Economist House Call: Young And Starting Out

Americans are feeling the effects of the financial crisis — whether it's because of a dwindling 401(k) or a home that's lost value or a job that's not so secure. But how do their individual situations connect with the bigger picture, and what can they expect in the coming months and years?

Simon Johnson, a professor at the Massachusetts Institute of Technology and former chief economist of the International Monetary Fund, helps put listeners' personal situations into a global context. Johnson joins Planet Money's Adam Davidson to field a question from Renee Edlund of Houston.

Renee Edlund: My husband and I are biology researchers. We're pretty young, starting out, thinking about buying a house in the next few years. I was wondering whether some of the economic problems could end up being good for us in the long run, with housing prices decreasing? Also, will there be any long-term effects on how much money we have for research in the country?

Simon Johnson: I have positive answers on both fronts. Housing prices are falling quite sharply, and oil prices are falling in Houston. As long as you're buying the house and staying in it for a long while, the prospects there are pretty good. From what I can see at MIT, there's a lot of interest in developing the university sector, which is a big strength of the U.S. economy. When the dollar is appreciating and it's becoming harder to export, people will think, "We need to add more value in terms of research and innovation."

Adam Davidson: There's a lot of anxiety about the U.S. role in the global economy. There's concern: "Is the American century over?" Not at all, because we are the research and innovation powerhouse of the world, and that will only be more important.

Edlund: My research is more basic, on developmental neuroscience — specifically, embryonic stem cells that come from mice. There's some research coming out in the last couple of years that may bypass the moral issue with stem cells. We may be able to make cells that are just like embryonic stem cells from adult stem cells.

I can try to imagine ways that it will be important, but probably not in the next five years. I'm interested in how we can easily keep cells in their stem-cell state until they're needed, because it's hard to control what they do.

Davidson: Basic research does not have a direct monetarily beneficial application, but it forms the base on which innovation will come in the future. Renee is part of a process that will likely lead to things that have a true monetary value. I feel like I'm hearing a classic economics problem: the "tragedy of the commons." It's really good for everyone in the world, but not good enough for any one person [or big pharmaceutical companies] to actually pay for it. It's a positive externality that no individual company has an incentive to pay for. Many see that as the role of government.

Johnson: In the past, the U.S. government has been rather good at identifying basic research that should be supported. You could always sell it [to] people as fighting against diseases. We're very good in this country at taking ideas out of the lab and turning them into businesses much faster than you might think. The universities and government are good at deciding how much property rights they should get in any company you found. Typically, they want a piece of the action, but not too much. The incentives are still very good for scientists like Renee and the entrepreneurs she would get teamed up with. You have scientists, entrepreneurs and venture capital, and it's off to the races. But if we cut funding to people like Renee, she has go do a nonscientific job.

Put your personal situation in a global context by taking part in an Economist House Call. Just e-mail NPR's Planet Money, and be sure to include a phone number where you can be reached.