James Pethokoukis

Politics and policy from inside Washington

Why Washington should embrace innovation prizes

Jul 30, 2010 18:40 UTC

Innovation prizes put space tourism on the launch pad and helped Netflix better predict consumer movie preferences. Now they might even improve oil spill cleanup. Government should join in, too. In austere times, such rewards would be an efficient way for cash-strapped Washington to fund breakthroughs that drive economic growth.

Competitive prizes do have a successful history. In 1714, the British Parliament offered a £20,000 prize for anyone who could devise a way for sailors to accurately determine a ship’s longitude. It was eventually won by an English carpenter. In 1927, Charles Lindbergh won $25,000 from hotelier Raymond Orteig for his nonstop flight from New York to Paris. The $1 million Netflix Prize was decided in 2009 after a competition involving teams from more than 100 countries.

It was Lindbergh’s historic feat that inspired astronaut wannabe Peter Diamandis to start the X Prize Foundation in 1996. Its first award was pinned to space flight in 2004, and the organization has started a new one in response to the BP oil leak in the Gulf.

What attracted Diamandis to prizes is how they create leverage. Competitors for the Orteig Prize raised and spent some $400,000, while X-Prize teams poured in $100 million in the hopes one would win $10 million. Spending more than the actual prize money on offer enforces economic discipline, as it means the innovators need to consider a back-end business application to recoup their funds.

The first X Prize was financed by an insurer betting against its success. Scrounging up the dough for what Diamandis calls “mega-prizes” in the $100 million-to-$1 billion range would be even tougher. That’s where government can pitch in. Washington already dabbles, especially for defense research. But their use could be greatly expanded.

In the U.S., Congress should start by passing a bill now under consideration that would authorize all federal departments and agencies to use prizes. It’s supported by the White House, even though President Barack Obama was sort of dismissive of prizes during his campaign. (Back then, he didn’t think much of John McCain’s plan for a $300 million prize to create advanced battery technology.) But one of his top science advisers is Thomas Kalil, a big advocate of the idea.  And the administration has incorporated the concept into its national innovation strategy. Eventually the government could even finance “grand challenges” such as developing self-replicating nanotechnology machines or faster-than-light communications.

The key is to focus on areas where there is an identifiable market failure, or where success seems near impossible. If history is a reliable guide, private money could outmatch public expenditure by 10-to-one. That is an opportunity penny pinching politicians anywhere would be silly to pass up.

David Brooks vs. Paul Ryan

Jul 30, 2010 14:13 UTC

This bit of David Brooks’ column today jumped out at me:

Paul Ryan, the most intellectually ambitious Republican in Congress … has been promoting a roadmap to comprehensively reform the nation’s tax and welfare system. On the tax side, he would sweep away most of the special-interest-favoring tax credits and subsidies and give people a chance to join a simple tax system with only two rates.

On the welfare-state side, he’d sweep away most subsidies to the middle and upper classes, like the tax exemption on employee health plans. He’d essentially voucherize federal benefits, like health care and Social Security, and increase federal subsidies for people down the income scale. … The weakness of the Brooks and Ryan approach is that their sociology is off a bit. America is not a nation of risk — embracing pioneers. It is a nation of heroic bourgeois families who want to thrive within a secure social order.

Me:  The “risk shift” argument is a phony one. Unsustainable social insurance programs means risk has already been shifted onto American taxpayers. The only question now is how to structure that risk. And the only way to restructure entitlement programs so they don’t bankrupt America or saddle it with sky-high taxes is a plan like that advocated by Ryan.

COMMENT

Strong families increase the risk tolerance of individuals. Conversely, as traditional family life deteriorates, people turn to the nanny state for support. Causation goes in both directions. Any policy that strengthens the family increases support for the Ryan program. Shrinking the role of government in people’s lives strengthens family bonds. The “secure social order” that “heroic bourgeois families” seek is not the welfare state. It is the social conservative agenda: a legal framework for marriage that preserves families, schools that teach traditional values, government restrictions on pornography and the like.

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The second-quarter GDP report and the 2010 midterms

Jul 30, 2010 13:56 UTC

The uninspiring 2Q GDP report of 2.4 percent is now the new relevant data point, not the Zandi-Blinder study.

Politically,  the issue is not whether the U.S. economy will slip into a double-dip recession — though it is hardly out of the question for a negative GDP quarter to pop up this year.  It’s how the economy will impact voter mood in 100 days. Will they think America is back on track toward prosperity with growth below trend and unemployment hovering around double digits? That seems unlikely to me. And given that, this Cook Political Report forecast certainly seems realistic, if not a bit cautious:

The Cook Political Report’s current outlook is for a 32 to 42 seat net gain for Republicans. Currently there are 255 Democratic and 178 Republican House members and two vacant seats, one formerly held by a Democrat and one by a Republican. Republicans need to net 39 seats to reach a bare majority of 218 seats. … The Cook Political Report’s current outlook is for a 5 to 7 seat net gain for Republicans. Currently there are 57 Democrats, two independents that caucus with Democrats, and 41 Republican Senators.

COMMENT

There will be no double-dip because there has been no genuine recovery. Remove stimulus = remove growth = no sign of trade-gap getting anything but wider. If the US saw a consumer boom now, it would cost the Fed a fortune in further borrowing.

There will be a slip away from Obama, because Obama has not moved any closer to the American people.

There will be a Republican President in 2014….IF the GOP’s more prominent members decide to get house-trained in the meantime….and IF their natural franchise of support learns some ethics….

http://nbyslog.blogspot.com/2010/07/citi group-buying-your-own-kind-of.html

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