Do we really run out of good ideas?

Here’s a quote from John K. Galbraith’s 1952 book American Capitalism: The Concept of Countervailing Power

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The idea that we slowly run out of good ideas and, thus, innovation becomes harder and more expensive over time is very much en vogue again these days.

  • Bloom, Jones, Van Reenen and Webb released a working paper this year with the title “Are Ideas Getting Harder To Find?”. They provide evidence from case studies and empirical estimates showing that R&D productivity in the private economy is declining, which has a negative effect on economic growth rates.
  • I have argued here and here that a decline in research productivity could be a reason for increasing productivity differences within industries and the rise of superstar firms.
  • In his book “The Rise and Fall of American Growth” Northwestern University economist Robert J. Gordon doubts whether the fast pace of economic and technical change that we saw between 1870 and 1970 will be reached again any time soon.
  • In “The Great Stagnation”, Tyler Cowen develops the hypothesis that we already picked all low-hanging fruits when it comes to science and innovation. Increasing our living standards, at the rates we’re used to, will therefore become harder and harder in the future.

Galbraith’s pessimistic assertion should give us a reason to be modest though. Looking back, the 1950s appear to be a time of great innovativeness and economic growth, in which plethora of useful inventions were ripe for harvest. Also today, (as usually in economics) we should be careful with extrapolating current trends too far into the future.

The theory of long waves assumes that technological change takes place in very long (45 to 60 years), business-cycle like, wavy patterns, and therefore predicts that growth rates will accelerate again at some point. Although it largely fell out of favor among academic economists, I wouldn’t discount the possibility that the next general purpose technology, which will revitalize economic growth rates for years to come, might be just around the corner.

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Why do less and less people start their own business?

There are not many better things (personal things aside) that can happen to a job market candidate than getting mentioned by Tyler Cowen on Marginal Revolution, one of the most widely read economics blogs on the internet. This happened to Nicholas Kozeniauskas from NYU. His paper got judged to be “one of the more important papers of this job market season” by Tyler. And it has indeed many interesting results to offer. Continue reading Why do less and less people start their own business?

Econometrics and the “not invented here” syndrome: suggestive evidence from the causal graph literature

[This post requires some knowledge of directed acyclic graphs (DAG) and causal inference. Providing an introduction to the topic goes beyond the scope of this blog though. But you can have a look at a recent paper of mine in which I describe this method in more detail.]

Graphical models of causation, most notably associated with the name of computer scientist Judea Pearl, received a lot of pushback from the grandees of econometrics. Heckman had his famous debate with Pearl, arguing that economics has its own tradition of causal inference going back to Haavelmo and that we don’t need DAGs. Continue reading Econometrics and the “not invented here” syndrome: suggestive evidence from the causal graph literature

Smithian vs. Schumpeterian Growth

In this quote from his latest book Joel Mokyr contrasts two important views on the origins of economic growth:

“[…] The difference between “Smithian” and “Schumpeterian” growth is that for the former, exchange and cooperation based on trust or respect for the law are treated as a game between individuals whereas the essence of Schumpeterian growth is based on the manipulation of natural regularities and phenomena and thus au fond should be seen as a game against nature.”

“Smithian” refers to Adam Smith, of course, who is seen as the founding father of modern economics. Continue reading Smithian vs. Schumpeterian Growth

Dear European Research Council, evaluating grant programs is harder than you think

Today the European Research Council tweeted about a study that supposedly shows how succesful their research grants are.

ERC grants provide a lot of money to upcoming and established researchers who are based in Europe to carry out larger research projects and agendas. Of course we would like to know whether the money is well spent. Continue reading Dear European Research Council, evaluating grant programs is harder than you think

What’s Innovation Economics All About?

Preface: On Wednesday I successfully defended my dissertation and am now the proud holder of PhD in business economics from KU Leuven. In this post I would like to share the opening chapter of my thesis (title: “Three Essays on Innovation Economics”) with you. It’s a bit longer than what I usually put on this blog. But I think it’s worth a look nevertheless. I don’t only give a brief, non-technical introduction into my work but also go into what fascinates me about innovation economics—a field which still lacks the recognition it deserves in mainstream economics. Continue reading What’s Innovation Economics All About?