Larry Summers’ latest talk is hitting the blogosphere (here’s Tim Taylor and here’s John Cochrane). A quote from Summers’ talk that both Taylor and Cochrane highlighted is one that gets me to thinking, too:
Ponder that the leading technological companies of this age—I think, for example, of Apple and Google—find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony, with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture, and significant new ventures today are seeded with hundreds of thousands of dollars. All of this means reduced demand for investment …
And here are two graphs:
Who knows what the long run effect of cheap investment and lots of profits is on the economy as a whole. But the marginal R&D project is data driven and data tools and data itself is often free. Next to free, even today’s rock bottom capital equipment prices look astronomical.
And this strikes close to home. I’m leading a research project that could result in a massive improvement in risk management models for non-Hurricane storms for US insurance companies and using not an ounce of proprietary tools or data. Except for my time and that of a few of my colleagues, which we apply only when higher priority work doesn’t present itself, the R&D budget is literally zero.
And yet we shall reap substantial profits from this project if it comes off. I say this is glorious but maybe the technocrats are freaking out.