What Lack of Innovation?

Includes: IYW, PSCT, VGT, XLK
by: Bespoke Investment Group

On Thursday night, President Obama spoke at a fundraiser at the home of Google (NASDAQ:GOOG) executive Marissa Meyer. Business Insider highlighted some of the President’s comments as he noted that “if people have the tools to let their imaginations run, then there's nothing we can't do in this country." Later, he commented that the United States is coming out of a “decade in which, frankly, that can do spirit had been lost,” and that his job was to tackle the issues “that have prevented more Google’s from being created.”

There’s no denying the fact that the US economy is currently coming out of a decade where economic growth has been sluggish, but to call the last decade void of innovation is puzzling. Take Apple (NASDAQ:AAPL) for starters. The iPod was introduced in 2001, the iPhone in 2007, and the iPad in 2010. At the start of the decade AAPL was trading at $25.70. Yesterday it closed at $309.52.

While GOOG is the king of search, it is no longer the most popular website. This year, GOOG lost that title to Facebook, a company that wasn’t even around ten years ago (founded in 2004). In 2006, GOOG paid $1.65 billion for YouTube. When was YouTube founded? 2005. Even President Obama's 2008 campaign highlights the wave of innovation that has taken place over the last ten years, as many attributed his success to the way he mobilized young voters using social media tools like Facebook and Twitter (founded in 2006).

These are just a few quick examples. Taking a broader look at trends over the last decade shows that there has hardly been a vacuum of innovation. The chart below highlights the number of US patent applications granted by year since 1963. With the exception of 2005 (when people were probably out flipping condos), American innovation over the last ten years has never been stronger. In fact, many have argued that it has never been cheaper for someone with an idea to spread and develop it. What's more is that while access to credit has been severely curtailed since late 2007, the period prior to that is now referred to as a credit bubble, meaning that access to credit and capital was in abundance.

There are plenty of trends and developments over the last decade that could use fixing, but it certainly wasn't some sort of Dark Age of American innovation.