John Kennedy ran for president in 1960, promising a "new frontier" founded on "vigor." Early in his term, he directly responded to Sputnik in two ways: He poured money into the Minuteman ICBM program (both before and after he realized that the missile gap was a myth). And he pledged to land an American on the moon by the end of the decade.
In the spring of 1959, Texas Instruments had introduced a new technology called the microchip. But it was very expensive and generated no demand from the private sector. However, these tiny chips would be needed to power the guidance systems in the Minuteman's nose cone—and in the coming Apollo program's space capsule.
It was the Pentagon and NASA that bought the first microchips. The demand allowed for economies of scale, driving down costs enough so that private companies started building products that relied on chips. This created further economies of scale. And so came the inventions of the pocket calculator, smaller and faster computers, and, decades later, just about everything that we use in daily life.
None of this was inevitable. It started only because of government investment. Obama made this same point in Tuesday night's address: "Our free enterprise is what drives innovation. But because it's not always profitable for companies to invest in basic research, throughout history our government has provided cutting-edge scientists and inventors with the support they need. That's what planted the seeds for the Internet. That's what helped make possible things like computer chips and GPS."
GPS was initially an Air Force program, designed to make bombs more accurate. The Internet was an internal communication program created by the Defense Advanced Research Projects Agency.
Obama could have gone back further. The first commercial computer, the IBM 1401 of the late 1950s, came about only because the first customers were government agencies, the Social Security program and the Veterans Administration, which required a computer with enough capacity to store data about the millions of Americans receiving government checks.
Toward the end of his speech, President Obama mentioned several entrepreneurs who in recent months have revamped their businesses to solve new crises and meet new demands. They're inspiring case studies. But if the U.S. economy is going to do big things—and Obama said, twice, near the end of his speech, "We do big things"—they often don't get there without a spurt of government funding.