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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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

Networking For Innovation

Olav Sorenson from Yale published a new NBER working paper called “Innovation Policy in a Networked World”. The essay is quite interesting because it reviews insights we got from social network theory (no, not Facebook, although you could analyze Facebook with the same tools) and puts them into context for designing effective policy measures to stimulate innovation. Continue reading Networking For Innovation