Keller and Krugman

Mr. Keller poses a question in “Toy Story.”  He says America is still the birthplace of inventions. But for how long?  (Don’t bother with the link if you want to find out what the Rainbow Loom is.  He linked to an article in The Atlantic listing the 50 greatest inventions.  Figures…)  In “A Permanent Slump” Prof. Krugman says the new normal for our economy may be a state of mild depression.  Here’s Mr. Keller:

My model American entrepreneur of the moment is Cheong Choon Ng. He has not attracted a $3 billion bid from Facebook, like the young inventors of the photo-sharing service Snapchat. Wall Street is not cooking up an I.P.O. But Ng is a star in my household. He is the creator of the Rainbow Loom, which in the middle-schooler market is the hottest device not called iSomething. If you have noticed that half the children in America — and a fair number of adults — seem to be sporting bracelets that are braids of brightly colored rubber bands, then you have seen the fruits of the Rainbow Loom.

Ng told me he has sold about three million of them, even before cracking the overseas market. Not least among the charms of his simple device is the fact that it unplugs children for a while from the mind-sucking Matrix in favor of projects that require focus and creativity. (In fairness to the Internet, I should note that kids learn new bracelet designs from demonstration videos on YouTube.)

The United States may not manufacture as much stuff as it used to, but we are still the world’s cradle of innovation. Inventiveness has been an American point of pride dating back to the days when the country was in its infancy. The Atlantic magazine, in one of those exercises that manages to be both arbitrary and fascinating, this month asked a panel of smart people to identify the greatest inventions since the wheel. If you discard breakthroughs made before the United States was up and running, an astonishing number of civilization-altering innovations — 16 of 30 on that list — were born here. Oil drilling. The telegraph. Refrigeration. Anesthesia. Electricity. The airplane. The Pill. The semiconductor. You might say that America itself is something of a civilization-altering innovation.

Choon Ng is in several respects a case study in how America has kept its edge. He moved here from Malaysia at age 21 to earn a master’s degree in engineering from Wichita State University. He hadn’t planned on staying, but he was offered a job as a crash-test engineer in the auto industry. The companies he worked for sponsored him for work visas until, after a dozen years, he had negotiated the arduous path to citizenship. Then inspiration struck.

The loom, originally a wooden tablet with a grid of pushpins, began as an attempt to score dad points with his craft-obsessed daughters. When it was a hit at home, he fashioned a version out of molded plastic, scraped together his savings and loans from his family, and went into business. Eventually he managed to line up a few retailers to stock the loom, and quit his day job. He is a cheerful advertisement for the American dream. “The longer you stay, the more you see the opportunity,” Ng told me from his home in Michigan, where he is working on a loom upgrade and his next invention. “Whatever you work for, you can own.”

His loom, by the way, is now manufactured in China, which makes a lot of things but invents very few.

In Ng’s story you can discern the main components of America’s success as an incubator of new things: a welcome mat for talented, ambitious immigrants. An education system that (when it is not teaching test-taking) values creativity. The availability of start-up capital. Patent laws that protect intellectual property. An infrastructure that gets things shipped and marketed. And, perhaps most important, a culture that preaches opportunity and celebrates the risk-taker, the pioneer. From the Wright Brothers taking flight, to Bill Bowerman of Nike using a waffle iron to revolutionize running shoes, to Steve Jobs and his beautiful machines, to Choon Ng, we worship the inventive spark.

The question is, can we keep it up?

The culture part, at least, seems to be alive and well. “Entrepreneur” is to the academic achiever of today what “doctor” and “lawyer” were to my generation. “It’s the cool thing,” said Bill Aulet, who runs a center for entrepreneurship at the Massachusetts Institute of Technology. “I would say nationally we’re looking at 20 or 25 percent of the student population that wants to be entrepreneurs.”

But for all the pop-culture enthusiasm, there are signs that our innovative dynamism is diminishing. The pace of new business creation, on a per-capita basis, has been in a slow but steady decline since the mid-1980s, according to the Kauffman Foundation, which studies entrepreneurial trends. That suggests that other essentials of a thriving innovative economy have been neglected.

Let us count the ways. The decline of our education system is exaggerated but real, especially in the scientific and technical fields. The Internet has made it harder to enforce intellectual property rights, creating havens for pirates and narrowing the advantage of innovator over copycat. (Ng’s greatest frustration is protecting his patent against aggressively lawyered-up imitators.)

Start-up capital is still more abundant than anywhere else on earth, but the supply has been depleted by the recession. Dane Stangler, Kauffman’s research director, said most new small businesses are financed not by high-profile venture capital firms, but by family and friends, including home equity loans that went away when the housing bubble burst. Crowdfunding is a new source of capital, but still minuscule.

And then there is the erosion of our infrastructure — physical and intellectual. James Fallows, who wrote up The Atlantic’s great-inventions list (and who is an astute student of the economic cultures of the U.S. and China) worries about the dwindling of America’s publicly financed research. The budgets of the National Institutes of Health, the National Science Foundation and other sources of investment in the long-term basic science that undergirds practical innovation have been slowly eroding — even before the ham-handed budget sequester and the idiotic government shutdown. “This is more maddening than the other most obvious problem, the neglect of physical infrastructure, because it would be so much easier to solve,” Fallows told me in an email. “Rebuilding bridges, ports, etc. takes a long time. Increasing research budgets is an ‘it’s only money’ issue. The sums are small on the national budgetary scale but large in their implications.”

Probably the most perverse impediment is our immigration law. Currently, Bill Aulet reports, the brightest foreign students come to M.I.T., earn degrees in high-demand disciplines (with a healthy side order of rigorous entrepreneurship training) and then are recruited to work in Canada or Britain because they can’t get an American green card. “We should be embracing these people,” Aulet said, as a source of the heterogeneity and drive that generate new ideas.

“The U.S. attracts a lot of talent,” Ng agreed. “But it’s very hard to stay and contribute.”

The comprehensive immigration bill passed by the Senate includes more immigrant visas for foreign graduates in sciences and technology and a small pilot program to admit promising entrepreneurs. But that measure is stranded in the House, another casualty of our broken politics, and another reminder that these days Washington is where bright ideas go to die.

Choon Ng 2.0 will just have to wait.

Now here’s Prof. Krugman:

Spend any time around monetary officials and one word you’ll hear a lot is “normalization.” Most though not all such officials accept that now is no time to be tightfisted, that for the time being credit must be easy and interest rates low. Still, the men in dark suits look forward eagerly to the day when they can go back to their usual job, snatching away the punch bowl whenever the party gets going.

But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.

And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

Mr. Summers began with a point that should be obvious but is often missed: The financial crisis that started the Great Recession is now far behind us. Indeed, by most measures it ended more than four years ago. Yet our economy remains depressed.

He then made a related point: Before the crisis we had a huge housing and debt bubble. Yet even with this huge bubble boosting spending, the overall economy was only so-so — the job market was O.K. but not great, and the boom was never powerful enough to produce significant inflationary pressure.

Mr. Summers went on to draw a remarkable moral: We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.

I’d weigh in with some further evidence. Look at household debt relative to income. That ratio was roughly stable from 1960 to 1985, but rose rapidly and inexorably from 1985 to 2007, when crisis struck. Yet even with households going ever deeper into debt, the economy’s performance over the period as a whole was mediocre at best, and demand showed no sign of running ahead of supply. Looking forward, we obviously can’t go back to the days of ever-rising debt. Yet that means weaker consumer demand — and without that demand, how are we supposed to return to full employment?

Again, the evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.

Why might this be happening? One answer could be slowing population growth. A growing population creates a demand for new houses, new office buildings, and so on; when growth slows, that demand drops off. America’s working-age population rose rapidly in the 1960s and 1970s, as baby boomers grew up, and its work force rose even faster, as women moved into the labor market. That’s now all behind us. And you can see the effects: Even at the height of the housing bubble, we weren’t building nearly as many houses as in the 1970s.

Another important factor may be persistent trade deficits, which emerged in the 1980s and since then have fluctuated but never gone away.

Why does all of this matter? One answer is that central bankers need to stop talking about “exit strategies.” Easy money should, and probably will, be with us for a very long time. This, in turn, means we can forget all those scare stories about government debt, which run along the lines of “It may not be a problem now, but just wait until interest rates rise.”

More broadly, if our economy has a persistent tendency toward depression, we’re going to be living under the looking-glass rules of depression economics — in which virtue is vice and prudence is folly, in which attempts to save more (including attempts to reduce budget deficits) make everyone worse off — for a long time.

I know that many people just hate this kind of talk. It offends their sense of rightness, indeed their sense of morality. Economics is supposed to be about making hard choices (at other people’s expense, naturally). It’s not supposed to be about persuading people to spend more.

But as Mr. Summers said, the crisis “is not over until it is over” — and economic reality is what it is. And what that reality appears to be right now is one in which depression rules will apply for a very long time.

Yet another reason for me to be glad that I’m reaching the end of my life.