Government subsidies are needed.

• Position: Innovation - Brief Article

Fueled by a rapidly expanding supply of scientists and engineers, America's mighty economic engine powered the nation through more than a century of remarkable wealth creation. Yet, economist Paul Romer of the Stanford (Calif.) Graduate School of Business warns that, in the coming decades, the economic engine could begin to run out of gas. Our universities are not keeping up with the growing business demand for highly skilled workers, he maintains. Accordingly, increased incentives--via government subsidies--for universities to train scientists and engineers will be necessary to sustain, and certainly to increase, growth in the 21st century.

The proposed incentives, an offshoot of Romer's pioneering "new growth" theory of economics, are generating a fresh wave of interest reaching all the way to Congress. The pending Tech Talent Bill, based on his recommendations, proposes a $25,000,000 pilot program aimed at increasing the number of university math, science, and engineering majors.

Romer, the STANCO 25 Professor in the Graduate School of Business and a senior fellow at the Hoover Institution, gained notoriety in the field of economics with his 1983 doctoral thesis that made two basic points: Economic growth is driven by new ideas and advances in technology; and, by creating appropriate economic incentives, the government can increase the trend rate of growth in a way that can make all citizens better off. Prior to his theory, economists assumed economic growth in a physical world was constrained by diminishing returns and scarcity of resources, and the only offsetting force--"serendipitous" discovery--could not be understood using standard economic tools or influenced by government policy.

In Romer's view, nurturing scientific talent is the key to the nation's technological superiority and continued wealth creation. Support for higher education is the lever by which the government can move the entire economy. The problem is this: Evidence shows that undergraduate institutions are a critical bottleneck in the training of scientists and engineers, and graduate schools produce people trained only for jobs in academic institutions. "Some in academic circles maintain that scientists selflessly pursue the greater good, that money--or the lack of it--has no bearing on the career a promising student chooses or the effort that a professor devotes to teaching such a student," he says. "But the fact is, incentives do matter for what happens on...