Optimism About Growth and Innovation

A blog about business and economics.
April 24 2013 10:33 AM

Why I'm Optimistic About Growth and Innovation

My thoughts on unemployment and the business cycle have been deeply influenced by a brief paper Robert Gordon did on what he calls "1978 Macro," so I'm persistently saddened that instead of following this up with more work on the subject, he's going around doing talks on his thesis that innovation and economic growth are dead.

Fundamentally, it seems to me that even if this were true there's no way Gordon (or anyone else) could know that it's true, so it's an odd thing to be so confident about. But I do have a specific grounds for optimism that I think Gordon misses in his discussion of the limited economic benefits (thus far) of the information technology revolution. This comes from the economics profession's unfortunate habit of rhetorical slippage between English-language words like "technology" and "innovation" and the technical concept of Total Factor Productivity from the Solow Growth Model. Something we see from Europe in the centuries before the industrial revolution is that it's perfectly possible for amazing innovations—the printing press, eyeglasses, calculus—to have immeasurably small effects on productivity. A printing press based on movable type, for example, was an enormous boon to productivity in the book manufacturing sector. It had almost no impact on economy-wide productivity, however, simply because the book manufacturing sector of 17th-century Europe was trivially small. You don't get the Industrial Revolution and rising living standards until the trend toward improved technology starts affecting a sector that's really big and important—apparel manufacturing.

And my guess is that's how we should look at digital technology so far. It's not that the technology itself isn't important or transformational. It's that the sectors it's transformed are, themselves, not that important. We've had a productivity boom in the journalism sector, for example, but the 21st-century journalism sector is like the 17th-century book manufacturing sector—it doesn't matter to the economic big picture.

Advertisement

But if an equivalent transformation had occurred in the much larger health care or education sectors, that would have been a boon to growth and wages. In other words, if future applications of digital technology make it cheaper to get a college degree or a medical diagnosis the way they've already made it cheaper to read the news, that means the real wages of every waitress, truck driver, electrician, interior decorator, and architect in America go up. How likely is that to happen? It's hard to say for sure. Future technology is unpredictable. But having lived through the ongoing transformation of journalism, it looks pretty likely to me. The business of teaching people stuff or informing them about which illnesses cause which symptoms seems to fundamentally have a lot in common with the dissemination of news and news analysis.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Talking White

Black people’s disdain for “proper English” and academic achievement is a myth.

Hong Kong’s Protesters Are Ridiculously Polite. That’s What Scares Beijing So Much.

The One Fact About Ebola That Should Calm You: It Spreads Slowly

Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.

A Jaw-Dropping Political Ad Aimed at Young Women, Apparently

The XX Factor
Oct. 1 2014 4:05 PM Today in GOP Outreach to Women: You Broads Like Wedding Dresses, Right?
Music

How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

How Tattoo Parlors Became the Barber Shops of Hipster Neighborhoods

This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century

Moneybox
Oct. 1 2014 8:34 AM This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century To undertake a massively ambitious energy project, you don’t need the government anymore.
  News & Politics
Politics
Oct. 1 2014 7:26 PM Talking White Black people’s disdain for “proper English” and academic achievement is a myth.
  Business
Buy a Small Business
Oct. 1 2014 11:48 PM Inking the Deal Why tattoo parlors are a great small-business bet.
  Life
Outward
Oct. 1 2014 6:02 PM Facebook Relaxes Its “Real Name” Policy; Drag Queens Celebrate
  Double X
The XX Factor
Oct. 1 2014 5:11 PM Celebrity Feminist Identification Has Reached Peak Meaninglessness
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
  Arts
Brow Beat
Oct. 1 2014 9:39 PM Tom Cruise Dies Over and Over Again in This Edge of Tomorrow Supercut
  Technology
Future Tense
Oct. 1 2014 6:59 PM EU’s Next Digital Commissioner Thinks Keeping Nude Celeb Photos in the Cloud Is “Stupid”
  Health & Science
Science
Oct. 1 2014 4:03 PM Does the Earth Really Have a “Hum”? Yes, but probably not the one you’re thinking.
  Sports
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?