Pethokoukis

Innovation or finance — what’s the biggest drag on U.S. growth?

Is the problem with the U.S. economy the aftermath of the Financial Crisis, the Ken Rogoff argument, or an ongoing innovation crisis, the Peter Thiel-Tyler Cowen-Robert Gordon argument. Rogoff, not surprisingly, talk his own book in a new column:

With cash-strapped governments deferring urgently needed public infrastructure projects, medium-term growth also will suffer. And, regardless of technological trends, other secular trends, such as aging populations in most advanced countries, are taking a toll on growth prospects as well. Even absent the crisis, countries would have had to make politically painful adjustments to pension and health-care programs.

Taken together, these factors make it easy to imagine trend GDP growth being one percentage point below normal for another decade, possibly even longer. If the Kasparov-Thiel-Gordon hypothesis is right, the outlook is even darker – and the need for reform is far more urgent. After all, most plans for emerging from the financial crisis assume that technological progress will provide a strong foundation of productivity growth that will eventually underpin sustained recovery. The options are far more painful if the pie has ceased growing quickly.

Again, we should assume the worst and plan accordingly.

4 thoughts on “Innovation or finance — what’s the biggest drag on U.S. growth?

  1. But the “pie” has stopped growing as fast precisely because government is consuming more of GDP. Unless you think a dollar of government spending is more economically productive than that same dollar left in the private sector, that’s simply a mathematical certainty.

    • You grow pumpkins. The township neglects the bridge linking you to the world to the point that it falls into the creek. Is your dollar best spend on more pumpkin seed or on public works?

      • The reason the bridge was neglected to start with was because of the township management. Government cannot build and maintain infrastructure any more than medical services or mail delivery. If the bridge was privately built and maintained, it would have had value to begin with and would have been maintained. Government should not be in the bridge building – or any other business.

  2. The rate of increase of all-cause-mortality has declined in the past decade (see CDC). The 5 year survival rate for many cancers has improved dramatically from 1973 to the present according to SEER. http://seer.cancer.gov/

    All inventions are derivative of some prior art and prior inventions are the assembly blocks of the new (see Brian Arthur). And there is no invention that works until it is in use and it is there that it is perfected (see the history of the steam engine and the internal combustion engine with improvements of both continuing to capture an increasing portion of Carnot maximum efficiency).

    The continued decline in the share of budgets for food, transport, entertainment, communication, computing, housing and energy is a sign of continuing innovation and probably the most important measures of usefulness and of productivity.

    Yeah, yeah ‘costs more, does less’ is never a good marketing slogan.

    I think Thiel and company are wrong. Rogoff is right to be skeptical of the thesis of an innovation slow down, too many facts to the contrary.

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