Sam Hammond and Brink Lindsey on *Faster Growth, Fairer Growth: Policies for a High Road, High Performance Economy*

Sam Hammond is the director of poverty and welfare policy at the Niskanen Center and Brink Lindsey is vice president and director of the Open Society Project at the Niskanen Center. Both are returning guests to the podcast, and they join David again on Macro Musings to talk about their new pro-growth report titled, *Faster Growth, Fairer Growth: Policies for a High Road, High Performance Economy.* Specifically, they detail a number of different policies the US government could adopt to achieve faster and fairer economic growth, including social insurance modernization, child allowances, and more.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

David Beckworth:  Brink and Sam, welcome back to the show.

Brink Lindsey:  Hey, thanks for having us on, David.

Sam Hammond: Yeah. Thank you.

Beckworth:  Good to have you back on the show with us gentleman and glad to see that you have survived the pandemic and another presidential election.

Lindsey:  Surviving.

Beckworth:  Surviving. It's true as of this recording nothing is definitive although it's pretty clear where the direction is going in the election right now. But you have a really interesting report that you put out and I agree with much of it. I have a few questions and it's definitely great material for the podcast. I'm really looking forward to jumping into the material you've provided. Before we get into it though, I want to think about what you guys are doing at the Niskanen Center itself. What prompted this is actually part of your report. You have this Niskanen synthesis.

Beckworth:  It's a very mysterious, but enticing term, the Niskanen synthesis. I want to read a paragraph, which I think summarizes the Niskanen synthesis. It's from your paper. It says, "While traditional ideological battle lines pit a pro-market right against a pro-government left, we reject this choice as a false dichotomy. In our view addressing the daunting challenges facing the country today require simultaneous moves in both directions. We need greater reliance on entrepreneurship and competition and we need more robust provision of social insurance and other public goods."

Beckworth:  In other words we need a free market welfare state. Is that a fair characterization of the Niskanen synthesis, and then what does that tell us about the broader vision of the Niskanen Center?

Lindsey:  Yeah. I think that's a pretty fair staying on foot version of our distinctive spot on the ideological spectrum that we're trying to pioneer and settle. The Niskanen Center is a new-ish think tank. We'll be six years old in January. Trying to innovate think tank practice on operational as well as ideological lines. On operational lines, we've gone back to the original Heritage Foundation vision of a think tank as being really oriented towards engaging on a day-to-day basis with policy makers, especially on Capitol Hill.

Lindsey:  We have policy departments in immigration, in poverty and welfare, and in climate where this kind of really in the trenches work, knitting together coalitions, working on legislative language, really getting into the weeds on policy detail is our bread and butter work. Whereas a lot of think tanks in recent decades have kind of wandered away from that and more towards sort of general engagement with public opinion through a focus on being prominent in the media. We try to do that too, but we also want to be there in the trenches.

Lindsey:  Ideologically, as you hinted at, we're trying to define new terrain on the ideological spectrum. We see these are traditional left-right divide about the size and scope of government pitting a pro-market, anti-government right against a pro-government, anti-market left is a false dichotomy. We see a huge major domestic challenge facing the United States as a kind of double whammy melees, a combination of much slower growth than we experienced in the 20th Century, sputtering dynamism relative to the kind of innovation and productivity growth we saw in the 20th Century, combined with high inequality both along socioeconomic lines and along geographic lines that means that the benefits of this slowed down growth are skewed to people at the top.

Lindsey:  People in the middle and downwards are doing even worse than the slow growth numbers would indicate. That leads us to this idea that we need to work on producing both a more thriving private sector and a more thriving public sector and that these are complementary pillars of a thriving society.

We need to work on producing both a more thriving private sector and a more thriving public sector and that these are complementary pillars of a thriving society.

Beckworth:  Okay. Now, this report, is it a concrete steps version of that vision? I mean what was the motivation behind it?

Lindsey:  Sam can elaborate on this, but we came out with a paper about a couple of years ago or at the end of 2018, sort of a vision paper to lay out this synthesis, this new synthesis that we're trying to champion called *The Center Can Hold.* That was really sort of a 30,000 foot view of general principles. We've got that and meanwhile we've got our in the weeds day-to-day policy work. This is sort of the mezzanine level.

Lindsey:  We wanted to flesh out our concrete policy ideas beyond the specific departments where we're doing day-to-day work, but bring that big picture vision down from the clouds a bit and to show what a move towards a free-market welfare state would actually look like in practice on a number of key policy issues.

Hammond: Yeah. There's a sense in which our philosophy and our methodology are consistent with one another. On the ideological philosophical side, we actively sort of maintain that the synthesis of social insurance and public goods and a generally pro-government or high-performance government attitude, what maybe Tyler Cowen would call state capacity is actually more coherent when combined with a very robust free market orientation, because in some ways the market and the government both belong to a common set of institutions. We just call it are our institutions, American institutions and when you have problems in one, they often reflect problems in the other and vice versa.

Hammond: But this doesn't get picked up on the ideological level, because ideologically people want to sort based on mood, based on, are you anti-government in mood or pro-government in mood? Are you anti-market in mood or pro-government in mood? Because those things are presented as antagonists, people ideologically sort in a way that is actually kind of perpendicular to the reality. The reality is when you have well-functioning governments, you also have well-functioning markets and when you have dysfunctional governments you often have dysfunctional, corrupt, and captured markets.

Hammond: What we identify with this growth slowdown and the inequality that has increased over the last four years is a consequence of both the market and our systems and the machinery of government both decaying to some level and with harms to both productivity and equality. On a philosophical level, we maintain that you can solve both at the same time without sacrificing one or the other, because they really are both determined by this common factor, the quality of our institutions.

Hammond: Then, on the day-to-day practical level or our strategic orientation, the Niskanen Center, we're a non-partisan think tank, but we're not… We call ourselves moderate, but we're not bipartisan, we're trans-partisan, so rather than trying to split the difference between the left and the right, we want to formulate ideas and policies that they can stand alone on their own, but simultaneously appeal to the values and interests of the left and the right. A family benefit appeals to the family interests. The pro-family values of the conservative and the anti-poverty values of a progressive, it's not trying to make them compromise on their values, it's trying to construct a policy that synthesizes their values and can forge agreement in that way rather than promote the kind of bipartisan compromise in which everyone is dissatisfied.

Beckworth:  Okay. Now your report begins by looking at this question of stagnation, which you both have alluded to already. The economy hasn't grown as rapidly, the inclusive prosperity has not been there as it was in the past, and as a consequence, we have these growing divides. It's probably contributed to the polarization we've just seen in our election. You give in this first section of your paper two stories for why this has happened.

Beckworth:  The first one is it's just getting harder to have rapid growth when you're this advanced of economy. The low-hanging fruit's been picked already, right? We've educated people to quite an extent, population growth has slowed down, total factor productivity growth has slowed down, but then you also point out policy failures and mistakes that have happened.

Beckworth:  In fact, Brink, you have a book on, it's on the show last time you came on we talked about it, *The Captured Economy,* how finance, housing and healthcare and we'll talk about this later in more details, have been captured. You got these two, I think areas. One, we've picked the low hanging fruit too. There's policy choices we could do differently and just kind of looking ahead, if you could tweak these as you've envisioned in this paper, what is like the bottom line number you would see?

Beckworth:  I mean do you have an idea of how much more growth we would get? We've been averaging around 2% real GDP growth on trend for the past decade or so. I mean are we talking about a 1% more so we're going at 3%, 4%. I mean what's your vision? What can we gain? If we followed your plan to the letter, where would we be?

How to Build More Economic Growth

Lindsey:  That's a very tempting question to speculate about, but a very dangerous one to just speculate about because we just… Economists can do a pretty good job of estimating the static welfare losses of bad policies that if resources were reallocated to their more efficient use, then you can measure the difference between the output and scenario one and scenario two.

Lindsey:  Measuring how fast the economy would grow if conditions were more favorable to innovation, and therefore innovations that none of us have even dreamed of would occur at a more rapid rate, there's just absolutely no way to foresee the path of the future development of the economy that way. I do think that over the course of the 20th Century GDP per capita growth in real inflation-adjusted terms averaged about 2% a year. It's averaged just a little bit more than 1% a year during the 21st Century.

Lindsey:  We identify a number of policy problems that if corrected could add tenths of a percentage point to growth. If you do that, so right now we're growing a little bit more than 1% a year, if you add tenths of a percentage point up to an additional percentage point, you could be doubling the growth rate in the economy. I don't think we're talking about chump change. I think we're talking about big structural problems in the economy, and therefore currently big sacrifices to potential output and potential improvements and well-being.

Hammond: If we just take two areas that we talked about in the paper, housing and healthcare. On housing if you believe Enrico Moretti's research, the spatial misallocation from housing sacrifices nine percentage points of GDP a year. That estimate can be quite a bit off for it to still be a substantial cost, and likewise of healthcare, the US spends double what most other industrial countries do in healthcare. We identify a number of supply side barriers and ways in which our healthcare sector has been captured contributing to this heightened cost and you could imagine if we could take health care as a percentage of GDP down from 17% to I don’t know, 9% or 10% and that's another seven percentage points of GDP per year that we can use in better ways.

Hammond: So even just in those two areas, and we haven't even talked about our sections on innovation policy, which sort of imagine new technologies that could drive us to a whole new frontier just within the current technological paradigm, those two sources of stagnation and dysfunction alone could contribute double digits to GDP growth.

Lindsey:  But just to be throwing a note of caution and realism, we did emphasize in the paper that the task of achieving inclusive prosperity has grown harder. As you mentioned, there is sort of diminishing returns to innovative activity is a pretty robust conclusion from a survey of the past hundred years. We've had an enormous increase in both the absolute number and the percentage of the workforce comprised by engineers and scientists. People who engage full-time in innovative activity and had seen nothing like a corresponding increase in the pace of innovation and productivity growth, so that suggests that we're getting less bang for the buck from every person hour of innovative activity than we used to.

Lindsey:  There's a wonderful paper by Charles Jones and Nicholas Bloom and others called *Are Ideas Getting Harder to Find?* They cite the kind of eye-popping stat that to get one more iteration of Moore's law these days, to double the processing power you can put on a single chip, takes 18 times as many engineers now as it did a few decades past. We do have natural processes making it more difficult to grow as robustly as we did in the past. Likewise, there are natural or deep structural factors that are leading towards higher inequality.

Lindsey:  The skill bias, technological change, the superstar market effects that are pushing towards incomes skewed towards the top. Policymakers have their work cut out for them, but the problem is that we've… Nature put us in this hole and we've responded by just continuing to dig. We need to go the other way.

We do have natural processes making it more difficult to grow as robustly as we did in the past. Likewise, there are natural or deep structural factors that are leading towards higher inequality... Nature put us in this hole and we've responded by just continuing to dig. We need to go the other way.

Beckworth:  In short we have picked a lot of the low-hanging fruit. It's going to be much harder to reach up high and pick up the next level of growth.

Lindsey:  But it's who knows, right? There's possibilities of breakthrough innovations in nanotechnology or in life extension.

Beckworth:  Sure.

Lindsey:  …just open up gigantic vistas of opportunities for improving well-being, but-

Beckworth:  Yeah. Using the tree analogy there, maybe the tree will come down closer to us when this new innovation comes along. I like to be optimistic too. I mean some of the things you mentioned in this report they're really like immigration. I think we really don't fully appreciate the extent how immigration could change our future, not just with more bodies, but the more people we have, the greater the chance of an Einstein being in those people.

Beckworth:  The outcomes could be very different. I mean I recently had Matt Yglesias on the show, *One Billion Americans.* The whole Julian Simon view of the world. I think Paul Romer view of the world is an important one, which could change like you said the whole dynamic there. Also, I just want to bring this up and I know we're getting ahead of ourselves. We need to get into the actual sections of the paper, but you mentioned near the end of your paper about how we become more risk averse to making decisions in terms of building things, roads, structures, some great examples. How it's taken like three decades to renovate the Penn Station in New York City? Costs have gone up.

Beckworth:  Part of that is we've become more risk averse, and so my boss Tyler Cowen had a book out a few years ago, how as you get richer, more fluent, is this kind of, I don't know, maybe a feature of nature? We tend to be more risk-averse, more careful what we do and I wonder if that is also a big constraint in being able to move forward? So even if we had these great inventions, there's always going to be people who are careful and cautious because we are so affluent and so comfortable. Is that a constraint we can see past?

Risk Averseness as a Growth Constraint

Lindsey:  I have come to believe it is real barrier to growth, sort of a deep civilizational level that once you get rich and fat and happy, you get complacent and you get risk-averse and you've got… Most people are much more concerned about keeping what they've got than getting additional stuff. That is the loss aversion is a big motive. When more people have more to lose, there is more potential vetoes to some change in the status quo that's going to upset that status quo.

Lindsey:  Yes. I think we talk specifically about environmental review under the National Environmental Policy Act as a barrier to growth and as a major inflator of infrastructure and building costs, but sort of lurking beneath that is this general accretion like Mancur Olson described over time of these kind of barnacles that attach to the economy of vested interests, distributional coalitions that are working to push income and wealth their way.

Lindsey:  The rich, the longer you go through sustained peace and prosperity, the more of those barnacles grow and the harder it is to scrape them off. That I think is probably the deepest challenge is to summon up the willpower to take on the vested interests and distributional coalitions that are gumming up the works.

I think ... probably the deepest challenge is to summon up the willpower to take on the vested interests and distributional coalitions that are gumming up the works.

Hammond: It goes beyond just building bridges. The fact that countries like Spain, which no one thinks of Spain as having a particularly functional economy, but that they can build infrastructure at a fraction of the cost the United States can. It's not because of unions, there's things that clearly influence that are different in the US above and beyond sort of the things that are obvious and NEPA is one of the things that we do very differently.

Hammond: In the '70s a lot of countries including European countries adopted a kind of American style environmental review regime and most of those countries, same countries have moved away from it in recent decades. Germany, Australia, Canada, they've all gone through different phases where they had very long and time-consuming environmental reviews, and then over time had to streamline it, simplify it.

Hammond: The US for our own reasons hasn't yet made that leap. We're still working under a paradigm that the rest of the world has kind of moved beyond, because they've realized it's too costly. I just want to add that environmental review like I said isn't just about bridges. When I was at Mercatus back before joining Niskanen, we did this work on reviving supersonic flight. You wouldn't know it, but supersonic over land was banned in 1973 out of this sort of fear, kind of optimistic fear if you think about it that Concords would be flying over the United States hundreds of them every day.

Hammond: That turned out not to be the case, but it's incredibly difficult for the FAA to repeal that ban and they could do it, because it's just a regulation. It's not in statute. But if they do repeal it they have to justify it under NEPA that it won't increase pollution. In this case noise pollution. The only way you can justify it under the environmental review rules is to have some sort of data. They need data on airplanes that don't exist to justify repealing the rule that would make it possible to develop the market so the planes exist in the first place.

Hammond: It's this incredible catch-22 and that affects not just infrastructure, but something like supersonic flight, which is really next generation transportation technology. We have no idea what the foregone economic benefits of that are.

Lindsey:  I don't want to get in to just a sense of doom that we're destined to go into decline, because of complacency and tying ourselves in knots. One way you shake yourself out of complacency is when some new challenge comes along that makes existing ways of doing things manifestly not good enough. We're facing a bunch of those right now.

I don't want to get in to just a sense of doom that we're destined to go into decline, because of complacency and tying ourselves in knots. One way you shake yourself out of complacency is when some new challenge comes along that makes existing ways of doing things manifestly not good enough. We're facing a bunch of those right now.

Lindsey:  We've had the experience of this shambolic response to the pandemic showing that our state capacity in our governance structures and institutions just aren't nearly as good as we might have imagined. We have the longer-term challenge of climate change that if we are not able to innovate and we're not able to build a whole lot of new infrastructure with new clean energy, then we're going to be in a whole lot of trouble.

Lindsey:  We are potentially facing national security challenges with a rising and very rich China that is increasingly autocratic and hostile towards our values. Then, finally, we're right in the middle of just a terrible democratic dysfunction that we believe is at least partially attributable to the disappearance of inclusive prosperity and to the frustrations and resentments that breeds. The motivations to get off the couch and get going are staring us in the face. We're just going to have to respond.

Beckworth:  Brink, I was thinking along those lines you just mentioned. We need a shock sometimes to awaken us from our complacency. COVID has done that in some cases, and again, I don't want to jump too far ahead here, but allowing medical professionals to cross state lines, go practice in New York, for example. That's some kind of fresh thinking that we need, but it took a pandemic to get us to that.

Beckworth:  Also, going back to immigrants. I think this is another reason why we need more immigrants. Immigrants bring in a fresh perspective and by nature they're more risk-loving if they want to give everything up to come here. We need new perspectives. Occasionally, we need to be pushed. Now, I'm not asking for pandemics, but I do think it's useful that we are awakened from our complacency.

Beckworth:  Okay. Let's move into your paper more directly. This actually was like the first section of your paper what we've been discussing, but let's move into the actual policy prescriptions that you outline and there's three sections where you do this. The first one is about supporting workers and families and you have several policy proposals there. I'm going to work down the list.

Beckworth:  I'm going to fly by the first one because listeners of the show know that first one very well, but it's a call for nominal GDP level targeting. I'll just mention this in passing and we can move on to the next one, but our good friend, Karl Smith, I like the way he summarizes this point. He says, "Capitalism really hasn't been tried until we are at full employment." So unless you really got a healthy, full employed labor market, you really don't get the full benefit of capitalism. What this would do is push us there and I think all our listeners understand this point.

Beckworth:  Let's move onto your second point here. You make the case for comprehensive social insurance modernization. Explain to us what does that mean?

The Case for Comprehensive Social Insurance Modernization

Hammond: Yeah. Sure. We began work on this paper before COVID, but COVID has only brought home the extent to which social insurance and our social insurance systems should be really thought of as a kind of public infrastructure, right? We're living through a moment where whether you have access to paid sick leave is not merely a nice thing to have, but potentially implicates public health concerns about coming to work convalescent because you are faced between a choice between paying your bills or coming in to work sick and infecting your co-workers and causing an outbreak in a way that any employer would not really internalize the cost of providing that paid leave.

Hammond: On top of that our technical infrastructure for social insurance has proven very inadequate to say the least. Circa March and April this year when every Thursday, the job report would come out and we'd have another million or two million unemployment insurance claims. Websites across unemployment offices and their websites across the country would fail, you had lineups around the block. Meanwhile, there was a manhunt to find people who could program in COBOL, which is a programming language that dates back to the Kennedy administration.

Hammond: There was just a total breakdown of our systems. What we call for this paper is both to recognize that just like any other form of public infrastructure, when you rebuild, when you build that bridge back, you can add new lanes, you can add new capacities, and we have to think seriously about what it will take to revamp our social insurance system. Everything from the IRS down to state unemployment insurance programs, so that they can actually respond in times of crisis, but then also be there and be highly functional in normal times to provide the kinds of income smoothing and other social benefits that they exist to provide.

Hammond: We have a number of strategies of how to do that including everything from having a flexible technological modernization fund at Congress, to expanding the ability for agencies like the IRS to hire people outside of the normal civil service schedule so they can actually bring in software developers and other talented engineers to move the tax system into the 21st century.

We have a number of strategies of how to do that including everything from having a flexible technological modernization fund at Congress, to expanding the ability for agencies like the IRS to hire people outside of the normal civil service schedule so they can actually bring in software developers and other talented engineers to move the tax system into the 21st century.

Hammond: It's really an area where under normal circumstances, whether your unemployment program is programmed on COBOL or something else is an incredibly boring topic that no one ever wants to touch, but it's one of those prosaic issues that when the you know what hits the fan, it turns out to be all important.

Beckworth:  Yeah. You mentioned this in your paper and I remember vividly the challenge the IRS had with getting all those checks out, finding everybody, making sure you hit the right names, people who weren't on the roles of the IRS. This is a point I guess that goes to your state capacity argument, right? You need to have better or stronger state capacity and that takes investment. It doesn't just happen. It takes a concerted effort.

Beckworth:  All right. Let's move on to your next one. You have employment security and workforce development. What's the argument there?

Employment Security and Workforce Development

Hammond: Yeah. This really builds off to the modernization point once we've modernized we can talk about not just replacing the system, returning to the same system we have, but building a new and better system. What we talk about in this section is really transforming our unemployment insurance system to a re-employment system.

Hammond: A lot of companies, a lot of businesses during this COVID crisis pursued what you could call a strategy of strategic unemployment where they basically shelved a lot of the workers and pushed them onto the unemployment insurance system in lieu of paying them short time pay. That's better than nothing, but if you look across the ocean, you see much, much lower rates of unemployment in European countries, even European countries that had even more aggressive lockdowns than the United States.

Hammond: The reason for that is because they have well-developed short-time work-sharing programs. The US has technically a work-sharing system. It's just the participation is very low. Work sharing is basically this idea where instead of pushing someone onto unemployment, you reduce their hours and the unemployment program will make up for some of their loss pay. It's a way of sort of having flexible wages so to speak and to trade off hours for unemployment.

Hammond: The other part of this is according to some estimates, one-third of the people laid off due to COVID represent a reallocation shock. Meaning this isn't just a cyclical effect, this isn't just a normal recession, these are people in service industries and the cruise lines and all sorts of industries that are not going to bounce back the way they were prior to the pandemic simply because people's preferences have changed. The actual economy has changed.

Hammond: There's going to be a large reallocation of the workforce into new lines of employment. That's going to require retraining and transitional support. Right now our system is not set up for that. It's set up to basically hold you in limbo until you find a new job rather than train you and get you connected with the employers who are filling in the void of the jobs that were destroyed.

There's going to be a large reallocation of the workforce into new lines of employment. That's going to require retraining and transitional support. Right now our system is not set up for that.

Beckworth:  Okay. You've got two more prescriptions here in this section and just to be clear, this section is all about providing a social safety net, social insurance for the home, the family. Is that fair when they're moving between businesses and firms?

Hammond: Supporting workers and protecting families.

Beckworth:  Okay. Of course, keeping them fully employed if at all possible. But your last two ones on here are strengthening families with child allowances. What do we do now in the US that doesn't meet that standard?

Strengthening Families with Child Allowances

Hammond: Well, just building up the last section. We talk a little bit about active labor market policy and active labor market policy are things that encourage you to enter the workforce. The US has had basically steadily declining spending on active labor market policy since the '80s, and not surprisingly we also have declining labor force participation.

Hammond: Now, meanwhile when we turn to the discussions of child benefits, the US also has one of the highest rates of child poverty in the industrial world. A big reason for that is the absence of direct income support for households of children. In 20 other industrialized countries they have either family benefits, family allowances or child allowances. They're really two names for the same thing, but the idea is you have a young one that's a mouth to feed when you're raising dependents, on a first order the issue is essentially one of cash flow.

Hammond: You have more mouths than workers and maybe the libertarian answer is to repeal child labor laws, but in lieu of that, we need some way of filling that gap. Quite frankly, the debate has been set back somewhat in the US due to this concern of labor force participation. The concern that if we give parents money for their kids, yes, it leaves, it maximizes their choice. It gives them the ability to use their daycare or to use their church. It's pluralistic in that sense, but on the other hand we risk disincentivizing work.

Hammond: One of the reasons we put that active labor market piece ahead of the child allowance piece is to say, "Look, there's two ways you can promote a high labor force participation. You can remove disincentives or you can create incentives." When you look across the world, the US actually has declining labor force participation in spite of our relatively paltry and threadbare social safety net. The reason is not because we're super generous and the Great Society was too great, but because we have sort of fallen down on creating the carrots that draw people into the labor force.

When you look across the world, the US actually has declining labor force participation in spite of our relatively paltry and threadbare social safety net. The reason is not because we're super generous and the Great Society was too great, but because we have sort of fallen down on creating the carrots that draw people into the labor force.

Hammond: It turns out that child allowances are actually one of those carrots. It's a little counterintuitive, but when Canada expanded their child allowance in 2014, the central bank governor Stephen Poloz actually gave a press conference saying that they were going to have to raise interest rates sooner than expected, because the child allowance was stimulating the economy too much. It only makes sense because, again, when you have that extra mouth to feed, parents, families have a very high marginal propensity to consume. Moreover, at the very low end, among the poorest households, even a little bit of liquidity, a little bit of cash is what is required to hire that babysitter so you can go hand out resumes or to basically take the first steps to enter the labor market.

Hammond: We come at this as both understanding the need to promote work and actually work as being valuable to families per se, because earned income, you can't replace earned income with welfare benefits. On the other hand, we are so below the curve of diminishing returns when it comes to support for families and children that actually pushing up the family benefits we provide to the poorest households will actually, in our view, have a positive labor market effect.

Lindsey:  Just to bring this back to the kind of ideological framing. In the conventional left/right division, you hear these proposals for upgrading and modernizing and expanding social insurance. Sounds like a whole bunch of big government, anti-market socialism. We very much do not see it that way. We see our proposals as very much pro-market and that comes out of our sense of things.

Lindsey:  Let me just back up here and say both of us are recovering libertarians. For Sam, it was a youthful phase. For me, it was 20 years of career, but we both retain the sense that competitive markets are an amazing social technology and their creative power is almost impossible to overstate. However, I have come to see in a way that I did not earlier. The extent to which markets are neither self-executing nor self-sustaining. That is markets work well when they are embedded in a set of supportive policies and institutions.

Lindsey:  I think most libertarians recognize that when it just comes to things like the rule of law, which is an incredibly valuable public good that the government provides, but we see that the case for market enabling public goods goes beyond just enforcement of contracts and the like that just to take the child allowances, children raised in poverty are almost certain to be not very productive workers in their adulthood. So if we can have the child poverty rate, we see that as a very pro-market move that is going to expand the capacities of people to participate in and thrive in the market economy. If we can have active labor market policies that can, with less friction, move people from one job to another, from one sector to another job to another, help them make these transitions, then we have a more fully engaged labor force that is working at close to maximum potential rather than the waste that comes from friction and depressed labor participation.

Markets work well when they are embedded in a set of supportive policies and institutions.

Lindsey:  This is our pushback against this sort of hoary ideological frame that would see anything like what we're proposing as anti-market when we see it is very much essential to good market performance.

Beckworth:  No. I completely buy that. Go ahead, Sam.

Hammond: I think one of the last times I was on your program, David, we talked about the China Shock. The striking thing about the China Shock and David Autor's work there is not just the devastation to economic variables like household earnings, but the effects on marriage and family, right?

Hammond: The ability to transition people out of declining industries into new industries is a pro-family policy in a strange way, and likewise, providing families with direct cash benefits is in a weird way a pro-work policy. Brink mentioned a bit of our libertarian background. You should think of it this way. We've abandoned our fiscal libertarianism. We think that what matters is not the quantity of government but the quality.

Hammond: When it comes to issues like family benefits, we much rather just give parents money and let them make informed choices based on their local knowledge than say having an elaborate bureaucratic universal daycare program or something like that. We remain very leery about the potential for bureaucracies to be captured, but we're critical of the sort of quantitative anti-government stance as sort of flattening a lot of the differences in the ways of going about different programs.

Beckworth:  Now, this is all very good and I'm very sympathetic to it, but I do want to flesh this out just a little bit more. In this specific case, we're talking about evolving or changing the existing child tax credit into an allowance. I'm a parent, I have three kids. I can claim that tax credit. I mean how is a child allowance different? How would it help someone on a lower income level? Tell me the concrete steps that would be different.

We remain very leery about the potential for bureaucracies to be captured, but we're critical of the sort of quantitative anti-government stance as sort of flattening a lot of the differences in the ways of going about different programs.

Child Allowances vs. the Child Tax Credit

Hammond: Right now we kind of have a two-tiered system in the United States. If you're very poor, if you're a single mom or just very low income, you probably do not qualify for the child tax credit. You might qualify for a partial child tax credit, but even then you have to have a minimum income. So if you're out of work or maybe you just can't work because you're home raising the kids, you're kind of out of luck. But what you end up falling into are these safety net programs like TANF. The traditional welfare system in the United States, which can provide you some cash benefits and some social services.

Hammond: Meanwhile, as you said, David, someone comfortably middle class, you just get a simple tax credit. We kind of have this bifurcated system where if you're poor and have kids, you're treated with a level of suspicion and if you're middle class and have kids, you basically have full degrees of freedom on how you choose to spend that money.

Hammond: A child allowance is partly about simplifying the system, but also extending the equal dignity that you are shown through the tax code, to the entire suite of families up and down the income ladder, to say, "We're going to treat the poorest of the poor with the same dignity and respect as we treat David Beckworth." It's to say, "We are going to trust you to make the best decisions for your family and not put all these strings, not attach so many strings to the meager benefits we're providing you."

Hammond: If there are cases where you do need social support services, those should still exist, but the idea that just because you're poor means you are basically untrustworthy is mistaken. When you look at this internationally, in Canada, for instance, when they implemented their universal child allowance, low-income families reduced their alcohol and tobacco consumption by about seven cents on the dollar. Now, that surprised a lot of people who thought, "Well, they're just going to spend this money on alcohol and cigarettes."

Hammond: What it actually sort of validated was this theory of household stability. When you give parents money, the benefits flow both in educational inputs like direct inputs to rent, to the kid's education, to food, and groceries, but also to these intangible channels of household stability where there's less stress, less internal domestic dispute, marriages end up being stronger, and all that has compounding benefits that go above and beyond sort of the first order of things you'd expect and end up building stronger families.

Hammond: When we go full circle, when we talked about the China Shock last time, it wasn't just the destruction of those jobs. It was the breakdown, the abject breakdown of family formation that has really I think awoken a lot of people, especially on the conservative right, to the need to do something more proactive, because if you look across the country, there is no marriage crisis among people who earn upper middle-class existence that the marriage and family crisis is really highly concentrated on this working-class population that we've decided for various reasons belong on a totally different track when it comes to social policy.

Lindsey:  Right now we have a child tax credit that is heavily constrained. Its availability is heavily constrained by you have to pay taxes to claim it. We've introduced some refundability recently, but not full. A tax credit like that is absolutely in terms of its economic effects completely the same as if you pay the normal taxes that everybody else does and the government writes you a check. Right now the government is sending checks to middle and upper middle class families for their kids and not to poor folks and that's wacky. We want to change that.

Beckworth:  Okay. Makes a lot of sense. All right. For the sake of time, we're going to fly through some of these policy prescriptions, but I'll mention them.

Lindsey:  We did a whole thing earlier about the captured economy, so that middle section is…

Beckworth:  Yeah. That middle, you have a whole section on the captured economy and you have one more item here. I'm going to skip for the sake of time, but you make the case for universal catastrophic care. I'll let the listeners go check out your paper. Let's move to the last section of your paper where you talk about reviving innovation and dynamism. Let's begin with your first proposal there and that is to pursue aggressive decarbonization. Tell us about that.

Reviving Innovation and Dynamism: Decarbonization

Lindsey:  The first step in innovation is and encouraging innovation is innovation needs to be innovation in the correct direction. Developing more addictive and carcinogenic cigarettes is a form of innovation, but it's not really what we're looking for, right? In the presence of externalities, you can have increases in measured economic activity, which look like growth, but if the costs are being shunted over onto other people, then it could be and those costs are not being taken into account by the people partaking in the activity, then you can have bad innovation.

Lindsey:  We want to get the prices right. We want people to internalize the costs of their activity and right now the costs of increasing carbon dioxide in the atmosphere are global in scope and ramping up over time. So to orient all of our innovative activities towards improved well-being rather than just towards improving numbers on a GDP spreadsheet, we need to address this massive externality, which is threatening all of us, and so we see the cleanest, most market-friendly way to address this is through putting a price on carbon through some kind of carbon tax.

To orient all of our innovative activities towards improved well-being rather than just towards improving numbers on a GDP spreadsheet, we need to address this massive externality, which is threatening all of us, and so we see the cleanest, most market-friendly way to address this is through putting a price on carbon through some kind of carbon tax.

Lindsey:  Beyond that, I think there is a clear government role in encouraging scientific advances in R&D that is a public good that we believe is an important government role. In this case, there are a whole range of policies that can be broadly seen as encouraging research and development of nuclear energy technologies and we lay out what those possibilities are.

Beckworth:  That's a nice segue to one of your other proposals and that is to increase federal spending on R&D and you raise a good question in here that you answer, why do we need federal spending in R&D? Why can't the private sector do all the heavy lifting here? Why is it important to have both partner in research and development?

The Importance of Research and Development

Lindsey:  Yeah. Firms can be expected to invest in innovation when they see a good prospect of commercializing that innovation, and then actually monetizing it in terms of additional… That they can capture the benefits of that innovation on their own bottom line. When scientific advances are too sort of abstract and remote so that you can't see an immediate commercializing possibility or they're so broad in their welfare enhancing potential that it's very difficult for you to capture the benefits of them, everybody is going to benefit, then we should expect firms to under invest in that kind of activity.

Lindsey:  I think that is a very well established market failure that governments can correct. The problem in our case is kind of twofold. First, government R&D spending as a percentage of GDP has declined rather markedly in recent decades, as it happens in sync with declining productivity growth. At the same time and to some extent because of this declining investment in R&D, public investment in R&D, the whole process of funding R&D has become more cludgy, bureaucratic, and unwieldy.

Lindsey:  The percentage of grants that succeed or grant proposals that succeed has gone way down in recent decades, and therefore the amount of time you have to spend raising money has gone way up. We've cited figures that something like 40% of researchers' time is now spent on compliance issues rather than actually inventing a better mousetrap, and some of that is because there's less dollars, and so there's more of a scramble to chase scarce dollars, but in addition there's just a kind of a bureaucratization, ossification of the whole public research enterprise.

Lindsey:  We both think we need more money and we need to spend it more wisely and we need to restructure how scientific funding is done, so we get more bang for the buck.

Hammond: One of the things we say is we should really, instead of prescribing one way to fix say NSF grant funding for research and development, that we should take a scientific approach to science itself and allow some of these agencies to set aside a certain portion of their budget, say 10% a year to just trialing new ideas, to changing the committee process for evaluating grant proposals, to experiment with peer review.

Hammond: We referenced one proposal, which is actually has been implemented in New Zealand of setting aside a portion of research money for a lottery system where the most sort of innovative out there risk-taking ideas, the top 40% of them are taken and put into a pool and taken out by lottery. There's actually a theory in economics, the theory of contests which suggests that a lottery system like that reduces the need to spend and waste so much time writing and rewriting grant proposals, because there's a sense in which if you made it into that 40% pool, but weren't lucky enough to get pulled, that your grant is still good enough and you should just reuse that grant again rather than have to go all the way back to the drawing board.

Hammond: These things are, you can't know them in advance, what's the best way to fund science, but instead we should turn science in on itself and apply an experimental method. Right now we can't actually run those experiments because the degree of bureaucratization is just so great, even minor tweaks to the way NSF does grant funding require multiple year rule making processes and so on, and a base a lot of this comes down to a kind of lack of trust, right?

Hammond: The bigger and more bureaucratized and organization becomes, part of it is we can no longer monitor people on a sort of micromanaged basis, so we have to start implementing a process and process is the enemy of any kind of creativity, and to some extent the underlying solution is just to restore trust in scientists.

The bigger and more bureaucratized and organization becomes, part of it is we can no longer monitor people on a sort of micromanaged basis, so we have to start implementing a process and process is the enemy of any kind of creativity, and to some extent the underlying solution is just to restore trust in scientists.

Beckworth:  Well, I want to go back to this question I raised that you answered, Brink, about the need to have the federal government kind of complement what the private sector does in terms of R&D because the private sector can't see beyond the bottom line. I want you to use a concrete example that you did in the paper, GPS. Walk us through that story, because that was a long journey that could have easily been ended along the way, but it lasted and today we benefit immensely from it. Tell us the story about GPS.

The Story of GPS

Lindsey:  Okay. We can peek behind the curtain of co-authorship here, Sam wrote that, so I'm going to turn it over to him.

Beckworth:  Okay.

Hammond: I mean the story of GPS is that it really emerges out of the DARPA research project. DARPA being the main sort of defense research agency at the Department of Defense. DARPA is very unique in that it has a relatively small team. I think currently really no more than 100 program managers. Again, going back to this theme of trust. They're invested with a ton of trust. They're incredibly smart, driven people. They come in on a short-term basis and have the ability to get an idea approved, it could be a very far out there idea and have a lot of pre-approved money to go and sort of make it happen.

Hammond: GPS emerges out of DARPA as America's sort of like wake up call to Sputnik. What was striking about it is early on the only idea, the only application that the Department of Defense understood was, "Oh, this will help our weapon system. We need to target missiles better." It became very unwieldy. It was delivering very minor benefits even in that context.

Hammond: In 1979, the GPS program at the DOD had its budget slash by 30%, $500 million, and actually for several years in the 1980s, the budget was entirely zeroed out. I think in 1980, we dropped, we went from 24 satellites down to something, either dropped 2 or 12. Anyway, we were taking satellites out of the sky because we couldn't figure out how to use them.

Hammond: In retrospect this seems kind of insane, because global positioning satellites and satellites in general, power, communications, and navigation, the world over. Elon Musk is about to turn on Starlink, which will use low-earth satellites to broadcast broadband internet, high-speed internet around the world. The delta between the potential of the technology and what was seen at the time is just enormous with GPS. It's one of those stories where if you ran back the experiment a thousand times, you can't be guaranteed that we'd be sitting here today with satellites up in the sky.

Beckworth:  Okay. Well, that's a fascinating story and I encourage our listeners to go read that account, but it really speaks to this ability to see, to be able to do research beyond a short horizon that many private firms would have to operate within. All right. In this section on reviving innovation and dynamism you also speak to immigration. We've spoken about that earlier so we'll pass that up. But one of the big things you touch on here is promoting a diversified economic development approach or development policy.

Beckworth:  I want to reframe this because this is I think the friendly version of industrial policy in the paper. Industrial policy is a word that creates allergic reaction among some people, including myself, I'll be honest. It's not the first word I would like to use. I've followed some of the discussions online that you've had, particularly you, Sam, with some of my colleagues, will remain unmentioned.

Beckworth:  You've tried to make the case that there's a nuanced way of looking at industrial policy, right? I mean when I think of industrial policy, you know what comes to my mind? India. 1940s, state planned industries. It really was a disaster, but there's other examples and other ways of thinking about this. Help me out. Help David Beckworth see this in a more nuanced light.

Reframing Industrial Policy

Hammond: Well, in that section we also talk a lot about bad examples of industrial policies. The way I kind of think about it is every country has an industrial policy whether they like it or not. It's sort of like tax policy, you got one. The question is, is it good policy or bad policy? 100% expensing of investment could be seen as a good tax policy, because it promotes capital deepening and so on. An 8% wealth tax is probably a bad tax policy, but it's hard to be against tax policy per se.

The way I kind of think about it is every country has an industrial policy whether they like it or not. It's sort of like tax policy, you got one. The question is, is it good policy or bad policy?

Hammond: The US has an industrial policy, we see it all around us. We have an industrial policy for ethanol. We have an industrial policy for sequels by the Disney corporation.

Lindsey:  We have a medical policy for finance. We subsidize that heavily. We have an industrial policy for single-family home construction.

Beckworth:  It's everywhere, huh?

Hammond: Exactly. If you want to look at this in a different way, is what is your industrial policy oriented towards? In my view and my evolution on this question was really influenced by Joe Studwell's book, *How Asia Works.* Because he really walked through what is this Asian development miracle? How did China and Korea, Japan, Taiwan not just grow at remarkable speeds, but surpass countries like Bangladesh and the Philippines who were liberalizing their economies around the same time?

Hammond: The way they did it was, again, through diversification. Under conventional sort of Ricardian theory of trade, your goal as a country should be to specialize, to become the best at doing what you do, and then you just focus on that and trade your surplus with other countries. That is actually a very good description of what sort of happens on autopilot.

Hammond: You look at Bangladesh, their economy has tripled in size in the last 40 years. On the other hand, China's economy has quintupled in size. What did they do differently? Well, Bangladesh leaned into its comparative advantage, which at the time was low-wage labor, sweatshop labor, and lo and behold 30 years later they still are heavily specialized in the garment and textile industries.

Hammond: China took a different approach. It said, "If we want to break out of the middle income trap, if we want to become a truly developed economy, we need to invest in moving up the supply chain, moving up to higher value goods." We do that not by picking winners and losers and micromanaging the economy, but in some cases by turning on capitalism's power of creative destruction to the max, right? These special economic zones are both a free market success story and also a kind of industrial policy, because they are really… Like the Shenzhen Zone is really a kind of mega industrial park.

Hammond: You can sort of apply pressure on the economy to be more innovative and more embracing of creative destruction than it would be on its own and to channel those energies into sectors where you don't have any pre-existing endowment, because if you leave your economy sort of running on autopilot, it will just pursue your natural endowment. As we talk about in the paper, America's natural endowment as a wealthy country are a certain form of human capital, namely college-educated labor.

Hammond: Over the last 20 years, as we sort of have let the economy go on autopilot, we've become highly specialized in the kind of intangible knowledge work that gets done in cities like New York, Boston, and San Francisco by software engineers, finance, investment bankers, intellectual property lawyers, what all these industries have in common is they are exportable global services that are done by people with graduate degrees or bachelor degrees otherwise and the result has been this phenomena of job polarization, where it's not just that the median income has stagnated, but that the type of jobs, the kind of monopoly of jobs that are available in the US economy has bifurcated, has pulled away and hollowed out the middle.

The result has been this phenomena of job polarization, where it's not just that the median income has stagnated, but that the type of jobs, the kind of monopoly of jobs that are available in the US economy has bifurcated, has pulled away and hollowed out the middle.

Hammond: You have these very low-skill service sector jobs that pay poorly and a growing number of highly paid knowledge working jobs, creative jobs that are, unfortunately, out of the reach and aptitudes of two-thirds of Americans. Only 30% of the country ends up getting a bachelor's degree, and so part of the point of diversifying is not just moving our economy to another frontier, to not be satisfied with sort of walking down a developmental cul-de-sac where we become highly specialized, and therefore highly fragile, but also to promote a kind of productive pluralism where maybe on paper the most efficient outcome is for New York City to become 99% of the economy and for the rest of the country to hollow out, but that is not politically stable.

Hammond: The upshot is that this is both good for GDP and good for growth over the long run and it can kind of redistribute the fruits of economic growth in a more geographically distributed way.

Lindsey:  I'm I like you, David, I'm allergic to the term industrial policy part of this. I convinced Sam to not use the term in the paper. Let's use development policy instead. Part of this is temperamental. I'm old. I fought a lot. Sam likes to use it because it riles people up. I'm world weary to want to rile people up unnecessarily anymore, but I like the term development policy, because it gets at this terrible false dichotomy between developing economies and developed economies like it's this one-off thing that you move to develop status, then you don't have to worry about the future structural changes in your economy anymore. It's done. You're developed, which is silly, right?

Lindsey:  Development is a perennial challenge and keeping things going in the correct direction is a perennial challenge and so two things. First, it's just a fact that government has massive effects on technological progress and the direction of innovation. If through no other channel than through military competition. That has been a driver of technological progress throughout human history. It's a sad fact, but it's the case. There's a huge payoff in better weaponry. Governments have a huge incentive to invest in it.

Lindsey:  Capitalism is very good at taking spin-offs from military progress and turning it into stuff that we enjoy around the home. But that's just sort of a completely, which kinds of technologies you're going to get. Then, is just this sort of weird artifact of what happens to be militarily advantageous rather than what happens to be advantageous for human beings in their civilian lives.

Development is a perennial challenge and keeping things going in the correct direction is a perennial challenge.

Hammond: Can I give you a quick example of that?

Lindsey:  What's that?

Hammond: Can I offer a quick example?

Beckworth:  Please do.

Hammond: We mentioned DARPA, one of the proposals we endorsed in this piece would basically create a new directorate at the National Science Foundation that has sort of DARPA like authorities. The same level of flexibility and risk-taking ability as DARPA. The reason we like that idea is because DARPA does a lot of cool stuff. DARPA helped launch driverless cars and so on, but the imperative of framing it in a militarized or defense context leads to a lot of strange things.

Hammond: A good example of this is DARPA is leading some of the research on gene editing, but the program that they're leading on is to temporarily alter the genetics of soldiers so that they are resistant to radioactivity.

Beckworth:  Wow.

Hammond: Right? That's a current DARPA project, and maybe mutant soldiers are a good thing and maybe we need mutant soldiers. I think that comes with some moral hazard.

Beckworth:  Certainly.

Hammond: I would rather we have similar agencies that are able to invest in breakthrough and sort of science fiction stuff that isn't necessarily militarized from the get-go.

Lindsey:  The other kind of big picture point that led me away from my sort of instinctive knee-jerk aversion to anything that sounds like industrial policy is just this idea that industrial policy is like tax policy, everybody's got one. It's just in the nature of large governments that they have a big influence on the structure of the larger economy and in all kinds of ways that weren't necessarily intended.

Lindsey:  We've got an industrial policy that subsidizes heavily. The financial sector, it subsidizes perverse land use patterns through zoning. It subsidizes the incomes of health care providers to way above and beyond what is necessary to provide for the health of the citizenry. First, there's a theory of second best here that there's all kinds of ways that the government is destroying the economy in a bad way that perhaps if we could completely root out all of those perverse interventions, a laissez faire might be in a more positive direction, but if we can't, then we very much need government to step in and encourage positive economic developments to counter balance against the bad things it's doing.

Lindsey:  All of that plus always recognizing the theoretical possibility that government could accelerate progress, but worried about the downsides of crony capitalism. My cost-benefit calculation has changed just after decade after decade of depressed productivity growth that what we've been doing just isn't working and it's getting harder as for reasons mentioned already to get high productivity growth. We need to try some new things.

Beckworth:  Just to summarize and if I understand correctly, what you're saying is whether we like it or not, we have industrial policies here with us, why not use it to promote capitalism, to promote creative destruction in a manner that would increase our growth as opposed to just kind of ignoring it and not pretending it is there?

Hammond: Yeah. Dani Rodrik, the economist says as a kind of taxonomy of good and bad industrial policy. One of the signs of a bad industrial policy is picking winners and losers. It's targeting particular firms and that is very fraught. What seems to work a lot better are targeting certain kinds of activities and certain sort of high productivity sectors.

What we've been doing just isn't working and it's getting harder as for reasons mentioned already to get high productivity growth. We need to try some new things... One of the signs of a bad industrial policy is picking winners and losers. It's targeting particular firms and that is very fraught. What seems to work a lot better are targeting certain kinds of activities and certain sort of high productivity sectors.

Hammond: Germany has these well-known institutes for small and medium manufacturers, they're publicly funded, but their job is basically to take practical research and development and translate it and transfer it to their manufacturing sector to keep it competitive. That is directly supporting sort of a particular type of activity, a willingness for a firm to upgrade its processes rather than going out and saying, "We're going to pick Volkswagen and give it a bunch of money."

Hammond: Those two things they get conflated a lot, but they're actually two very different approaches. One of the things that annoys me with the industrial policy conversation is there's often this conflation of totally different styles of policy all under one roof, right? We're very much against industrial policy for sports stadiums. There's all kinds of bad stuff that is clearly not aligned with the lodestar of productivity growth.

Beckworth:  Okay. Well, we are nearing the end of the show here. I want to end on a question tied to the current environment we're in. I'm wondering how do you see this proposal unfolding within the Biden administration? Do you see it jumping on board, embracing some of your proposals? What direction do you see it going?

Prospects for Pro-Growth Proposals in a Biden Adminstration

Lindsey:  Well, in President-elect Biden in his stump speech stresses again and again sort of three big crises, the COVID crisis, the economic crisis that grows out of the pandemic, and then the longer-term climate crisis. All of those are areas that indicates an openness to the kinds of policies that we're pushing, a recognition that improvements in state capacity is important, a recognition that revving up dynamism and prosperity is important, and a recognition that technological change in a particular clean energy direction is important.

Lindsey:  We have no illusions that our whole agenda is going to be blocked, stocked, and barreled by anybody, but we think that there are definitely possibilities for making headway in the coming years.

Hammond: One of the theses that the paper is on the progressive left there are elements whose theory of political change is basically, we have to wait until America becomes California and we have united government and have stacked the deck with progressive politicians, and then we're just going to impose our vision of America on the rest of the country. For various reasons, national politics is always going to be much more competitive than California politics and that vision is very unlikely to come true, and if it was to come true, I wouldn't be sure it's desirable, right?

Hammond: The American system is built for compromise and going into a Biden administration where it looks like Republicans retain control of the Senate, I think the policies we offer provide not just a kind of coherent way that the moderates in both parties can sort of form an identity, but also a roadmap for areas that they can cooperate and work towards that as a byproduct turns down the heat of our politics.

I think the policies we offer provide not just a kind of coherent way that the moderates in both parties can sort of form an identity, but also a roadmap for areas that they can cooperate and work towards that as a byproduct turns down the heat of our politics.

Beckworth:  Okay. With that our time is up. Our guests today have been Brink Lindsey, Samuel Hammond and their paper is titled *Faster Growth, Fairer Growth: Policies for a High Road, High Performance Economy.* Brink and Sam, thank you so much for coming on the show today.

Lindsey:  Thanks so much for having us.

Hammond: Thanks, David.

Image by Al Drago via Getty Images

People: 
David Beckworth
Calendar Date: 
Nov 30, 2020
Podcast Series: 
External People: 
Publish to Announcements page?: 
Image: 
Publish to The Bridge?: 
Libsyn Podcast ID: 
16978496
Subtitle: 
The US is currently plagued by a climate of stagnant growth, rampant inequality, and extreme political polarization, but there are clear and possible solutions to repair this damage.

Make America Boom Again

October 27, 2016

In 1973, the Federal Aviation Administration (FAA) banned civil supersonic flight over the United States, stymieing the development of a supersonic aviation industry. Eli Dourado and Samuel Hammond show that it is time to revisit the ban. Better technology—including better materials, engines, and simulation capabilities—mean it is now possible to produce a supersonic jet that is more economical and less noisy than those of the 1970s. It is time to rescind the ban in favor of a more modest and sensible noise standard.

BACKGROUND

Past studies addressing the ban on supersonic flight have had little effect. However, this paper takes a comprehensive view of the topic, covering the history of supersonic flight, the case for supersonic travel, the problems raised by supersonic flight, and regulatory alternatives to the ban. Dourado and Hammond synthesize the best arguments for rescinding the ban on supersonic flights over land and establish that the ban has had a real impact on the development of supersonic transport.

KEY FINDINGS

The FAA Should Replace the Ban on Overland Supersonic Flight with a Noise Standard
The sonic boom generated by the Concorde and other early supersonic aircraft was very loud, and as a result the FAA banned flights in the United States from going faster than the speed of sound (Mach 1). This ban should be rescinded and replaced with a noise standard. A noise limit of 85–90 A-weighted decibels would be similar to noise standards for lawnmowers, blenders, and motorcycles, and would therefore be a reasonable standard during daytime hours. The noise limit during nighttime hours could be lower.

  • The noise standard for supersonic aircraft should be more lenient than for subsonic aircraft. While new subsonic aircraft cannot be certified below the FAA’s Stage 4 noise standard, subsonic planes are still allowed to operate at the more lenient Stage 3. Given the relative lack of experience with supersonic aviation and the fuel economy tradeoffs associated with airport noise, new supersonic aircraft should be certified if they meet Stage 3 requirements.
  • Supersonic travel has been stifled by government intervention. The overland ban has delayed the development of supersonic travel in general. Government-sponsored efforts to develop commercial supersonic aircraft failed largely because they couldn’t adapt to market signals about the demand for supersonic flight.
  • A noise standard would allow the aviation industry to use trial and error to develop commercially viable supersonic transport. In order to figure out how to attract passengers, get noise levels down, and make a profit on supersonic flights, firms need to be able to experiment. Aviation has always been characterized by an industry learning curve.

Concerns about the Environment, Noise Levels, and Affordability Can Be Addressed
Atmospheric science has advanced significantly since the 1970s, and today it is widely accepted that emissions from supersonic aircraft in the lower stratosphere pose minimal risk to the ozone layer. Advances in aviation technology allow planes to be quieter than they could be decades ago.

WHY PAST ATTEMPTS AT COMMERCIAL SUPERSONIC FLIGHT FAILED

The sonic booms generated by the Concorde were too loud to allow over land. Although quieter supersonic planes can now be built, federal law has not been updated and planes today are not going any faster than they were 50 years ago.

  • The stagnation and regress in supersonic aviation over the past 40 years broke a trend of rapid progress beginning with the Wright brothers’ first flight in 1903, which was estimated to achieve 6 mph. By 1953, jets had reached Mach 2. By 1976, Mach 2 flight was commercialized, and military jets had reached Mach 3. (At Mach 2 it is possible to fly from New York to California in two hours.)
  • The Concorde, which flew between Europe and the United States, had numerous problems: It was too heavy, its afterburners guzzled fuel, and it relied on government subsidies from France and the United Kingdom.
  • The US government subsidized the development of the Boeing 2707, intended to rival the European Concorde. But the project was stymied by unrealistic goals: the government wanted a commercial jet that could seat 300 and fly at Mach 3. (The Concorde could fly at Mach 2 and seat 128.) The project was delayed for numerous years as engineers sought a titanium alloy capable of withstanding air friction at Mach 3.

The limitations that dogged the Concorde and the Boeing 2707 need not hold back commercial supersonic transport today.

CONCLUSION

Aircraft engineering has significantly improved since the time when the Concorde was flying. With lighter materials, more efficient engines, better computer modeling, and more experience, it is more than possible to create an aircraft today that is both faster and more affordable than the Concorde was.

Drop the Supersonic Aircraft Ban, Watch Business Boom

Sunday, June 12, 2016
Authors: 
Eli Dourado

In the 1960s the future of aviation seemed bright. In 1958 Boeing had built its first jetliner, the 707, which cruised at speeds of up to 600 mph. The Concorde came along in 1969, flying at Mach 2—more than 1,500 mph. An age of affordable supersonic flight seemed inevitable, promising U.S. coast-to-coast travel in just 90 minutes.

Today, neither the Concorde nor any other supersonic passenger jet operates. And the 707, still in limited use, remains one of the fastest commercial jets operating in the world. What happened?

Regulation happened. In 1973, shortly after Boeing abandoned the 2707, its Mach 3 government-funded competitor to the British- and French-made Concorde, the Federal Aviation Administration issued a rule banning supersonic transport over the U.S. The move came after growing concerns about the impact of sonic booms over land, including fears that the shock wave would damage buildings, shatter windows and create intolerable noise near airports.

These fears were spread by the Anti-Concorde Project, founded in 1966 by the environmental activist Richard Wiggs. Based on his belief that the Concorde represented a critical front line in the battle between technology and the environment, Wiggs, who died in 2001, made it his mission to prevent the development of supersonic transport. He took out full-page advertisements in the New York Times, testified at congressional hearings, and organized a coalition of academic advisers and residents’ associations near major airports, all to oppose the Concorde.

It wasn’t until after Wiggs’s lobbying succeeded and supersonic transport was banned that research commissioned by the FAA and British Civil Aviation Authority debunked his most-controversial claims. The Concorde was not, in fact, noisier than conventional jets upon takeoff. And while a sonic boom near the ground can in theory cause structural damage, it was not an issue at the Concorde’s 60,000-ft. cruising altitude.

The Concorde was ultimately limited to flights over oceans, and was retired from commercial operation in 2003 due to a combination of high maintenance costs and depressed demand after 9/11. Nonetheless, in the four decades since the FAA ban, supersonic designs have advanced dramatically. If the original ban was an overreaction, today it’s an outright absurdity—and remains in place due more to regulatory inertia and the FAA’s deeply precautionary culture than a sober accounting of costs and benefits.

Among other things, sonic booms are a function of the aircraft’s weight. The Concorde was a beast, weighing up to 412,000 pounds at takeoff. A smaller supersonic jet, taking advantage of modern lightweight materials, would produce a boom that could be a tiny fraction of the Concorde’s.

Today’s aircraft designers are able to run hundreds of computer simulations to discover “quiet supersonic” designs that substantially curtail perceived noise. NASA has been investing in noise-abatement research like this since the mid-1980s, and now private startups are also getting into the game, with at least two U.S. companies, Boom and Aerion, in preproduction of affordable supersonic passenger jets.

So long as the FAA maintains the supersonic ban, these companies have a reduced incentive to implement noise-abatement technologies and gain access to the lucrative coast-to-coast market. But the agency’s official position—offered in a 2008 public statement—is that it will forgo issuing a noise standard for supersonic travel until the “designs become known and the noise impacts of supersonic flight are shown to be acceptable.”

And that’s the catch: Without an official noise standard, how are America’s aviation companies to know what counts as acceptable? No company is going to spend millions of dollars producing a quiet supersonic aircraft behind a veil of ignorance, only to discover later that the FAA does not find it to be quiet enough.

A supersonic noise standard is the only way to create the policy certainty companies need to raise capital and design quiet supersonic aircraft to specification. As with subsonic jets, such a noise standard would be moderate at first and then made more stringent as the market matures and manufacturers climb the noise-abatement learning curve.

A pro-innovation FAA could propel us out of our aviation stagnation overnight. More vague statements and delays will push the development of affordable supersonic transport even further out into the future—a future that seemed just around the corner over half a century ago.

Do Consumer Drones Endanger the National Airspace? Evidence from Wildlife Strike Data

March 14, 2016

In December 2015, the Federal Aviation Administration (FAA) announced a new interim final rule that for the first time imposed regulation on the operation of unmanned aircraft systems (UAS) as model aircraft. In the name of a safe national airspace, the new regulations require operators of drones weighing more than 250g (0.55 pounds) to register with the agency.

Yet many drones weighing more than 250g are little more than toys. Do they really pose a risk to the airspace? To explore this question, we examine 25 years of data from the FAA’s wildlife strike database. Although aircraft collide with birds many thousands of times per year, only a tiny fraction of those collisions result in damage to the aircraft, much less human injuries or deaths. The most serious reported incidents typically involved flocks of large birds. Since the addition of UAS to the airspace is similar in many respects to an increase in the bird population, we conclude that the risk to the airspace caused by small drones (for example, weighing up to 2kg, or 4.41 pounds) flying in solitary formation is minimal.

Overview of the Data

US national airspace is home to an estimated 10 billion birds, some of which occasionally interfere with civil aviation. To track the risk this wildlife poses to human flight, the FAA has been collecting reports of aircraft collisions with wildlife in the National Wildlife Strike Database since 1990. Strike reporting is voluntary. When a wildlife strike occurs, airlines, airports, pilots, or other parties report the incident through an online portal, with data about the aircraft, the flight, the species of wildlife struck, and extent of damage caused.

Compared to the enormous population of birds, damaging bird strikes are rare. Since 1990, there has been a sevenfold increase in reported bird strikes owing both to growing bird populations and to the growing ease of reporting strikes online. But as figure 1 shows, strikes causing damage have actually declined from a peak of 764 in 2000, thanks to bird management efforts from airports. Specifically, airports have mitigated bird hazards by focusing on eliminating natural attractants of the large bird species that are responsible for the most serious incidents, like waste disposal areas and wetlands.

Figure 1. Reported Wildlife Strikes Causing Damage, 1990–2014

Source: Federal Aviation Administration, Wildlife Strike Database.

When large birds are ingested in jet engines, they may cause substantial damage, including crashes. While these birds do not number in the billions, they still maintain a significant presence. The US is home to nearly 1.9 million turkey vultures, for instance, and between 2 to 3 million snow geese enter the United States each winter. Contrary to sensational media headlines, the skies are crowded not by drones, but by fowl.

Figure 2 illustrates that while the FAA has recorded over 160,000 wildlife strikes since 1990, only 14,314 bird strike incidents have resulted in damage. Of these, 80 percent were caused by medium- to large-sized animals. On average, only 3 percent of reported small-bird strikes ever result in damage, compared to 39 percent of large-bird strikes. Given the voluntary nature of strike reporting, the true percentage of strikes causing damage is probably much lower, as strikes that do not cause damage can be either missed or underreported.

Figure 2. Reported Wildlife Strikes, 1990–2014

Source: Federal Aviation Administration, Wildlife Strike Database.

Injuries are even less common. Among the 398 people who have sustained injuries as a result of bird strikes, 100 stem from a single incident: the famous 2009 crash of US Airways Flight 1549 into the Hudson River. This spike can be seen in figure 3. Prototypically, the culprit was determined to be a gaggle of geese, an unknown number of which were sucked into both jet engines immediately following takeoff.

Figure 3. Casualties from Wildlife Strikes, 1990–2014

Source: Federal Aviation Administration, Wildlife Strike Database.

In total, there have been 238 wildlife strike incidents in which there were injuries or fatalities. To get an idea of how many of these affect commercial aviation, we can exclude incidents in which the operator is listed as “business,” “privately owned,” “government,” or “unknown” to narrow the total number of commercial incidents to 37. We should view these 37 incidents over more than 25 years in the context of approximately 27,000 commercial flights per day.

In more than 25 years of data, only 12 wildlife strike incidents resulted in fatalities. Out of these incidents, three of the aircraft were helicopters, one was a homebuilt aerobatic plane, one was an experimental aircraft, and one was a privately owned McDonnell Douglas A-4 Skyhawk, a Vietnam War–era fighter jet. One aircraft was a Cessna Citation jet, and four others were small Cessna or Piper propeller-driven aircraft. Out of the 12 incidents with fatalities, only one involved a commercial airline: In 2000, an Embraer EMB-120 operated by Atlantic Southeast Airlines hit a pair of white-tailed deer on its landing roll. The passenger in seat 3C suffered injuries and eventually died from an infection. Not a single one of the fatal incidents involved a bird that was reported as “small.”

Estimating the Probability of Casualties and Damage 

Although the number of reported bird strikes has increased substantially since 1990, the increase is probably due to the improved ease of reporting. Figure 4 shows over time both an increase in the number of reported wildlife strikes and a decrease in the proportion of reported incidents with reported damage. This is consistent with the hypothesis that in the early part of the observed period, reports were frequently not filed at all if there was no damage to the aircraft. For our econometric analysis of the probability of a strike causing damage or injury, we focus on the years 2009 and later to compensate for the effect of limited participation in reporting in earlier years.

Figure 4. The Relationship between Wildlife Strike Reporting and Damage, 1990–2014

Source: Federal Aviation Administration, Wildlife Strike Database.

We use probit regressions of casualty and damage reports on bird species weight for birds (and flying mammals) for collisions taking place in 2009 or later with a single animal to estimate the probability of casualty or damage conditional upon a strike with an animal of a certain weight. Figure 5 shows our estimate that damage to an aircraft will occur in around 20 percent of strikes with animals weighing around 2kg. And in figure 6, we further estimate that the probability of the incident resulting in passenger injury or death is about 0.2 percent for animals weighing around 2kg.

Figure 5. Probability of Damage by Bird Size, Single Collision

Note: This chart uses data from 2009–2015 only.

Source: Federal Aviation Administration, Wildlife Strike Database.

Figure 6. Probability of Injury or Death by Bird Size, Single Collision

Note: This chart uses data from 2009–2015 only.

Source: Federal Aviation Administration, Wildlife Strike Database.

Estimating the Probability of a Collision

Bird strikes provide an excellent parallel phenomenon for estimating the magnitude of damage a small UAS could cause by colliding with a manned aircraft. But as previously mentioned, without an estimate of UAS strike frequency, the magnitude of damage is insufficient to properly gauge risk. The size of the effect has to be multiplied by the chance of it actually occurring.

In 2014, there were 13,414 reported collisions with birds and flying mammals, counting incidents in which flocks of birds hit an aircraft as a single collision. As there are on the order of 10 billion birds in US airspace, this means that plausibly 1 bird in 1 million collides with an aircraft every year.

Even if we take UAS operators to be about as deliberate and skilled at avoiding aircraft as birds, we cannot similarly estimate that 1 UAS in 1 million UAS will collide with aircraft every year. Not only are UAS operators able to reason about human-piloted aircraft and airfield landing patterns better than birds are, UAS have very short battery lives and may sit idle for months at a time. In contrast, an observational study of bird behavior near wind turbines found the average bird spends roughly equal amounts of time flying as perching. Flight time is much more variable, however, with some migratory birds potentially flying as long as six months nonstop. 

FAA commonly refers to “acceptable risk levels” for general aviation in terms of fatalities per 100,000 flight hours. Using the aforementioned finding that birds spend roughly half their lives in flight, the fact that there were 13,414 bird strikes in 2014, and an estimate of 10 billion birds in US airspace, we estimate that there are 3.06x10−5 bird strikes (both damaging and not) per 100,000 bird flight hours. This risk level is comparable to the 5x10−5 fatality risk cited by the drone registration task force as acceptable for general aviation, without even adjusting for the probability of injury or fatality.

To date, no commercial drone or consumer quadrocopter has ever collided with an aircraft in US airspace. Given that there are likely now more than 1 million UAS in US airspace, if they had equivalent flight hours to birds we might expect at least one UAS collision with an aircraft per year. However, taking into consideration human agency and the far more limited time most UAS spend in the air, the true UAS collision rate is likely orders of magnitude lower.

What Bird Strikes Reveal about UAS Risks to the Airspace

The FAA has based its rationale for a consumer UAS registry on a growing incidence of UAS sightings and “near misses.” As its docket argued, “Pilot reports of UAS sightings in 2015 are double the rate of 2014. Pilots have reported seeing drones at altitudes up to 10,000 feet, or as close as half-a-mile from the approach end of a runway. . . . The risk of unsafe operations will only increase as more UAS enter the national airspace.”

In a 2015 investigation, the Academy of Model Aeronautics (AMA) called the validity of these near miss reports into question. Of the 764 near miss incidents recorded by the FAA, the AMA found only 27, or 3.5 percent, were genuine UAS near misses. Instead, the FAA had been counting simple sightings as near misses—even when the operators were fully compliant with current UAS regulation. The FAA has also counted several cases where the pilot had explicitly reported that it was not a near miss, and more than a dozen cases where the flying object was officially unidentified. The AMA therefore accused the FAA of creating fuel for sensationalized and inaccurate media reports which, with the benefit of hindsight, helped build momentum for its rulemaking.

Our analysis has been based on actual bird strikes, not near misses or simple sightings. We find in general that small UAS under 2kg pose a negligible risk to the safety of the national airspace. We estimate that 6.12x10−6 collisions will cause damage to an aircraft for every 100,000 hours of 2kg UAS flight time. Or to put it another way, one damaging incident will occur no more than every 1.87 million years of 2kg UAS flight time. We further estimate that 6.12x10−8 collisions that cause an injury or fatality to passengers on board an aircraft will occur every 100,000 hours of 2kg UAS flight time, or once every 187 million years of operation. This appears to be an acceptable risk to the airspace.

Our analysis has some limitations. First, birds and UAS are composed of different materials, so it is possible that UAS-aircraft collisions are more likely to cause damage or casualties than bird-aircraft collisions. Although the FAA requires jet engines to undergo bird strike tests, it does not require them to undergo UAS strike tests, so it is not possible to empirically assess the additional degree of damage potentially caused by more rigid materials. Second, our assessment of the damage and casualties caused by birds has focused on incidents in which aircraft collide with individual birds, as opposed to flocks of birds. The rationale for this decision is that UAS do not typically fly in flocks, and therefore, collisions with individual birds provide a better point of comparison. However, if swarms of UAS were to become an increasingly common operational pattern, one would want to revisit our analysis to account for that fact.

Since the probability of any collision with any UAS is around 3.06x10−5 per 100,000 flight hours, countries that have even higher cutoffs for regulation than 2kg can be said to be acting responsibly. For example, the United Kingdom and Denmark have a 7kg threshold above which recreational UAS operators must inform their nearest air traffic controller or fly in an approved flying site. For registration, France recently moved to a 2kg threshold, while Canada still has a generous 35kg threshold.

Although UAS at the above thresholds are more likely to cause damage and injury than the 250g cutoff adopted by the FAA, we still estimate that the probability of a collision remains at an acceptable level.

Registration and Marking Requirements for Small Unmanned Aircraft

January 15, 2016

Introduction

The Federal Aviation Administration (FAA) has issued an interim final rule creating a new electronic registration system for unmanned aircraft systems (UAS) and requiring, for the first time, the registration of model aircraft operators. This comment highlights an omission in the agency’s alternative scenario analysis, questions some of the purported benefits of the rule, and points out some of the continuing legal shortcomings associated with the FAA’s approach. While we support the advent of a simple and streamlined registration system, we object to the extension of the registration requirement to model aircraft operators.

The Technology Policy Program of the Mercatus Center at George Mason University is dedicated to advancing knowledge of the impact of regulation on society. It conducts careful and independent analyses employing contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. As such, this comment on the FAA’s interim final registration and marking requirements for small unmanned aircraft does not represent the views of any particular affected party or special interest group but is designed to assist the administration as it carries out Congress’s mandate to safely, efficiently, and legally integrate UASs into the National Airspace System.

Problems with the Regulatory Evaluation

1. The agency fails to consider all regulatory alternatives.

The FAA’s regulatory evaluation of its interim final rule (IFR) is inadequate in many crucial respects. First and most importantly, it does not fulfill the agency’s obligation, under Executive Order 12866, to “assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating.” In particular, the agency ignores the alternative of proceeding with its new electronic registration scheme for drones, but continuing to exempt model aircraft operators from the registration requirement.

This omission is conspicuous. The agency evaluates the benefits and costs of its IFR, of the status quo paper-based registration system, and of an alternative that is paper-based but also imposes a new registration burden on model aircraft operators. There are two parameters that the FAA appears to be considering at the same time: 1) whether to create a new, electronic registration scheme for UAS, and 2) whether to require model aircraft operators to register. These two parameters can be visualized in a 2x2 matrix (table 1), producing four possible alternatives, of which the FAA evaluates three. Yet it is the fourth alternative—in which a new electronic registration scheme is developed, yet without any new burdens on model aircraft operators—that by the FAA’s own estimates has the lowest quantifiable costs.

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Clarification of the Applicability of Aircraft Registration Requirements for Unmanned Aircraft Systems

November 6, 2015

The Department of Transportation (DOT) is proposing to implement a national registration system for small Unmanned Aircraft Systems (UASs), the details of which are to be recommended by a task force no later than November 20. The stated aim of the registry is to assist in identifying owners and operators of UASs that violate the law and endanger safety, thereby closing a perceived gap in enforcement. This comment highlights several major procedural concerns, followed by an examination of whether the safety benefits of a registry are likely to outweigh the societal and budgetary costs. 

The Technology Policy Program of the Mercatus Center at George Mason University is dedicated to advancing knowledge of the impact of regulation on society. It conducts careful and independent analyses employing contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. As such, this comment on the Federal Aviation Administration’s (FAA) UAS registration task force does not represent the views of any particular affected party or special interest group but is designed to assist the administration as it carries out Congress’s mandate to safely integrate UASs into the National Airspace System.

Procedural Concerns

We welcome the FAA’s reversal on mandatory registration for all UASs. In its February notice of proposed rulemaking, the agency stated that unless explicitly exempted by statute, 49 U.S.C. 44101(a) provides that “a person may not operate a civil aircraft that is not registered,” and therefore its hands were tied with respect to registration. As we pointed out in our comment, the FAA has a good deal more flexibility than it previously stated. We are glad to see the agency adopting our view in the current rule. Nevertheless, we have significant concerns about the process through which the FAA is examining the issue of registration.

The FAA’s sudden creation of a taskforce that may produce unprecedented rules on recreational and hobbyist UAS operators raises questions about the legality of the action under the FAA Modernization and Reform Act of 2012 (FMRA). Section 336 of the FMRA provides that “notwithstanding any other provision of law relating to the incorporation of unmanned aircraft systems into Federal Aviation Administration plans and policies . . . the Administrator of the Federal Aviation Administration may not promulgate any rule or regulation regarding a model aircraft” as long as certain conditions are met by those aircraft.

The FAA asserts that because registration has been exempted for model aircraft only through the use of its own discretion, prior law unrelated to the incorporation of UASs into FAA plans and policies, specifically 49 U.S.C. 44101(a), gives it the authority to require registration of model aircraft.

We question whether the current proceeding is truly independent of provisions of law “relating to the incorporation of unmanned aircraft systems” into the FAA’s plans and policies. The FMRA is cited in the opening line of the present docket’s background supplementary information. The stated justification throughout the docket for the expansion of aircraft registration and the creation of the task force is to accommodate an increase in UAS activity. The FAA’s point of contact is the director of its UAS Integration Office. We therefore believe that the current proceeding relies quite directly on laws that by statute may not be used as justification for an expansion of the regulatory obligations of model aircraft operators. Unless the FAA reverses course and restarts the process without reference to its UAS integration mandate under the FMRA, there is a possibility that registration of noncommercial drones will be overturned if challenged in court.

The pace at which the DOT intends to implement the registry is also problematic. Secretary Foxx’s statement to the press that he aims to have registration requirements in place by mid-December leaves no time for public notice and comment. Under the Administrative Procedure Act, federal agencies may only issue a direct substantive final rule when a notice-and-comment period is “impracticable, unnecessary, or contrary to the public interest.” In general, agency inaction leading to perceived deadline pressure does not constitute good cause to dispense with public notice and comment. As any requirement to register UASs potentially adversely affects numerous noncommercial operators, a public notice-and-comment period is necessary and in the public interest. The issuance of a final rule without notice and comment opens the registration requirement to reversal if challenged in court.

Finally, we believe that under Executive Order 12866, a rule on noncommercial UAS registration may be economically significant and require a cost-benefit analysis. FAA officials have estimated that 1 million UASs could be sold during this year’s holiday season. As the recommendations of the task force may apply not only to those 1 million UASs, but also all existing model aircraft and future sales, the impact of a new rule could well exceed the $100 million annual threshold used by OIRA for economic significance. The DOT’s regulatory evaluation should also consider the costs and benefits of all relevant alternatives, as required by Executive Order 12866.

A National Registry Is Impractical

If these procedural issues are rectified, the DOT task force will then need to determine criteria whereby small UAS registration makes sense given the DOT and FAA’s limited internal resources. While the current FAA definition of small unmanned aircraft includes anything below 55 pounds, use of this standard would capture millions of multi-rotor helicopters typically considered to be toys. Yet such toys can still, in principle, violate restricted airspace and cause damage. Indeed, the model of small UAS that famously crashed on the White House lawn, the DJI Phantom, weighs less than 3 pounds. Another bestselling model, the Parrot Bebop Drone, weighs only 400 grams, or 0.88 pounds. This suggests that no matter what criteria are settled on, either the size of the registry will balloon and become unmanageable, or the criteria will be ill suited to the safety concerns the DOT claims the registry is meant to address. 

Past experience with national registry systems suggests there will be dramatic implementation and compliance costs that the DOT may be systematically underestimating. Consider the Canadian Firearms Registry, which had cost overruns resulting in an estimated final bill of between $629 million and $2 billion, compared to a 1995 estimate of $119 million. This was the cost to register fewer than 8 million guns held by fewer than 2 million owners, before the bulk of the registry was scrapped. 

The well-established issues with registry systems are only likely to be exacerbated in this event that the FAA adopts mandatory registration for a wide swath of UASs, for reasons that include but are not limited to:

  • The relative ease of constructing do-it-yourself UASs from basic components.
  • The difficulty of enforcing retroactive compliance.
  • The high sheer volume and speed at which UASs are being produced.
  • The ability of owners to modify every aspect of their UAS, creating a “Ship of Theseus” paradox.
  • The fast UAS depreciation and replacement rate.
  • The desire of consumers to resell or transfer UAS ownership, bypassing point-of-sale. 
  • The multiplicity of foreign manufacturers and online sellers. 

These enormous implementation difficulties are contrasted with the relative ease with which bad actors will still be able to evade the (at best) minor accountability a registration system provides. All these factors, combined with the historical experience of national registries, point to large costs relative to trivial benefits, and thus militate against instituting a registration system for recreational UASs. 

Instead, the DOT and FAA should use this opportunity to define thresholds that liberalize most small UASs, requiring registrations for only the largest and highest-powered UASs, while continuing to focus on integrating all nongovernmental UASs within a framework based on the principles of permissionless innovation. 

Instead of an impractical registration scheme, the FAA could adopt Transport Canada’s model and require simple online notification for commercial operations within a middle weight class. Doing so would move the United States into greater harmony with a neighboring jurisdiction that is reaping major economic benefits from UASs. Canada’s success is supported by its lack of a national registration system for hobbyists and its broad exemptions to permitting processes—both of which it maintains without sacrificing safety.