Recession, R&D Spending, and the Current Account: Bad News, Bad News, and a Little Encouragement

Coming out of the global recession, it has been suggested that certain United States' trading partners that have relied on exchange rates policy should switch to the industrial policy, particularly, government subsidies for private sector research and development. The present paper argues that the recession itself is sufficient bad news. The prospect of our trading partners instigating an R&D subsidy game in the interests of an export-led growth strategy is even more sobering--especially if the U.S. fails to respond with its own R&D subsidy program. Whatever your view of the American Recovery and Reinvestment Act of 2009, one could make the case that the U.S. economy would have been better served investing in new technologies leading to new factories producing innovative products rather than simply paving a road to, at best, business as usual