Megan McArdle: Blind to Science

 "A greater gap of incomes between successful and unsuccessful entrepreneurs (thus greater inequality) increases entrepreneurial effort and hence a country’s contribution to the world technology frontier. We show that, under plausible assumptions, the world equilibrium is asymmetric: some countries will opt for a type of “cutthroat” capitalism that generates greater inequality and more innovation and will become the technology leaders, while others will free-ride on the cutthroat incentives of the leaders and choose a more cuddly form of capitalism."
--Acemoglu, Robinson, Verdier article cited by Megan McArdle in The Daily Beast (italics mine)

Some disclaimers here:  1. I have never enrolled in an economics course beyond high school 2. I do not know the breadth of experience of Megan McArdle, who has written about economics for The Economist  3. My bias is somewhere to the left of Lenin, where it is reasonably easy to deduce Ms. McArdle's is somewhere to the right of Henry Ford.

Having said all that, I was fascinated by Ms. McArdles piece in The Daily Beast, because 1. She tried to examine what it feels like to live in a country with substantial government support for workers' vacation time, for healthcare, for pensions, for childcare, and what she said matched my own very limited and outdated experience. 2. She was intellectually honest enough to examine her own previous position that we should "privatize" Social Security and discovered this would likely not only destroy the pensions of the pensioners but wreck our economy and likely take the world's economy down with it.

What she could not do was to give up her dearly held faith that "innovation" is a precious, mysterious, greed-driven thing that only occurs when you dangle exorbitant amounts of money in front of "job creators,"  or "innovators"  or "technology leaders."

Actually, there is ample evidence this is a patently false belief.

 If you look at innovations in health, medicine and science, many have been accomplished by men on government salaries, living modestly, but consumed by the thrill of the work in front of them, the intellectual challenge of it. Everything from the internet, to micro technology to a vast array of new classes of drugs have come from men who had little personal economic gain motivating them, but a lot of pride in their work, a lot of intellectual curiosity and the satisfaction of being able to dream big in their work,  because they didn't have to worry about the bean counters demanding to see a return on the investment in their laboratory equipment.  

I can cite chapter and verse in the world of medicine, but I won't belabor the point. 

I do want to cite a counter point:  When making money is the only motivator out there, innovation is just as likely to whither as to thrive: Consider the case of antibiotics. Bacteria are tough and flexible little critters. You can develop an antibiotic which kills millions of them but what you get left with is the bacteria who happen to have the mutation which makes them impervious to your antibiotic, so you have to develop a new antibiotic to kill those. And then you need another for the next resistant bug. 

The problem is, antibiotics don't generate a big enough chunk of total income for drug companies.  They generate millions, but not as much as a drug which does not cure a disease but simply controls it, a drug for hypertension or for high cholesterol. Drugs for chronic, incurable diseases generate much more money, because patients have to take these drugs daily for the life of the patent. Antibiotics typically are necessary only for a week or two and then you need to find a new patient with a new infection to sell the drug to. 
So commercial pharmaceutical companies, with an eye on profit margin, are loathe to spend much time or money or innovative brain power on antibiotics for bacteria or vaccines for viruses, because that is simply not where the money is.

This means commerce actually inhibits innovation in critical areas. Thank God and thank the federal government for programs motivated by the common good rather than by the dollar.

McArdle also suggests the practice of the American government subsiding research for private pharmaceutical companies in America has resulted in the innovations in drugs and devices which have supported the medical benefits enjoyed by the freeloading economies of Europe who don't have to spend their money on innovation in pharmacy and medicine but can simply buy the new stuff from America without having invested in all the research, much as Europeans buy iphones produced by the innovators at Apple.

This may be true for some drugs, but for many, like the statins, innovation did not come from men in pharmaceutical companies who were willing to take big risks develop drugs,  but from academia, which is supported not by university dollars but by government dollars in the form of research grants.  Same for the polio vaccine, same for influenza vaccines, all of which save more lives, keep more people healthy than the  innovations of all the drug companies in search of profit combined.

In short, it's nice to have a government looking out for the public health, and it's fine to have a vibrant pharmaceutical industry.

It's really nice to have the two working together: Insulin is a case in point. This was discovered, developed and applied by three men working at the University of Toronto in 1921, who were motivated by the suffering of patients, by their own sense of history, by their own egos, by a drive for glory, but not at all by the dollar.  When they got a workable molecule, they needed a drug company to invest the money and technology to mass produce it in a safe form. Eli Lilly was only too happy to cooperate. A nice merger of intellectual thrill and financial opportunism.

Not all the "cutthroat incentives" to discover great things arise from a lust for financial reward. In fact, in science, until the 21st century fewer arose from men chasing dollars than from men chasing glory, by which I mean, the Nobel prize, but more often the simple admiration of their colleagues who could actually understand the problems they faced and the genius it took to solve them.  The big deal was not the contract they had signed with some company but the great moment of presenting their work in front of several hundred colleagues at a conference and seeing them rise to their feet and shout out praise. For these men, the men who developed insulin, the polio vaccine, the antibiotics we have relied upon, the oral drugs for diabetes, the CT scan, the MRI, the reward was not being elevated to the 1%, but the reward was the admiration of their peers.

Hollywood moments, where an audience of ignoramuses rise to their feet, clapping hold little joy for the real scientists and engineers who make the discoveries which change life for the rest of us--because these clapping fools do not understand the process and the genius behind the discovery. All the adoring throngs understand is the effect, not the cause. 

So, these economists are not giving you science. There is no science in economics, only mathematical models, which, as far as I can tell are more often simply a smoke screen for bias. Innovation can arise from salary men. Just ask the guys who developed the rockets in Germany and the Soviet Union, who innovated in this field for years before the entrepreneurs in America could even be interested, because they could not see the money in it.  

Or ask the Brits who developed radar. These men had no financial motivations. They were lowly government scientists saving their country and providing generations to come with the best weather tracking system we have to this day.

The problem with economists talking innovation is they are neither engineers nor scientists. They are just economists. 

That's better than being a politician who uses the bogus theories of the economist, but the economist is just a dreamer.