Guess when these words were written:
The Democrats may or may not be less concerned with a balanced federal budget than the Republicans.... [T]he responsible Republican leadership has said again and again that if business should really turn down they would not hesitate to lower taxes or make whatever deficit-producing moves were necessary to restore prosperity and eliminate unemployment....
Even if this change in policy had not become generally accepted, certain other changes have occurred that would produce much the same results, though possibly not so quickly.... [Historically], much of the federal revenue came from customs duties and similar excise sources. These fluctuated moderately with the level of prosperity but as a whole were fairly stable. Today, in contrast, 80 per cent of the federal revenue comes from corporate and personal income taxes. This means that any sharp decline in the general level of business causes a corresponding decline in revenue.
Meanwhile, various devices such as farm price supports and unemployment compensation have been imbedded in the laws. At just the time that a business decline would be greatly reducing the federal government's income, expenditures in these fields made mandatory by legislation would cause governmental expenses to mount sharply. Add to this the definite intention of reversing any unfavorable business trend by cutting taxes, building more public works, and lending money to various hard-pressed business groups, and it becomes increasingly plain that if a real depression were to occur the federal deficit would easily run at a rate of...
$25 to $30 billion per annum.
The rate in 2009 was about $1.4 trillion according to wikipedia.
These words were written by Philip A. Fisher in 1957. Fisher argued (and was proved accurate in arguing) that the common stocks of growth companies would outperform bonds and most other investments over long holding periods (ten years or more) because of inflation and because of technological innovation.
Inflation in 2010 remains as menacing as it was to him in the post-War years. But should we be so optimistic about R&D? Here's what Fisher observed about R&D in the same chapter:
One facet of the change that has come over corporate management is worthy of attention. This is the growth of corporate research and engineering laboratory -- an occurrence that would hardly have benefited the stockholder if it had not been accompanied by corporate management's learning a parallel technique whereby this research could be made a tool to open up a golden harvest of ever-growing profits to the stockholder. Even today, many investors seem but slightly aware of how fast this development has come, how much further it is almost certainly going, and its impact on basic investment policy.
A survey made in the spring of 1956 published in Business Week... indicated that in 1953 private expenditures for research and development were about $3.7 billion. By 1956 they had grown to $5.5 billion and present corporate planning called for this to be running at the rate of $6.3 billion by 1959.
But where are the corporate research and development laboratories now? There are two answers. First, many have setup labs overseas, in China and India. This is not, or not only because the labor is cheaper. It's at least partly because skilled labor has been moving back there for the last ten years.
Near and dear to my heart is the second answer. Adjusted to present value, that $6.3 billion in 1959 would be roughly $40 billion today -- approximately the same amount the federal government provides to research universities for research and development.
In terms of inflation, we are in just as bad or worse a position now than we were in 1957. But the big commercial research and development labs of the 1950s and 1960s are gone. They're now overseas or in universities. The long-term growth of our economy depends on making technology transfer out of research universities more efficient.
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