Ezra Klein on external economies, superstars, the large rewards of small differences, and public investment

Ezra Klein doesn't have a PhD in economics, but his economic thinking transcends that of many PhDs I know.  And he writes much better.  I blame it all on the fact that he grew up in a much richer technological environment than I did.

Ezra Klein :

"The idea of the lone genius who has the eureka moment where they suddenly get a great idea that changes the world is not just the exception, but almost nonexistent," says Steven Johnson, author of "Where Good Ideas Come From: The Natural History of Innovation." That's because innovation, whatever the Facebook movie told you, isn't really about individuals. And in making it about individuals, we misunderstand, and thus impede, innovation.

I was not born ... superior to my grandparents. But I would have been much likelier to invent Facebook than they were. The natural capabilities of human beings don't change much ... their environments do, and ... technology .... Better sanitation .... Transportation .. communication ... the Internet makes the coding of social networks possible.

.. advances happen... to many people simultaneously... ... In 2003, we were all social network geniuses, at least compared with everyone in 1993.

Consider CU Community, a Facebook competitor started at Columbia University. Adam Goldberg, its creator, programmed his social network...  in 2003. It was more advanced than Facebook, ... though it did lack the elegant minimalism of Zuckerberg's design...

Today, Zuckerberg is many times as rich as Goldberg. ...attributed partly to the clean interface .. Harvard name and ... luck. ..the difference between Mark Zuckerberg and Adam Goldberg was very small..... It was the commons supporting them both that really mattered. But the focus on individuals leads us to overinvest in the rewards for individual innovation and underinvest in the intellectual commons that make those innovations possible. We're investing, in other words, in the difference between Zuckerberg and Goldberg rather than the advances that brought them into competition.

Consider the current debates in Congress. Republicans are fighting to add $700 billion to the deficit to extend the Bush tax cuts for income above $250,000. It is hard to imagine the innovations that happen at a 35 percent tax rate for your two-hundred-thousand-and-fifty-first dollar, but not at 39 percent. We're also helping creators and their heirs hold legal monopolies on innovations for much longer, extending individual copyrights to the life of the author plus 70 years, for instance. Would we lose so many great ideas if the monopoly lasted only until 15 years after the inventor's death?

At the same time... California is gutting its flagship system of universities. Salaries are dropping, and research money is drying up. ... 43 states have cut funding for higher education, while 33 others -- plus the District of Columbia -- have hacked away at K-12. And Congress seems to have given up on the energy and climate bill that could've kick-started our green energy industry -- even as China has committed almost a trillion dollars...

And let's not kid ourselves into thinking that public investments don't matter. Direct public investment was crucial for developing a national railroad system, planes and semiconductors. It was behind the Internet and the Global Positioning System. It was behind the educated populace that developed those innovations.

Nor should we be overly sanguine about the private sector's interest in innovation. The average company spends 2.6 percent of its budget on research and development, and a National Science Foundation survey found that only 9 percent of companies reported a product innovation between 2006 and 2008. "You can't be an innovative economy if only 9 percent of your companies are innovating," economist Michael Mandel wrote.

People ... want to make money...., to "make something cool." And they should be richly rewarded for their successes.

But there really isn't a replacement for public investment, and good rules. You need a good education system. You need intellectual-property rules that ensure space for new ideas and uses. ....we want to spend our limited dollars on ... the reality of innovation behind Facebook. [my emphasis]