So much for the competitiveness agenda

The science community is expressing disappointment in the final federal budget deal. This was the reaction from

“Short-sighted and short-changed” declared Dr. Mary Good, Chairman of ASTRA, the Alliance for Science & Technology Research in America, following last-minute changes in key science budgets by Congress and the Administration as lawmakers rush to adjourn before the Holidays.
“Reversing years of hard work, Congress and the Administration have been short-sighted in their haste to get a budget agreement — and they have short-changed America in the process” declared Good. “Only a few months ago, we achieved a refreshing consensus to begin the much-needed doubling of key science budgets under the America COMPETES Act,” said Good, adding “passage of the COMPETES Act recognized that America must increase its investment in physical sciences and engineering if it is to compete successfully in the future global economy. The COMPETES Act was bipartisan and signed by the President. It was a first step in insuring that future generations of Americans can be prepared for the competitive dynamics of a flat world.”

But, apparently, the actual final funding levels don’t come up to those set in the COMPETES Act.
The website of ScienceNOW had this to say:

The White House and Congress delivered a heavy blow to the hopes of the U.S. science community yesterday as part of a long-delayed final agreement on the 2008 federal budget. As a result, what began as a year of soaring rhetoric in support of science seems likely to end with agency officials and research advocates shaking their heads and wondering what went wrong.

I don’t know how other parts of the competitiveness agenda faired in the budget game between the Congress and the President. But after been promised much, the physical sciences are clearly not happy.

Micro climates of innovation

Today’s New York Times has a fascinating article about the microclusters of technology innovation in Silicon Valley — Silicon Valley Shaped by Technology and Traffic. Similar to the microclimates that determine the locations of the wineries, these microclimates are “collection of remarkably local clusters based on industry niches, skills, school ties, traffic patterns, ethnic groups and even weekend sports teams.”
Take, for example Palo Alto Networks:

Nir Zuk, its founder and chief technology officer, notes that Palo Alto is synonymous with high-tech innovation, and he was living there when he came up with the name.
“But in Silicon Valley, you locate a company where the engineers are,” he said. “You would never locate a networking company in Palo Alto.”

As the article points out,

a look at the microclusters within Silicon Valley demonstrates the business relationships, the social connections and the seamless communication that animate the region’s economy. It also suggests the human nuance behind the Valley’s success and shows why that success is not easy to copy, export or outsource.

That human nuance is the interaction of people and ideas and the transmission of tacit knowledge. In my paper Knowledge Management as an Economic Development Strategy, I noted that economic clusters succeeded because they are efficient knowledge management mechanisms. This micro look at Silicon Valley shows just how local that knowledge can be.
The irony of the information age is that while telecommunications technology has resulted in the “death of distance” for some types of information, being there is still important. It become even more important on the cutting edge of innovation, where face to face interaction and serendipity are key. As Richard Florida says, the world is not flat; it is spiky – because innovative and creative people need to be near other innovative and creative people.

Fiscal stimulus

While today’s GDP numbers don’t show it (a 4.9% growth in the third quarter of 2007), there is growing worry that the nation is slipping into a recession. Some, such as Marty Feldstein, Larry Summers, and Robert Reich, are calling for fiscal stimulus. Summers calls for a $50 to 75 billion tax cut/spending increase combination. Feldstein isn’t specific, other than to condition it to the economy actually going into recession. Reich wants it to be revenue neutral by cutting taxes at the low income end and raising them at the high end.
But David Wessel, in his column today, points out that “the best political forecast is that nothing will come of this talk of fiscal stimulus.” (Emphasis in original).
Everyone may have missed something, however. Inadvertently, Summers may have gotten his wish — at least in part. Congress passed a $50 billion stimulus package just before it went out. It just wasn’t called a stimulus package. The $50 billion Alternative Minimum Tax “patch” was not offset my any new revenues (the GOP’s anti-tax forces being stronger than the anti-deficit side). And supposedly, it provides a break to the middle class.
While I was initially disturbed at the lack of a budget offset for the ATM, maybe – just maybe some good will come out of this. Not the most effective or well designed stimulus package. But a “stimulus” none the less.
The real question remains, however. Is fiscal stimulus the right treatment for the current situation? Congress has inadvertently set up a nature experiment. We will know the answer in a few months.

Creative central banks

This from Business Week – Why Central Banks Are ‘Experimenting’:

When is the last time “central banker” and “creative” appeared in the same sentence? The conservative guardians of the world financial system aren’t exactly known as renegades, but the global credit crunch that originated in the U.S. housing market is forcing them to try things they’ve never tried before.

The rush to the creative economy has begun!
Some are concerned with this trend:

Bert Ely, a banking consultant in Alexandria, Va., who’s known for his irreverent declarations, puts it differently: “These guys are flying by the seat of their pants.”

But as those in the creative fields know, flying by the seat of your pants is the standard modus operandi.

Services trade as part of gambling settlement

According to press reports issued Monday, USTR has agreed to a settlement with the EU, Japan and Canada over our ban on foreign online gambling. The US will keep the ban, but as allowed under the trade rules, give other countries trade compensation:

“The agreement involves commitments to maintain our liberalized markets for warehousing services, technical testing services, research and development services and postal services relating to outbound international letters,” said Gretchen Hamel, the USTR spokeswoman, in a statement.

I don’t understand this. Does it mean we currently have restrictions on foreign technical testing services and R&D services? Or are we just promising not to put future restrictions on these services? And were there proposals for restrictions on technical testing and R&D services? (I hadn’t heard of any). All very interesting.

The ECB and intangibles

Yesterday, following last week’s joint move by the world’s leading central banks, the European Central Bank up the scale of the liquidity relief to $500 billion (see Cheap Money Is ECB’s Answer – and E.C.B. Makes $500 Billion Infusion – New York Times). This prompts me to raise the same question I asked earlier about the Fed action: will they accept intangibles as collateral for any of this lending? As Steven Pearlstein put it this morning:

In this case, it’s not only $500 billion, but $500 billion lent against almost any collateral, including a handwritten IOU from Uncle Ludwig in Dusseldorf.

If that is the case, then lending intangibles might be a much safer bet.