BY JEFFREY SOMMERS

A half century back, as noted in the fall 2020 Academe article I coauthored, “A Marshall Plan for Rebuilding Higher Education,” the United States began its retreat from public investments that had originally made it the world’s premier power. No longer wishing, or even thinking it possible, to retain its position of manufacturing leadership, the United States moved to chiefly profit from two other areas: financializing its economy and deriving profits from intellectual property rights. The financialized economy was unstable from the start, with its flaws fully revealed by the 2008 financial shock. Intellectual property rights—broadly speaking the ownership of patents and brands in areas as diverse as licensed technology, software, pharmaceuticals, and entertainment—has been the other major pillar upon which the US economy rests.

The US financialized economy was built on making the dollar the world’s reserve currency, or the money that any country or major businesses needed to buy essential goods on global markets, such as oil. The United States expertly played a tough hand during the challenges of the 1970s economic crisis, and by the 1980s crafted the dollar into the world’s indispensable currency. This permitted it to merely issue money to countries that required dollars, thus allowing the United States to run massive trade deficits by the 1980s. This represented an inversion of the saying on the sign first installed in 1935, and still hanging on the bridge crossing the Delaware River to Trenton, New Jersey, from the country’s former industrial era, of “Trenton Makes and the World Takes,” to the “world makes and the US takes.” Other countries now made the goods which the United States consumed by virtue of issuing dollars. This fortuitous state of affairs extended to the federal level, thus enabling generous US spending on its military. As Vice President Dick Cheney later remarked, Reagan proved that “deficits don’t matter.” The rich could take a relaxed view on taxes, or as New York hotel queen Leona Helmsley summarized it in the 1980s, “We don’t pay taxes; only the little people pay taxes.” This attitude echoes into the present with the New York property developer currently domiciled at 1600 Pennsylvania Avenue.

The above model generated fortunes for many in recent years. Yet, most saw living standards stagnate or decline. With industry hollowed out and social cohesion at lows not observed since the Civil War, the United States needs to play its one remaining big strength: rebuilding its researching universities. Dollar hegemony will not last forever and is already weakening. Industry will not return in significant measure, either soon, or even later. Thus, the only reasonable move is to massively invest in US human and physical infrastructure, while dollar hegemony can still help finance it. That simply means the federal government should “print” money, if politically possible, or borrow at our record-low interest rates if we must. The country’s remaining comparative advantage with innovation and the intellectual property rights it creates can only be revived by investments in basic research, which only our universities have the capacity to undertake. Furthermore, as the research on innovation shows, creative work is best fostered in culturally rich and diverse environments such as those of our larger university communities.

To be clear, this is not merely a call only for STEM spending. When the United States forcibly opened Japan for trade in 1853, the Japanese response was not merely to copy American technology. Instead, they formed a policy institute named the “Institute for the Study of Barbarian Books”—signaling, in short,  that STEM was not enough and that culture too was essential for development. Japan later partially lost this perspective by the 1990s. Thus, when it was China’s turn to study developed nations, they took the lesson from studying Japan and the United States, recognizing that the former was too focused on STEM, thus missing the key ingredient of the US innovation “secret sauce”: its dynamic culture that helped deliver the IT revolution. Now China is ratcheting up investment in the humanities in order to make a creative ecosystem out of which an innovation economy can arise. Unfortunately, in recent years, the United States has raced toward austerity and deleveraged from its last viable competitive advantage in the global economy: its research universities, including on the cultural side of those institutions’ ledgers. Lastly, government needs to restore the mission of public universities as articulated by Charles Van Hise, president of the University of Wisconsin, in 1904 to “search for the truth.” Repression of ideas never well serves society nor innovation.

This is no call for endless growth. Creating sustainable, equitable, and leisure-enabling economies will require innovation, and, again, the only road to those is through our universities. And only our public universities have the access mission to achieve it. The United States is at a pivotal point. It can continue deleveraging from our public universities and continue its decline into national ruin, or it can become something better than it has ever been.

Guest blogger Jeffrey Sommers is professor of political economy and public policy and senior fellow in the Institute of World Affairs at the University of Wisconsin–Milwaukee and visiting professor at the Stockholm School of Economics in Riga, Latvia. 

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