (and from crop to crop). Sharecropping by black families on small parcels was the dominant outcome after a few years, with whites owning the land. The contracts between share cropper and land owner specified the crop to be grown and the share given to each party at the end of the growing season.

From our modern perspective, the assumption that white owners and black farm workers would quickly establish a mutual concern for the productivity of the land seems naive. We of course benefit from centuries of labor management and labor owner disputes, some so grave as to lead to violence. That the former slave owners (who had seen hundreds of thousands of armed former slaves in the Union army) and the former slaves (who had been almost uniformly the victims of coercive physical violence perpetrated by slave masters under the direction of plantation owners) would easily see a common interest is naive. To the normal disagreements between capital and labor over the share each would receive of the profits of the enterprise, was added the concern of the former slaves for the freedom of themselves and their families -- freedom that they linked to the control of land and the removal of coercive control of their labor by plantation owners. Plantation owners, once fearful of slave revolts, were in the post-war world surprised by the desire of former slaves for improved status and fearful that the black workforce would not provide the labor needed to run the economy.

Foner writes that late in the war and soon after the war, a significant amount of land was distributed to former slaves. The land had been confiscated from rebels or abandoned; it was seen as needed by the freedmen to feed themselves and their families and begin them on the course towards development of a free labor system. Soon after the war, however, the federal government confiscated most of this land from its freedmen owners and gave it to the former plantation owners. I don't understand the concept of property that would allow the government to give and then take away, without cause.

Coincidentally, two economists famous for their controlled studies of development projects have concluded that a model does seem to work. Their six country study (see also the discussion in The Economist) focused on poverty alleviation projects that included a variety of inputs: "a productive asset grant, training and support, life skills coaching, temporary cash consumption support, and typically access to savings accounts and health information or services." Inputs were continued for at least two years, and evaluated after three years. The approach worked, albeit with modest benefits in terms of increased capital, income and standards of living for the poor targets. It seems very unlikely that the Freedman's Bureau was in any position to provide support of this intensity to the millions of freed slaves/

Source: "U. S. Slavery"

Cotton has been grown in the southern United States for centuries; there a warm and relatively wet climate combined with rich soils of the coastal plains to provide a suitable growing environment, and there the raw cotton could be relatively easily transported to ocean ports to be shipped to the mills in the north and in England.

Clearly cotton was king before the Civil War. With the invention of the cotton gin at the end of the 18th century the hugely labor intensive task of removing the seeds from the valuable cotton fibers was replaced by a relatively simple mechanical process. Suddenly cheep cotton from the more mechanized cotton plantations in the U.S. south fed the efficient mills of the industrial revolution in England and the northern United States to create a super product -- low-cost, high quality cotton cloth -- sold via the trading networks that were established (especially by colonial Britain) throughout the world. Here are data on U.S. cotton exports in the latter half of the 19th century:

• in 1860 cotton goods were the #1 export of the USA with a value of 58 million 1914 US$
• in 1880 they were the #3 export with a value of 97 million 1914 US$
• in 2000 they were the #7 export with a value of 196 million 1914 US$
• in 1929 they were the #4 export with a value of 364 million 1914 US$

The United States is still the worlds leading exporter of cotton. 

I wonder if the need for a product of substantial worth in the south and of tariff income from cotton exports played a role in the decision of the federal government to give the land that been in cotton production back into the hands of plantation owners/ After all, those wealthy property owners would be likely to seek the profits from the commercial product. If so, then government acceptance and support for the share cropping system that devoted a great deal of the labor of the former slaves to producing cotton rather than subsistence crops seems reasonable.

Author Foner notes (in the following chapter of the book) that many influential people in the north also wanted cotton production to return to the south to produce inexpensive cotton in large amounts. Northern mills were dependent on cotton inputs, there was a shipping industry largely run from the north that had been employed transporting cotton, and there were of course related financial interests that would be endangered by mill closures and loss of shipping routes. Moreover, there were debts due from southern borrowers and government income that would be lost if the tariffs from cotton exports were to be lost. Thus northern interests were allied with southern interests in resuming cotton production, and that implied plantation production in 1865.

This map is from "37 maps that explain the American Civil War"; the source also provided this text:

The Civil War freed the slaves, and Reconstruction temporarily granted them basic political rights. But the settlement of the war made no provision for land reform or economic redistribution. The federally owned land of the West was secured for free (largely white) owner-operated farms, but the basic underpinnings of the Southern plantation economy were left intact. Newly freed slaves owned no land or farm equipment, and had little in the way of formal education. With Southern governments from the 1870s onward uninterested in providing any of those things, most of the rural black population was forced into a particularly unremunerative form of tenant farming known as sharecropping. In exchange for land to till, seeds to plant, and basic equipment, the sharecropper would do all the work and hand a large share of the proceeds over to the landowner. Discriminatory enforcement of laws against "vagrancy," barriers to education and the professions, and discrimination on railroads and other public accommodations made it exceptionally difficult for sharecroppers to move from job to job or bargain for better conditions.

U.S. Founding Fathers and Progress

Voltaire pretty well killed the idea that this is the best of all possible worlds in Candide!

In 1776, the founding fathers demonstrated that they did not believe that they then lived in the best of all world by revolting against their British government. The founding fathers created the Articles of Confederation and Perpetual Union to make things better, and soon thereafter created the Constitution recognizing that the Articles did not make this the best of all possible nations. President Lincoln took office realizing that slavery was not a condition compatible with the best of all possible worlds, but that Civil War was even worse than slavery. All the presidential candidates -- Democrat, Republican and Bull Moose -- in the election of 1912 ran on platforms that they could make things better, and then the world got into World War I, which was not better. FDR took office early in the Depression, realizing that his job was to make things better. At the end of World War II, people all over the world recognized that they had not been living in the best of all possible worlds, and sought means to make the world better. In my lifetime, people who got the USA out of Vietnam, who promoted civil rights, women's rights, and the rights of the disabled helped make the country better.

Of course, change can be for the worse, and society needs conservatives to see we don't throw out the good with the bad. Still, we all live better, happier lives than did the founding fathers because so many people have tried so hard to make things better!

Growth suffers when there is inequality between different ethnic groups

I quote from an article in the current issue of The Economist:

ECONOMISTS have long recognised that there is an association between inequality and development. Unequal incomes can impair growth if those with low incomes suffer poor health and low productivity as a result. But in a forthcoming paper* in the Journal of Political Economy, three economists look at the question in a new light. What may matter most for development, they argue, is not inequality in itself, but economic differences between different ethnic groups. 

The authors pinpoint the location of 2,129 ethnic and 7,581 linguistic groups in 173 countries. Then, to estimate their wealth, they use data on night-time light intensity from satellites. (If a given area has more lights, it is likely to be richer.) That allows them to produce an “ethnic Gini index”, a measure of inequality between different ethnic groups within a country. They find that sub-Saharan Africa and East and South Asia are the most ethnically unequal regions, thanks to small but prosperous groups such as Arabs in west Africa. Western Europe, by contrast, is the most ethnically equal. 

The authors show that as a country’s ethnic inequality falls, average GDP per person rises. A one-standard-deviation decline in a country’s ethnic Gini index—the equivalent of moving from the level of Nigeria to that of Namibia—is associated with a 28% increase in GDP per person. It seems likely that ethnic inequality leads to low levels of development, not the other way around. After all, in other tests the authors find that ethnic inequality mostly reflects unequal geographical endowments, such as more fertile land and distance to the coast.

The paper by  Alesina, Alberto, Stelios Michalopoulos, and Elias Papaioannou  (“Ethnic Inequality.” Journal of Political Economy.) notes that there is little ethnic diversity measured in the United States according to the measure that the authors use.

I suspect, however, that we treat Blacks, American Indians and Hispanics as ethnic minorities, and the low investment we as a nation make in human capital (health services, education, etc.) in the neighborhoods where these minorities live significantly reduces our overall economic growth and has done so for many decades. Thus I suspect all Americans are poorer for the prejudice that has been endemic in our society.

The Good News About Africa

Thanks to William Easterly for this graph!

The USA ranks 15th in the 2015 report

Source of the map

Check out the 2015 World Happiness Report. It is based on a new idea -- that the happiness of the people in a nation is as important as the country's GDP, and worthy of government and citizen attention.

African Development in Data

Check out this great website with images showing African development!

The MDGS

I quote from the article in The Economist from which the above graphs are drawn: The most important goal of the Millennium Development Goals

was to halve, by 2015, the share of people globally living on under $1.25 a day, which was 36% in 1990. Most progress was in China, where the proportion fell from 60% in 1990 to 12% in 2010. Other regions missed their target. In South Asia it fell from 51% to 30%. In Sub-Saharan Africa it went from 56% to 48%. Still, more than 700m people struggled out of extreme poverty in that period.

I have long wondered about the MDGs. Do you think China was developing economically in order to meet a goal set by the United Nations? If so, ho come it didn't quit its economic growth and the reduction of poverty when it had reached 30% living in extreme poverty? Why didn't Africa do better if the MDGs were all that iportant?

On the other hand, I think the MDGs were important in helping some development agencies set priorities, perhaps including the international development banks like the World Bank. 

Hans Rosling on global income disparity

What Goals Should the World Set for Itself Next?

The Economist has published a useful article on the efforts to set forth new global goals for development for the period following this year.

The United Nations is developing a set of Sustainable Development Goals (SDGs: 17 have been proposed, with 169 associated targets). These replace the Millennium Development Goals, set forth in 2000 with targets for 2015. I personally wonder about the importance of such goals. Did China and India really need the incentive of targets put forth by the United Nations for their great development success over the past 15 years? Why did states fail, and why did some states that did not fail not achieve the stated targets? Still, the agreement about goals, targets and priorities did give many organizations their marching orders -- orders that were taken seriously.

Action/2015 is a coalition of more than 1000 organizations that have agreed to work together to help the world attain the SDGs.

Source

Post-2015 Consensus is a program of economic analysis that has begun to address anew the question of "What are the smartest targets for the post-2015 development agenda?"

The Sustainable Development Solutions Network is still another network, one that worked to help the United Nations Secretariat to develop its Sustainable Development Goals and related indicators and measurements so that goal achievement could be monitored and tested against the defined targets.

A Hopeful View of the African Economy

I quote at length from an article in The Economist:

Over the past decade Africa was among the world’s fastest-growing continents—its average annual rate was more than 5%—buoyed in part by improved governance and economic reforms. Commodity prices were also high. In previous cycles African economies have crashed when the prices of minerals, oil and other commodities have fallen....... 

Since last year the price of oil has fallen by half and many metals such as copper and iron ore have also dropped sharply........ 

In some economies large drops in commodity prices have led to currency falls. At least ten African currencies dropped by more than 10% in 2014. But there have been few catastrophic depreciations. This suggests that investors do not see lower commodity prices as a kiss of death....... 

One reason currencies have been robust may be because economic growth is starting to come from other places. Manufacturing output in the continent is expanding as quickly as the rest of the economy. Growth is even faster in services, which expanded at an average rate of 2.6% per person across Africa between 1996 and 2011. Tourism, in particular, has boomed: the number of foreign visitors doubled and receipts tripled between 2000 and 2012....... 

What explains Africa’s increasing economic diversification? A big pickup in investment helps. That has arisen partly because governments have worked hard to make life better for investors. The World Bank’s annual “Doing Business” report revealed that in 2013/14 sub-Saharan Africa did more to improve regulation than any other region...... 

Better fiscal policy also plays an important role. Commodity markets are volatile; government spending smooths out the booms and busts...... 

(T)here is reason to think the “resource curse” is losing its power. Despite turmoil in commodity markets, Africa is still one of the world’s fastest-growing regions. With better education systems, investment in infrastructure and sensible regulatory reforms, the continent could completely break the spell that has held it back so often in the past.

I can't vouch for the accuracy of the forecasts made in this article; indeed, forecasting is notoriously difficult. Still, it is more optimistic than I would have expected. Africa has long suffered from a lack of economic development, and as a consequence too many Africans have lived for too long in extreme poverty. Let us hope that Africa will continue to progress economically, and that the benefits of that progress will be widely shared, reducing the worst aspects of poverty on the continent! 

Charles Kenny on our improving world

You might also want to look at this earlier and longer video in which Charles talks about his book, Getting Better.

Charles Kenny on "The Upside of Down"

Charles makes a number of great points here. One is that globalization has greatly benefited the elite in the USA. Another is that the US poverty policy has not kept up with our increasing national wealth, and the US poor are about as poor as they were a half century ago. He suggests that as a result, the large fraction of the US population that are poor see globalization primarily as threat and not opportunity.

He goes on to suggest that in many ways our fear of the rest of the world is depriving us of opportunities and wealth, and that our attitude is the basis of a major foreign policy problem.

"Chart of the Year of 2014"

Source: Vox.com

The poorest of the poor saw some real income growth over two decades, but not all that much. On the other hand, real income growth increased for those from the 10th percentile of income to the 55th percentile, and remained high up to the 70th percentile; it peaked for the percentile occupied by the Chinese "middle class". The rate of income growth was lowest for the middle classes in the developed world during this period, but the very highest income group managed to grow their incomes quite rapidly.

A thought about foreign aid

Development occurs when there is a widespread movement of people doing things better. They better protect their health, living longer, healthier lives as a result. They better produce goods and services, seeing the GDP per capita increase as a result.

How do people come to do things better? Well they do them smarter, and they do them with better technology. Farmers plant better cultivars, they are smarter about the use of agricultural chemicals, they use better equipment. Factory workers similarly are better organized, they are better equipped, and they work smarter to produce better products more efficiently. I could go on to talk about lumberjacks, bankers, teachers, health workers, etc. but you get the picture.

As economists have pointed out, doing things better on a society wide basis involves investment -- usually improving technology involves investing in new plant and equipment. Some of that investment is in better infrastructure (and better infrastructure technology) -- roads, ports, railroads, airports, electric power infrastructure, water and sanitation infrastructure, dams, canals. It also requires investment in people, especially their education and training and their health physical well being.

This seems so obvious, the question arises, why has development been so difficult. One reason seems to be rapacious people in power who use their power to acquire all the loose resources in their societies, exporting the capital and living high; there is nothing left for investment by the majority, and little reason for the majority to do things better since they will not benefit from doing so.

Another reason is conflict. Wars destroy the very resources that are needed for development, diverting those who could do things better for society into destructive activities.

Disorganization, as typified by failed states, is still another reason that people don't do better.

A number of people are suggesting that foreign aid has failed because it has too often been directed toward places where these things get in the way of progress. The focus on the technical problems combined with acceptance of corruption, emphasis on countries in conflict and emergency aid had resulted in ineffective aid.

I think there is merit to the criticism, but perhaps it fails to recognize that there have been big victories from the technical approach. The green revolution that has seen food production keep up with population growth, the spread of contraceptive technologies that have allowed population growth rates to be reduced, and the improvement in life expectancy globally are examples.

On the measurement of development progress

There is an article in the year's end (double edition) of The Economist on the measurement of development progress. The article suggests that the oft used measure of increase in Gross Domestic Product (GDP) is difficult to measure, and presents difficulties in international comparisons. More to the point, many feel that it does not capture the goals of social and economic development well. One important alternative is the UNDP's Human Development Index. While this seeks to combine economic production, education and health, I find it too suffers from failing to capture fully what development is all about. The article notes:

In recent years many have instead focused on happiness. The United Nations has been publishing an annual “World Happiness Report” since 2012. The British government measures “personal well-being” across the country on an annual basis. Yet happiness has its own shortcomings, argues Martha Nussbaum of the University of Chicago. 

Happiness notably suffers as an indicator in that "People are prone to what philosophers call 'adaptive preferences', meaning that they may fail to report their 'true' happiness." Moreover, the individual's view of "happiness" may focus on a hedonistic concept, and may not reflect the philosopher's more nuanced view.

The author of The Economist article cites a 1999 article by William Easterly which is sufficiently important that I quote its Abstract in it entirety:

A remarkable diversity of indicators shows quality of life across nations to be positively associated with per capita income. At the same time, the changes in quality of life as income grows are surprisingly uneven. Either in levels or changes, moreover, the effect of exogenous shifts over time is surprisingly strong compared to growth effects. This paper reaches this conclusion with a panel dataset of 81 indicators covering up to 4 time periods (1960, 1970, 1980, and 1990). The indicators cover 7 subjects: (1) individual rights and democracy, (2) political instability and war, (3) education, (4) health, (5) transport and communications, (6) inequality across class and gender, and (7) “bads.” With a SUR estimator in levels, income per capita has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 32 out of 81 indicators. With a fixed effects estimator, growth has an impact on the quality of life that is significant, positive, and more important than exogenous shifts for 10 out of 81 indicators. With a first-differences IV estimator, growth has a causal impact on the quality of life that is significant, positive, and more important than exogenous shifts for 6 out of 69 quality of life indicators. The conclusion speculates about such explanations for the pattern of results as: (1) the long and variable lags that may come between growth and changes in the quality of life, and (2) the possibility that global socioeconomic progress is more important than home country growth for many quality of life indicators.

Economist Easterly is an important economic theorist, and I find his use of a wide variety of indicators (grouped into seven sets) to be interesting. I find the suggestion that development progress is not uniform and is affected by external factors to be intuitively appealing,

The Economist article also cites the ideas of Amartya Sen who

argues that “capabilities” are the way to go. The definition of a capability is a bit fuzzy: at its simplest, a capability is something that people have reason to value. The list of potential capabilities is endless: the opportunity to live a long and healthy life, the freedom to take part in political life or to be well nourished. Capabilities, says Mr Sen, are ends that economists should strive to maximise: income is just one of the many means by which we get there.

I think that the development community is irrevocably committed to using a variety of indicators to measure different aspects of social and economic development. I rather like the idea that individuals ought in a liberal society to have the right to choose how best to balance among the different objectives. Who am I to tell the philanthropist who chooses to give away wealth to do good, or the business man who chooses to acquire wealth in the process of producing goods and services, or the government official who chooses a bureaucratic career assuring a level playing field under rule of law that their choices are better or worse than those of others.

At the public level, I rather like the idea of a number of constraints -- that the society should be operating in such a way that a level of health and/or health services should be assured, that a level of intellectual development and/or educational services should be assured, that a level of income should be assured, etc. There could be a debate on the trade-offs -- how much health service would the society be willing to trade off for how much social safety net, or how much schooling? Constraints in this sense would be minimum values, and presumably people would be pleased if some benchmarks were exceeded as long as it were not at the expense of others constraints that were not met.

"Rich countries are deluged with data; developing ones are suffering from drought"

I quote from an article in The Economist:

AFRICA is the continent of missing data. Fewer than half of births are recorded; some countries have not taken a census in several decades. On maps only big cities and main streets are identified; the rest looks as empty as the Sahara. Lack of data afflicts other developing regions, too. The self-built slums that ring many Latin American cities are poorly mapped, and even estimates of their population are vague. Afghanistan is still using census figures from 1979—and that count was cut short after census-takers were killed by mujahideen.

And:

Poor data afflict even the highest-profile international development effort: the Millennium Development Goals (MDGs). The targets, which include ending extreme poverty, cutting infant mortality and getting all children into primary school, were set by UN members in 2000, to be achieved by 2015. But, according to a report by an independent UN advisory group published on November 6th, as the deadline approaches, the figures used to track progress are shaky. The availability of data on 55 core indicators for 157 countries has never exceeded 70%, it found (see chart).

Fortunately, there are now efforts to improve the situation (cited in the article):

A volunteer effort called Humanitarian OpenStreetMap Team (HOT) improves maps with information from locals and hosts “mapathons” to identify objects shown in satellite images. Spurred by pleas from those fighting Ebola, the group has intensified its efforts in Monrovia since August; most of the city’s roads and many buildings have now been filled in (see maps). Identifying individual buildings is essential, since in dense slums without formal roads they are the landmarks by which outbreaks can be tracked and assistance targeted. 

On November 7th a group of charities including MSF, Red Cross and HOT unveiled MissingMaps.org, a joint initiative to produce free, detailed maps of cities across the developing world—before humanitarian crises erupt, not during them. The co-ordinated effort is needed, says Ivan Gayton of MSF: aid workers will not use a map with too little detail, and are unlikely, without a reason, to put work into improving a map they do not use. The hope is that the backing of large charities means the locals they work with will help. 

In Kenya and Namibia mobile-phone operators have made call-data records available to researchers, who have used them to combat malaria. By comparing users’ movements with data on outbreaks, epidemiologists are better able to predict where the disease might spread. mTrac, a Ugandan programme that replaces paper reports from health workers with texts sent from their mobile phones, has made data on medical cases and supplies more complete and timely. The share of facilities that have run out of malaria treatments has fallen from 80% to 15% since it was introduced. 

Private-sector data are also being used to spot trends before official sources become aware of them. Premise, a startup in Silicon Valley that compiles economics data in emerging markets, has found that as the number of cases of Ebola rose in Liberia, the price of staple foods soared: a health crisis risked becoming a hunger crisis. In recent weeks, as the number of new cases fell, prices did, too. The authorities already knew that travel restrictions and closed borders would push up food prices; they now have a way to measure and track price shifts as they happen.

It seems to me that drones (remotely operated aerial vehicles), computers with geographic information system software, GPS technology, and cell phones represent a real technological solution to the need for better maps. Some donor (USAID) should leap on this and help to create better maps, that could be shared by the Internet and smart phones, for developing countries. 

Things got better in last century.

Hans Rosling in this spectacular section of 'The Joy of Stats' he tells the story of the world in 200 countries over 200 years using 120,000 numbers - in just four minutes. Plotting life expectancy against income for every country since 1810, Hans shows how the world we live in is radically different from the world many of us imagine, and indeed has gotten better for most people.

Following the same theme, Business Insider has published "OK, Haters, It's Time To Admit It: The World Is Becoming A Better Place" by Henry Blodget. I reproduce this graph on the reduction of  war battle deaths:

Rosling demonstrates that income grew over the past two centuries and life expectancy improved, and I think that is clearly not just a coincidence. Added income allowed people and nations to live not only better but longer lives. Part of the reason was expanding education levels (here is Gapminder's show on the increase in primary education completion rates.) Here is another article on how things are getting better.

The World Can Not Fail to Stop this Epidemic

Check this brief article from The Guardian. It includes a graph which shows that Ebola is currently very lethal (comparable to untreated HIV) and quite infectious. 

Innovation in Obama's Speech on the Economy

President Obama yesterday made a major address on the economy. Here is a video excerpt:



Here are some selected portions of the address:

(T)he day I took office, I said we would rebuild our economy on a new foundation for growth and prosperity. And with dedicated, persistent effort, we have been laying the cornerstones of this new foundation every day since. 

The first cornerstone is new investments in the energy and technologies that make America a magnet for good, middle-class jobs........ 

American manufacturing has added more than 700,000 new jobs. It's growing almost twice as fast as the rest of the economy........That's progress we can be proud of. But we also know that many of these manufacturing jobs have changed. You're not just punching in and pounding rivets anymore; you're coding computers, and guiding robots, and mastering 3D printing. These jobs require some higher education or technical training. That's why the second cornerstone of this new foundation is preparing our children and our workers to fill the jobs of the future...... 

Of course, even if you have the right education, for decades, one thing that made it harder for families to make ends meet and businesses to grow was the high cost of health care. And so the third cornerstone had to be health care reform....... 

Finally, we put in place financial reform to protect consumers and prevent a crisis on Wall Street from hammering Main Street ever again. 

And this:

If we want to make and sell the best products, we have to invest in the best ideas, just like you do at Northwestern. Your nanotechnology institute doesn't just conduct groundbreaking research; that research has spun off 20 startups and more than 1,800 products, and that means jobs. Here's another example. Over a decade ago, America led the international effort to sequence the human genome, and one study found that every dollar we invested returned $140 to our economy. I don't have an MBA, but that's a pretty serious return on investment. Today, though, the world's largest genomics center is in China. That doesn't mean America is slipping. That means America isn't investing. We can't let other countries discover the products and businesses that will shape the century. Let's invest more in the kind of basic research that led to Google and GPS, and make our economy stronger.

I think the key to economic progress is to learn to do things better in the future than we are doing them now. Clearly a large part of that effort has to be based on improving technology. The president has stressed the need to improve energy technology, and implied the need to innovate in health, education and manufacturing technology. We will also have to invent new technology to solve problems we are not adequately addressing now.

Technology is not used simply because it is invented and/or available. As the president indicates, people apply the technology, and they must have the education (and health and incentives) to do so. It also takes finance to invest in the application of the technology. As the president implies, you will not have the capacity to finance technology unless the financial industry as a whole is on a firm basis.

The president does not address the fact that you have to organize to do things better, and I would suggest that you have to better organize for that purpose. Economists have long described the process of creative destruction, in which the business community is reconstructed again and again to apply new ways of doing things to improve production and thus people's lives. I suggest that the same is true in fields of health care, education, and public infrastructure -- which we do not necessarily perceive as part of businesses.

It goes without saying that a gridlocked Congress, inhabited by many entrenched politicians who deny and denigrate science and technology is no help in achieving the technological revolution we need.