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How US Research And Development Stacks Up With Other Data

Aggregate national research spending may correlate with prosperity measures

9Sep

Analysts should not have to guess about a business's R&D spending. It's always in the financial statements for publicly held companies. Finding the numbers requires some effort because FASB's SFAS 2 requires R&D to be expensed as it is incurred, meaning R&D costs are usually considered to be operating costs rather than capex. Assembling a comparable number for the entire US is a different project because the data is scattered in several locations. Government data offers a starting point for the R&D component of spending.

The National Science Foundation has a couple of interesting data sets. Check out NSF's National Patterns of R&D Resources for a rundown of public R&D spending by source and sector. The National Science Board's Science and Engineering Indicators report includes a chapter comparing the US R&D commitment to international competitors. The NCSES InfoBrief for December 2013 has further breakdowns on multiyear R&D spending. The general conclusions of these three data sources all comport with each other. Their bottom line is that the US is losing its global lead in R&D spending. It is worth noting that business R&D spending far outpaces both federal and university spending.

I am intrigued by the US's R&D data because this spending helps determine the nation's future innovation capacity and thus its prosperity. I would like to explore whether a relationship exists between strong R&D spending and a normal US economy. I will have to define my terms carefully before I proceed. I do not yet have a firm definition of what constitutes either variable. "Strong" R&D spending may be what drives normal GDP growth, and a "normal" economy may be one in which Tobin's Q has a value of 1.0 at its equilibrium. The St. Louis Fed's FRED historial chart of Tobin's Q shows a big spike in the 1990s when IT spending for Internet connectivity took off. I would be very intrigued to discover whether a similar spike in national R&D spending contributed to that spike. It may of course be merely a reflection of the insane NASDAQ valuations for tech companies in that era. Perhaps a normal economy displays a "Warren Buffett Indicator" close to its historical average.

Be patient as I work through this research idea. I have other demands on my time.

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