As proud as we are as Canadians, we and our European cousins must concede that the United States of America is the font of almost all the innovation that the world enjoys today. No where is this more true than in medicine. Almost all of the patented, innovative drugs that we use today have come from US laboratories; 84% of all the Nobel Prizes for Medicine since the 1960’s has gone to Americans. American capitalism and innovation go hand in hand. There is no denying that. In fact, all of the 10,000’s of pharmaceutical products developed over the decades have come from the private sector (except one).
But the current U.S. government with its massive, unprecedented spending is tilting the playing field away from success. The diagram below shows in historical perspective how unfathomly enormous is the increase in U.S. government spending (even without adding in the trillions of dollars that government funded healthcare will cost).
According to the empirical work of one of the most celebrated macroeconomists today, Robert J. Barro, and his colleagues from leftwing Harvard University, the multiplier for government spending is 0.8 when the United States is at war. It is much less than that at peacetime. At best, one dollar in government spending actually curbs growth by 20% – it does not increase it. Since the U.S. is neither at peace nor full war right now, the multiplier can be assumed to be somewhat less than 0.8. 
And it does not just apply to the States. Japan, after 16 years of stimulus spending from 1991-2007, saw 60% of its financial wealth wiped out. 
So, all of this government largesse is wasted, right? It is only going to fund politician’s pet projects at home, their financial supporters, and the expansion of government employment by about 35%. Isn’t that better than nothing? No, not at all.
There are only three ways for the U.S. government to pay for all of this spending: (1) increase taxes, which it is doing everywhere and everyway; (2) borrow from other countries that may or may not like them all that much, which it is also doing although other countries are starting to say no; and, (3) print more money, which it is doing and devaluing the US dollar along the way – which is just another form of taxation. Of course, borrowed money has to be paid back with interest which then will require even higher and more pervasive taxation along with more money being printed. See where this is going? All $13 trillion (and counting) will have to be paid back – much of it with interest – by the American people and American corporations thus curbing economic growth for years to come.
The economic slowdown we are all experiencing was inevitable; in fact, it was long overdue being put off by various monetary and fiscal polices that inevitably would fail – as they did. Looking at the business cycle, this downtown was probably 20 years overdue. The economy ebbs and flows like a sound curve – up and down, up and down.
So what? Well, if the economy is already stalled, and government spending will do more harm than good on a scale never seen before, then something will have to give. If we think of the economy as our weekly shopping cart full of goodies, our pay cheque not growing, and the cost of milk keeps going up and up, then there is less money left over for cookies to the point where we cannot buy cookies any longer. Historically, research and development – innovation – has been the cookies. Government support for research at universities will be red-lined or cut. Companies will postpone expansion and new investments in new innovations. And this is never good.
As healthcare costs in the U.S. spiral because of medical litigation, lack of competition in the insurance markets, growing unionization, the growing incidence of chronic disease amongst an aging population, and the lack of adequate preventive primary care, one significant cost-saving has been in the use of new innovative drugs that keep people in their community, out of expensive hospitals, at a much lower cost, and with equal or better outcomes.
At no time in American history has innovation in healthcare held more promise for society – worldwide, not just American – yet at no time in history has the economics of innovation been more threatened by the soon-to-be, all-consuming, downward-spiraling, socialized, American economy. The Cameron Institute will be closely following the American innovation agenda because we all stand to benefit – or not- from it.
D. Wayne Taylor, PhD, F.CIM
 Robert J. Barro, Macroeconomics: A Modern Approach, South-Western Educational Publishing, 2007.
 A. Randazzo, M. Flynn and A. B. Summers, “Turning Japanese”, Reason, July 2009.